Everyone Still Wants Piece
Of The Action In Brazil
CHARLES R. YENGST IS
Brazil has been in the news a lot recently. The people are demon- strating against the government
because of corruption and for spending
too much money on sports stadiums and
not enough on health programs, education and other important domestic issues.
The country is playing host to the World
Cup soccer matches in 2014 and the
Summer Olympics in 2016. Just how they
are going to be ready for these events is
questionable, but people seem to think
everything will be all right.
I spent two weeks in Brazil recently,
visiting machinery manufacturers, rental
companies and dealers. I was surprised
that the markets are still slumping after
a slower than expected 2012.
Work platforms are selling briskly, up
10 to 15% to the equipment rental companies, which is good for JLG, Genie, Skyjack and Haulotte. Earthmoving products
such as wheel loaders, excavators and
backhoes have not done well, at least in
the first half. Sales are off 10 to 15% from
2012 levels, which were not stellar. The
primary suppliers — Caterpillar, Hyundai,
Doosan, CNH, Volvo, JCB and Komatsu
— are being hurt along with numerous
Brazil’s economy is not growing as
many had expected. The two upcoming
events are major reasons for a boom in
construction, but when viewed from the
manufacturers’ side, they’re small compared to the major infrastructure programs (highways, rails, airports, water,
power, etc.) being discussed.
We all know what China went through
several years ago to make its 2008
Olympics come together, and the English put on an enormous show in London for the 2012 Olympics as well. In
each case, considerable preparation
in advance and improvements to infrastructure were needed to make the
Games successful. One does not see
this kind of activity in Brazil.
We heard of the plans and the huge
money that will be spent on infrastructure
once the ball starts rolling. These projects
often range in the tens of billions of dollars. A lot of people are ready for the work
to begin, but many are getting frustrated
waiting. The government seems incapable of undertaking most of the projects
for lack of funds or pure mismanagement.
The private sector is more likely where the
money will come from eventually, but that
takes time to develop.
Meanwhile, the Brazilian economy
limps along. Growth was just under
1% in 2012 and is expected to be less
than 2% this year. Inflation is over 6.5%
annually today and rising. Many Brazil
watchers had expected GDP growth to
be in the 3 to 4% range last year, with a
repeat this year. But Brazil did not have
a good 2012 report card, and this year
is shaping up poorly.
One positive factor on the horizon is
the fact that 2014 is an election year,
which typically means more money
will likely be spent by the government.
Stimulus funding might be just the ticket
to quell some of the unrest. This should
start soon if it is going to happen.
Ten years ago, there were roughly
10 manufacturers vying for the Brazilian
construction pie. Today there are more
than 30 companies feeding off the same
pie — and the pie is not growing fast
enough to accommodate them all.
The country has come a long way
since 2000, particularly after becoming
energy independent several years ago.
Unfortunately, things have not gone as
hoped and suppliers have had to resign
themselves to slower growth and a very
competitive sales environment.
With high tariffs on imported machines, companies are moving away
from importing longer term to a strategy
of manufacturing in the country. Hyundai is already manufacturing products
in a new plant in Brazil and Doosan is
in the process of adding a new manufacturing plant. Deere, LiuGong, Sany,
Manitowoc and LBX are building or
planning new manufacturing sites and
lining up local vendors.
Eventually, these changes are going
to lead to overcapacity, which is how the
Chinese market is looking these days.
Few companies have adequate market
penetration locally to justify the plant for
that market alone. It is a dilemma since
Brazil is not an inexpensive country to
produce in and exporting a portion of
any factory output is chancy.
On a more positive note, the rental
equipment industry in Brazil is moving forward. Rental revenues for the major players are surpassing last year’s results for
the early months of 2013, up by 10 to 15%
for the bigger players. Here, too, contractors are finding that renting on a short-term basis beats investing in new capital
equipment when the future is murky.
Mills Rental is still the leader with rent-
al revenues in 2012 of R$253.3 million
compared to R$175.4 million in 2011.
I believe a lot of the problems facing
Brazil will pass and that the country has a
lot of potential for growth, which will translate well for the machinery industry. We
are updating our biannual report on the
construction machinery industry in Brazil,
which covers in detail the many aspects
of the marketplace and where we see it
going over the next five years. The report
will be available later in July. dp