18 October 2008

Regional Products from the Amazon rainforest - 2006 Market Report by Ilko Minev

Brazilian economic and political scenario at a glance.

       In 2006, Brazil's economy grew at a moderate 3% within a stable macroeconomic environment. Inflation was a mild 3% for the year as a result of responsable fiscal and monetary policies. The exchange rate fluctuated slightly around BRL $2,20 for one U.S. dollar. Brazil's commercial surplus was about US$40 billion despite exporter's complains of an "overvalued" currency. And interest rates were reduced, but currently still stand at a rather high level of 13%/year.

       President Luis Inácio Lula da Silva was reelected for a second term for which he has promised to accelerate growth to about 5% a year by encouraging domestic and foreign investment and by raising the income of the poor. Mr Lula has managed to obtain a volatile congressional majority by forming a center-left coalition of several parties.Because the long awaited reforms in the tax system, labor laws, social security and political system have not been included in the political agenda, we believe that Brazil will not improve its global competitiveness and we are, therefore, skeptical about our growth prospects for 2007. A repeat performance of 2006 seems more likely in our view.

        In the State of Amazonas, were we are located, the economy moved at a much faster 8% rate in 2006, due to the growth of ouput in industries such as celular phone, eletronic equipment and motorcycle which comprise the core production of the Free Trade Zone of Manaus.

      In 2006, for the second year in a row, Brazil managed to reduce deforestation in the fringes of the Amazon region by 30%, by fighting ilegal lumbering and enforcing environmental laws more strictly. This positive trend is expected to continue in 2007.

      Regarding the three main forest products we export, we offer the following comments:

Rosewood Oil

       Production of Rosewood Oil in 2006 remained in the range of 19 tons for the year. Despite the rising costs and the further devaluation of the Dollar against the Real (One USD is now worth 2.14 BRL) the export price rose only a little and for Organic Oil it is now US$86.50/kilo FOB Manaus. The demand for Organic Rosewood Oil continues strong specialy in Europe.The year 2006 was marked by changes at IBAMA, new procedures were introduced, which in theory should result in better and more eficient controls over production and distribution. This remains to be seen in 2007 ! 
        Recently we improved our packing and now we only use stainless steel drums. Given the very corrosive nature of rosewood oil this is further guarantee that our customers will receive a high quality product. 
       Our expectations for the new year are that total pruduction should slightly surpass 20 tons and that the demand will continue to be strong. Chances are that the price for Organic Rosewood Oil will rise moderately to US$88 or 89/kilo FOB. The exchange rate is still the most decisive factor and we can only hope that the current trend of further valuation of the Real will come to an end.

Copaiba Balsam

        The domestic market for Copaiba Balsam continued to expand and the price did not stop rising during the entire year. It is now slightly over US$9.00/kilo FOB Manaus and we can not buy enough to satisfy the demand. Last year it took some time for the international market to adopt to this new level of price, but it seems that now we have overcome the problem. At the end of 2006 demand from Europe and USA was rather strong, despite the higher price. The Organic Copaiba Balsam is still struggling, but the existing market is steady and probably will grow more this year. We have good expectations with regard to Copaiba and our bigger concern is availability. We expect the export price to stay on hold for some time during 2007.

Tonka Beans

        As a result of the prolonged dry season in 2005 the new 2006 crop was very, very small. There will be no Tonka Beans in our market until the new 2007 crop is harvested in september, october. The last export price was over US$9.50/kilo FOB, but anyway there is no availability at all since end of november. We expect that the 2007 crop will be much better and that the market will return to normality. 

For more information and current quotes, please contact Ilko Minev at ilko@bemol.com.br

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