Protracting war could affect Brazil industry: CNI report

Inflation in commodities has already become a pressure

Published on 15/03/2022 - 11:17 By Wellton Máximo - Brasília

A possible extension in the war between Russia and Ukraine could have an impact on the financial health of Brazilian industry, the National Confederation of Industry (CNI) stated today (Mar. 14). The sector is already affected by the increase in commodity prices, the CNI added.

In a report released Monday (Mar. 14), the CNI says the international hike in the prices of agricultural, mineral, and energy raw materials aggravates the pressure on inflation, already heightened as it is as a result of the COVID-19 pandemic.

The high inflation may lead to additional surges in interest, both in Brazil and abroad, with a negative impact on the Brazilian economy, the CNI argues.

As a result of the low growth in Brazilian economy, the report says, industry should not be able to pass the increase in raw material prices on to consumers fully. This is detrimental to industry’s financial health and slashes the profit margin of companies still assailed by the pandemic, increasing the risk of bankruptcy and default.

Global chains

Another future impact on industry may be the shortage of components for the manufacture of microchips and semiconductors, as Russia and Ukraine are major global producers of metals used in these products. The conflict is likely to aggravate the discrepancy in global production chains, with an increase in freight prices and long-term ripples, since the flow of supplies may only be stabilized once suppliers resume their the pace of production and distribution.

From February 23 to March 8, the CNI reported, prices in the futures market for several commodities soared. The international price of wheat rose 45.3 percent. The price of a barrel of oil surged 34.3 percent. Palladium also became more expensive (+21.7%), as did corn (10.3%), sugar (+4.9%), and aluminum (+4.2%).

Foreign trade

Regarding foreign trade, the CNI states the flow of goods between Brazil and Ukraine is not big. To its judgment, the main difficulties should lie in trade between Brazil and Russia. Last year, Brazil bought $5.7 billion in Russian products—mainly fertilizers, light petroleum oils, mineral coal, and metallurgy items.

In 2021, Brazil imported $5.7 billion from Russia. Even though the amount accounts for 2.6 percent of total Brazilian imports, the country was the sixth largest source of goods purchased by Brazil. As for exports, Russia was Brazil’s 36th largest trading partner, with $1.59 billion in shipped products (0.6 percent of total sales abroad).

Translation: Fabrício Ferreira -  Edition: Nádia Franco

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