C&B Notes

Brazil’s Massive Traffic Jam

A truckers’ strike in Brazil has shut down large swaths of the country’s already under-built and overburdened infrastructure, negatively impacting a wide range of companies and killing an estimated 64 million chickens. This story also highlights the ease with which governments can take money from minority shareholders in politically sensitive businesses.  Old political habits die hard (or never really die).

As a result of tax cuts and subsidies announced by President Michel Temer late on Sunday, domestic diesel prices would fall 0.46 real per liter, or about 13 percent of the current price at the pump, and remain frozen for 60 days.  Shareholders in state-controlled Petróleo Brasileiro SA (PETR4.SA), which earlier this month soared after the company reported its highest profits in five years, have been hammered as the stock lost nearly a third of its value in the past week.  Compounding the sense of crisis, Petrobras management sent a letter to its workers urging them not to follow through on a strike planned for later in the week, saying “paralysis and pressure for adjusting prices” would hurt the company or country as a whole.  Under the deal announced by Temer, after the initial 60-day period price freeze, Petrobras will start adjusting diesel prices monthly, a switch from its current policy of daily price changes.  Petrobras said in a securities filing that the government had agreed to compensate it for any losses.  But investors were skeptical.

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The subsidy and tax cut measures represented Temer’s latest concessions to the truckers, whose strike has won popular support even as it has severely hampered the flow of food, fuel and key exports in Latin America’s largest economy…

Some 64 million chickens have starved to death as a result of the strike, meat group ABPA said on Sunday.  Brazil is the world’s largest chicken exporter.  As many as 150 poultry and pork processing plants have stopped production for lack of feed and storage space, the association said.  Among other sectors, Brazilian steelmakers like Cia Siderurgica Nacional (CSNA3.SA) and Usiminas (USIM5.SA) may lose up to 20 percent of their revenue in May due to the strike, analysts from XP Investimentos said in a research note.  Shares in food retailers Carrefour Brasil (CARR.PA) and GPA SA (PCAR4.SA) also fell as analysts warned their supply chains would suffer.


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