Brazilian automotive output steady amid government incentives, association says

Story originally published on Fastmarkets.com

Published by: Ana Enis

Source: merco Press

The Brazilian automotive industry expects output to be flat for the rest of 2023, but it believes production and sales will accelerate next year, according to national automotive association ANFAVEA.

“We don't have any concerns [on not reaching the predicted numbers], but we also don't have reasons to celebrate,” Marcio de Lima Leite, ANFAVEA’s president, said on Tuesday September 5. “Our output projection is in line with the market performance, and the numbers [are being reported] as we expected.”

The association expects automotive output to reach 2.42 million units this year, including cars, light vehicles, trucks and buses. If confirmed, it will represent an increase of 2.2% from 2.37 million units produced in 2022.

In 2024, the association president believes the Brazilian market will be “highly heated,” mainly due to recent drops in interest rates.

In the year to August, Brazilian automotive production totaled 1.54 million vehicles, a decline of only 0.4% from the same period in 2022, when output totaled 1.55 million units.

In August only, 227,000 units were produced in Brazil, up by 24% from July, when output was 183,000 units, but down by 4.6% year over year, from 238,000 units.

“August was a great month for us,” Lima Leite said. “We had no stoppages in facilities and reached the second-highest production number in the year, only behind May. [In May], it was one month before a government incentive program started, and manufacturers were preparing to meet the demand. Even with the end of this program, we managed to keep the rhythm.”

On June 6, Brazilian government officially started a financial initiative program to encourage people to buy new vehicles.

With a total budget of 1.5 billion reais ($300 million) in tax benefits, the measure offered discounts at 2,000-8,000 reais for the purchase of new cars with market prices of up to 120,000 reais. The program also offered discounts at 33,600-99,400 reais for the purchase of trucks and buses.

As a result, a reported 189,500 vehicles were sold in June, up by 6.4% from the same month in 2022, when sales totaled 178,100 vehicles.

In August, after the end of the program, sales declined by 0.4% to 207,700 units compared with 208,600 units sold in the same period in 2022.

Automotive production in August reached 227,000 vehicles, which was considered a positive by the association.

Meanwhile, Brazil exported 292,100 units during the January-August period — 12.8% less than 335,000 shipped during the same stretch in 2022.

In August, vehicle shipments decreased by 26.2% year over year, to 34,500 from 46,800 — although they were up by 13.8% from 30,300 the previous month.

“We noticed that, thus far this year, the sector has sold more electric vehicles than in the entire year of 2022,” Lima Leite said. “Until August, there were 49,100 electric or hybrid vehicles; adding the beginning of September, we surpassed last year's numbers. It is a very important process in terms of decarbonization and sustainable technology.”

According to ANFAVEA’s president, the automotive industry overcame a lack of semiconductors, which limited exports in 2022. But there may be other challenges in the short term with regard to exports.

"One of the alerts is the drop in Brazilian business with Colombia and Chile,” Lima Leite said. “Another point is the increase of Chinese market presence among Brazil's main trading partners, which leads to a loss of share of Brazilian products in Latin American markets.”

Brazilian automakers have lost market share to China in sales to Argentina, Chile, Colombia, Mexico, Paraguay, Peru and Uruguay, ANFAVEA figures show. Until 2021, Brazil was the largest exporter to these countries, accounting for more than 22% of their vehicle imports.

China's auto exports to Latin America reached 21.2% last year, up from 4.7% in 2013. Brazilian auto exports to the region decreased to 19.4% from 22.4% in the same comparison.

“The automotive sector urgently needs to increase export competitiveness, or we will lose even more space in our main destinations,” Lima Leite said. “The attention is not only on China, but on other emerging Asian countries such as India, Thailand and Indonesia.”

Prices for galvanized metal have been impacted the most in the automotive sector and in general steel consumption.

Fastmarkets’ monthly price assessment for steel hot-dipped galvanized coil domestic monthly, exw Brazil was 5,800-6,100 Reais per tonne on Friday September 8, widening downward by 1.65% from 6,000-6,100 reais per tonne in August.

According to Brazil's leading steel institute, Aço Brasil, the automotive sector accounts for 23.5% of national steel consumption. From 2021 to 2022, steel use rate by the industry decreased by 11.3% to 5.5 million tonnes.

Aço Brasil in July reduced its estimate of the country's 2023 apparent steel consumption by 1.63% to 22.91 million tonnes from 23.29 million tonnes in April.