Brazil will likely see improved credit quality and delinquency rates for both individual and commercial loans, as the unemployment rate has been declining and companies' profits have been increasing. Banking stocks Banco Bradesco ( BBD), Itau Unibanco Banco Holding ( ITUB), and Banco Santander ( BSBR) will benefit from the higher interest rate environment because of the asset-sensitive balance sheet of these banks.
The Brazil chemical industry will face difficult times ahead, as the recent success of the global industry has been primarily due to cost efficiency and demand growth, which, in turn, shifted the industry's production epicenter to China and the Middle East. The industry is thriving in China because of a large domestic market and cheap labor, whereas the Middle East offers abundant feedstock supply and lower corporate taxes. Brazil's Braskem ( BAK) witnessed lower utilization rates, even during the first quarter when the economy grew 9%, due to unscheduled power outages and deficient energy supply. The average utilization rate of ethylene crackers is already around 91%, providing little scope to increase production further. The current global oversupply of petrochemicals will pressure prices leading to overall declines in chemical companies' gross margins.
Growth of Brazilian retailers such as Companhia Brasileira De Distribuicao ( CBD) will be driven by credit expansion, rising income levels, and low penetration of modern retail chains. Brasil Foods ( BRFS) will benefit from increasing disposable incomes. Increased disposable incomes boosted beer and soft-drink sales with beer sales tracking the 22% growth during the first quarter. Brewers such as Companhia de Bebidas das Americas (Ambev) ( ABV), Latin America's largest brewers and controlled by Anheuser-Busch InBev NV ( BUD), had to import beer for the first time in the company's 125-year history after local supplies were exhausted. The ongoing FIFA world cup will further increase the company's sales.
Metals and Mining
Major steel producers Gerdau ( GGB) and Companhia Siderurgica Nacional ( SID) are likely to experience a price pinch during the second half due to a worldwide demand slowdown, which prevents producers from increasing steel prices. However, Brazil's steel mills are better placed than their counterparts in China due to larger vertical integration that protects them from increasing raw material costs to some extent. VALE ( VALE) will likely outperform the other mining giants BHP Billiton (BHP) and Rio Tinto ( RTP) on the price outlook for iron ore that accounts for around 60% of the company's revenues.