Market Considerations

Since the projects began in 2009, Brazil has gone through some major changes both economically and socially. Public concern and investigations relating to the use of public funds (from previous governments) have come under particular scrutiny as a result work has now ceased on the train line that was being constructed through the region.

Economically Brazil as a country has suffered a number of financial blows over the years which has resulted in the country losing its investment grade status, and causing inflation rates to rise to double digits. In relation to the value of the Brazilian Real (R$) it has also fallen steeply in regards to the value of the Euro.

All of these issues coupled with the wide scale closure of the Brazilian pig iron industry due to increased costs and reduced payments from China have severely affected the outlook of the project based on the original domestic focus.

As such GWD Forestry recommends to IFU holders that export markets now provide the best possible options at harvest in the companies opinion, as such the company has now started planning outside of the original scope of the project and those agreements signed at the start in order to export timber in the best interests of its clients.

This section has been provided in order to provide company clients with unbiassed information in relation to both the domestic wood markets, the Brazilian economic outlook, and recommendations for export.

Whilst individual IFU holders are free to direct GWD Forestry at any time as to their intentions at harvest the information contained in this section should be reviewed by IFU holders prior to making any decision due to the current situation within Brazil.

BRAZIL OVERVIEW

The Brazil Inflation Rate and exchange Forecasts below have been projected using an autoregressive integrated moving average (ARIMA) model calibrated using analysts’ expectations.

BRAZIL INFLATION RATES (Up dated 20th November 2017)

Consumer prices in Brazil increased 2.7 percent year-on-year in October of 2017, above 2.54 percent in September and compared to market expectations of 2.75 percent, mainly due to rising electricity cost. The inflation went up for the second month after touching 2.46 percent in August, the lowest since 1999. Yet, the cumulative inflation for the first ten months of the year stands at 2.21 percent, well below 5.78 percent in the same period of 2016. 

Year-on-year, prices rose faster for housing (5 percent compared to 4.1 percent in September), namely domestic fuels (12.09 percent) and electricity (5.68 percent); health and personal care (6.86 percent compared to 6.77 percent) and personal expenses (5.05 percent compared to 4.73 percent). Inflation for communication was steady at 2.01 percent and cost of food and non-alcoholic beverages fell 2.14 percent, the same as in September. On the other hand, prices rose less for transport (3.73 percent compared to 3.99 percent); clothing (2.45 percent compared to 6.77 percent) and education (7.05 percent compared to 7.15 percent).

 On a monthly basis, consumer prices went up 0.42 percent, above 0.16 percent in September and the highest since August of 2016. The housing index went up 1.33 percent and made the largest upward impact, mainly due to a 3.28 percent surge in electricity cost after a tax increase. In October, a new fee came into effect, representing an additional charge of BRL 3.50 per 100 kwh consumed. In September, the fee was lower at BRL 2.00 per 100 kwh consumed.

The graph above shows the actual inflation rates alongside projected inflation rates for 2018