Rouss­eff vic­tory a mixed bag for com­modi­ties

Financial Mirror (Cyprus) - - FRONT PAGE -

The im­pact of Dilma Rouss­eff’s re­elec­tion in Brazil on Sun­day has been se­verely felt by oil gi­ant Petroleo Brasileiro S.A. (NYSE: PBR). Shares in Petro­bras dived 16% at the open­ing bell on Mon­day morn­ing and haven’t re­cov­ered much since. And the elec­tions are tamp­ing down other com­mod­ity prices in a se­ri­ous way.

Sugar prices are down more than 2.5%, while cof­fee prices have re­cov­ered a lit­tle to post a small gain, and soy­beans and beef have also risen. Brazil is the world’s top ex­porter of all th­ese com­modi­ties, and it pro­duces sig­nif­i­cant amounts of corn and cot­ton. The coun­try is also a large im­porter of wheat.

Brazil’s cur­rency weak­ened by more than 2% Mon­day, and that will have the ef­fect of en­cour­ag­ing ex­port sales of com­mod­ity prod­ucts traded in dol­lars. Oil, which the gov­ern­ment con­trols, most likely will be un­able to take ad­van­tage of the good ex­port en­vi­ron­ment, but sugar grow­ers may be look­ing at a po­ten­tial wind­fall.

Brazil­ian iron ore miner Vale S.A. (NYSE: VALE) dropped nearly 7% on Mon­day, but that is due pri­mar­ily to a weak global mar­ket for iron ore. Ethanol pro­ducer Cosan Ltd. (NYSE: CZZ), down about 8% so far, also likely would have ben­e­fited if Rouss­eff’s op­po­nent, Ae­cio Neves, had won.

Neves was ex­pected to lift the price cap on gaso­line, and that would have pushed up ethanol prices as well. Rouss­eff is ex­pected to con­tinue cap­ping gaso­line in an ef­fort to curb Brazil’s in­fla­tion. In a note on Mon­day morn­ing, Fitch rat­ings said:

“Cor­po­rates in the elec­tric­ity sec­tors, as well as those in the sugar and ethanol in­dus­try, are the most vul­ner­a­ble to neg­a­tive rat­ing ac­tions. Iron ore and pulp pro­duc­ers will face weak ex­ter­nal mar­ket con­di­tions due to over­sup­ply, but are not likely to be down­graded, as their costs po­si­tions al­low them to con­tinue to gen­er­ate pos­i­tive cash flow.

The pro­tein sec­tor stands out as a sec­tor that could have more pos­i­tive than neg­a­tive rat­ing ac­tions. Low grain prices and grow­ing de­mand for pro­teins should con­tinue in 2015; bal­ance sheets are pro­jected to strengthen due to strong op­er­at­ing per­for­mance.”

Oddly, Fitch had noth­ing to say about cof­fee in its note. That is likely due to the con­tin­u­ing im­pact of Brazil’s drought, which has taken a huge toll on the coun­try’s cof­fee crop.

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