Latin America Reports

Brazil lifts paint forecast

By Charles W. Thurston | September 19, 2007

Government plans to increase spending on housing projects have raised growth projections in Brazil's paint and coatings industry.

Brazil's national association of paint manufacturers, Abrafati, has raised its projection of 2007 growth in the $2 billion paint and coatings industry to 6.5% from the 4.5% gain projected at the end of 2006. These expectations suggest that sales will increase by $130 million this year. Among factors cited for the faster growth are an increase in the availability of real estate financing, an expansion in the capitalization of publicly-traded real estate developers, and the government's successful economic growth plan.

Abrafati, or the Associacao Brasileira dos Fabricantes de Tintas, based in Sao Paulo, also predicted that the national paint sales level would cross the one billion liter mark this year, up from 968 million liters sold in 2006. Since close to two-thirds of all paint in Brazil is sold in the architectural segment, expansion of the housing market is key to paint industry growth.

Brazil's Minister of Development, Industry and Foreign Trade, Jorge Miguel, was quoted by Abrafati as suggesting that although real estate finance now represents only approximately two percent of the country's gross national product, that percentage could rise to approximately ten percent over the next few years, expanding from a current $20 billion financing level. He also suggested that the housing shortage in the country is now between 7 million and 8 million units.

To combat this shortage, Brazilian President Luiz Inacio "Lula" da Silva's Program for the Acceleration of Growth, or PAC, includes plans to spend $57 billion for housing in the country's urban slums, called "favelas," in the capital of Brasilia and in 12 other states.

Large developers are growing larger with such opportunities. One publicly-traded developer, MRV Residential Construction, which sold a 17% share of its stock to the UK investor Autonomy in late 2006, plans to start 40,000 housing units per year, up from a current 10,000 units, through even more stock sales.

Other publicly-traded real estate developers in Brazil which have been attracting U.S. investments include Gafisa, BR Malls, PDG Realty and Bracor. Profits for Gafisa, for example, were up 67% at the end of the second quarter, compared with the year-earlier period. Other developers are expanding their stock bases through spin-offs, like that of Cyrela Commercial Properties by Cyrela Brazil Realty.

The Brazilian economy may expand by 3.9% this year, up from the 3.1% growth rate recorded in 2006, according to a consensus among bankers reported by ISI Emerging Markets, of New York. The same consensus, including data from Santander Banespa and Morgan Stanley, projects that GDP growth in 2008 also will hold at 3.9%. Inflation in Brazil has dropped from a double-digit level in 2002 to 3.7% this year, up slightly from the 3.1% registered last year. In 2008 that figure is expected to continue to increase slightly to four percent, according to the consensus.

Per capita GDP in Brazil will amount to $5,411 this year and climb to $5,671 in 2008, according to UBS Investment Research forecasts. The relatively strong domestic currency, the real, helps drive consumer demand for paint and coatings. This year the real is expected to average 2.14-to-1, and hold at 2.16-to-1 during 2008, UBS projects.