RIO DE JANEIRO, BRAZIL – Since the first day that the coronavirus outbreak in China hit global financial markets – a month ago on Friday, February 21st – Brazilian companies exporting commodities have lost R$47.709 billion (US$12 billion) in market value. The drop reflects risk aversion amidst uncertainty as to the impact the disease will have on the Asian and world economies.
The time for the epidemic to be under control is also included, with a significant reduction in contamination. Despite the billion-dollar devastation, experts estimate that the shares have not yet felt the full negative impact.
By Friday, over 75,000 people had been infected in mainland China and more than 2,000 have died. In addition to the severity of deaths, the figures have raised yet another concern for investors, who are suspicious that Beijing is not disclosing the truth regarding the disease.
Thus, the common shares (with voting rights) of Gerdau and Vale, which export iron ore to China, have declined by more than 12 and 10 percent, respectively, since the onset of the impact. Investors fear that due to the lack of workers, the construction sector in the Asian country will slow down. The retraction in vehicle production – which has been going on since last year – is another factor of concern. China’s retail vehicle sales fell by 92 percent in the first 16 days of February due to the epidemic.
According to Mirae Asset analyst Pedro Galdi, vehicle production has also dropped sharply and China “is stopped”. Precisely because of this, the price of iron ore fell 4.85 percent in 30 days.
Among the experts consulted, there are those who believe that companies should feel the effects of the disease on the first quarterly financial statements. Petrobrás and Vale alerted during the week, in events linked to the balance sheet, that the outbreak could have some effect. Both are monitoring shipments as well as orders.
“The coronavirus had no effect on quantities, but it had an effect on prices, of course,” said Roberto Castello Branco, president of Petrobrás, in the announcement of results last week. “Because the markets anticipate the effects on economic activity. So, simply watch the price, the behavior of oil prices that there was a drop. And it will reflect in our first-quarter results. To say how much it was, now, would be premature, because we are halfway through the quarter.”
However, some find the drop excessive, as their perception of the companies has not yet been changed. For Galdi, losses should be temporary. In the case of Vale, he says the company spends US$30 to produce iron ore and deliver it to China, while the price of the commodity remains at US$90.
“The price may even drop to US$80 and Vale will still enjoy a comfortable margin,” he says. “What mostly affects shares is the widespread risk aversion, since foreign investors exit the blue chips first.” Vale has not commented on the decline.
Higher losses
Gerdau’s PN shares dropped the most over the past month. The loss stood at 12.39 percent, followed by Vale ON, down 10.53 percent, and CSN ON, down 10.44 percent. With milder losses, Petrobrás ON dropped 3.59 percent in the period, PN fell 3.45 percent, and Suzano ON saw a three percent decline, despite the fact that the dollar rose to a level very close to R$4,40, which benefits exports and balance sheets in general.
In the case of the oil giant, the lower decline reflects the results and the fact that its securities have already been penalized, mainly due to the issue made by the National Bank for Economic and Social Development (BNDES) to sell its shares in the state-owned company. Suzano, on the other hand, has gained nearly R$3 billion in market value over the last few days as a result of the increase in pulp prices.
Source: Estado de S. Paulo.