Japanese shipbuilders step out of Brazil amid economic troubles

IHI, JGC and Japan Marine United are withdrawing their investment in Brazil’s largest shipyard as cheap resource prices and a slumping economy cloud business prospects in the country.

The three companies had apparently invested a total of about 14 billion yen ($123 million) by 2014 in Estaleiro Atlantico Sul through a local special-purpose company. They agreed to sell its entire 33% stake to two local construction companies, possibly as early as April.

Japanese shipbuilders have been investing in Brazilian shipyards for the last few years with an eye on marine resource development. But a scandal involving state-owned oil giant Petrobras threw a wrench into those plans. Kawasaki Heavy Industries, unable to collect payments from its Brazilian partners, took a 22.1 billion yen hit in April-December 2015. Five Japanese companies, including Mitsubishi Heavy Industries and Imabari Shipbuilding, also withdrew their investment in a separate shipyard in January.

Other Japanese businesses are revising their Brazil strategies as well. Nippon Steel & Sumitomo Metal is ramping up its assistance for steelmaker Usinas Siderurgicas de Minas Gerais, an equity-method affiliate better known as Usiminas. The Brazilian company is holding a management meeting Friday to decide on a roughly 1 billion real ($275 million) capital increase, over 30% of which will come from Nippon Steel.

Nippon Steel also produces specialty pipe used in oil fields with French giant Vallourec in Brazil. It is looking to boost utilization of their joint plant amid flagging demand for oil and gas development by halting two of Vallourec’s blast furnaces.

The Petrobras scandal has damaged trust in Brazil, impacting foreign investment in the country. Gross domestic product contracted for the first time in six years in 2015 from a combination of cheap resource prices and weak domestic demand.

But there is still great medium-term potential for Brazil, which has a population of 200 million and is hosting the Olympic games this year. Manufacturers that have gathered here in recent years are trying to boost exports. Nissan Motor will start selling cars from its plant in the state of Rio de Janeiro to other countries in Central and South America by the end of this year. Asahi Glass announced Friday that it will invest 18 billion yen to build a new sheet glass plant in the country as well.
Source: Nikkei