UPDATE 2-Brazil Sept industry output falls on steel, autos

* Output falls 0.2 m/m on steelmaking, car production

* Fifteen subsectors posted seasonally adjusted drops

* Decline underscores uneven growth trend in Brazil
(Adds analysts’ comments, details on steelmaking woes;
updates yields)

By Guillermo Parra-Bernal and Rodrigo Viga Gaier

SAO PAULO/RIO DE JANEIRO, Nov 4 (BestGrowthStock) – Industrial
production in Brazil fell a bigger-than-expected 0.2 percent in
September, underscoring uneven growth in Latin America’s
biggest economy.

The second consecutive drop in seasonally adjusted
industrial output (BRIO=ECI: ) was marked by declines in
production in 15 out of the 27 subsectors surveyed, Brazilian
statistics agency IBGE said on Thursday. Twelve subsectors
posted increases, the IBGE said in a report.

Production had been expected to dip 0.1 percent, according
to the median estimate of 17 analysts in a Reuters survey. The
forecasts ranged from a decline of 0.5 percent in output to
gain of 0.5 percent.

Yields on interest rates futures contracts fell across the
board immediately after the release, as the data suggested a
slowing of Brazil’s economic growth, on course to probably
expand at the fastest pace in 24 years.

Industrial output has fallen for five out of the past six
months, at odds with burgeoning record -retail and car sales.
Analysts blame a flood of imports, fueled by a stronger
natinoal currency, and a drawdown of inventories.

“An important inventory cycle and surging imports have
produced a strong divergence between supply and demand in the
period,” said Virgilio Castro Cunha, Latin America economist
for Bank of America Merrill Lynch in Sao Paulo.

“Going forward, we expect a more balanced growth profile to
emerge as industrial activity re-accelerates and domestic
demand slows on the back of past rate hikes.”

Still, industrial output in September continued its rapid
climb on a year-on-year basis, signaling the low base of
comparison from the same month last year when Brazil was
recovering from a short-lived recession.

Production rose 6.3 percent year-on-year in September
(BRIOY=ECI: ), less than the 6.7 percent median forecast in the
Reuters survey. Estimates for the output increase ranged from
6.1 percent to 7.3 percent.

INTEREST RATES

The yield on the contract due January 2013 (DIJF3: ), the
most widely trade in Sao Paulo, fell 3 basis points, or 0.03
percentage point, to 11.61 percent in early morning trading.

Hours later after the industrial data was released, yields
reversed course and rose aftercommodities ralliedm reflecting
investor optimism over the Federal Reserve’s expanded asset
purchase program announced on Wednesday.

Interest rate future yields are used by investors as a
gauge of the level of the central bank’s benchmark overnight
Selic rate at the end of every maturity.

Food processing fell 1.7 percent in a month-on-month basis,
while steelmaking fell 2 percent and car assembly slipped 0.9
percent, IBGE said. Oil refining and ethanol production tumbled
1.5 percent in the same period.

High inventory and a flurry of imports that pushed domestic
prices lower hampered third-quarter earnings for two of
Brazil’s three largest steelmakers. Steel imports almost
tripled in the first nine months of the year as distributors
moved to build up inventory.

Government plans to impose a minimum import price for 16
types of steel products such as hot-rolled and cold-rolled
steel, wire rods and rebar could help revive production,
industry executives said last week at a seminar in Buenos
Aires.

The IBGE said that, from the supply side, production of
capital goods drove overall output down after contracting 2.6
percent in September from August. Production of durable and
intermediate goods declined by 1.3 percent and 0.5 percent,
respectively.

At 10.75 percent, the Selic rate is among the highest in
the world, above those of advanced economies and double the
level of Russia, India and China, its peers in the so-called
BRIC group of major emerging economies.
(Additional reporting by Brian Ellsworth; Writing by Guillermo
Parra-Bernal, Editing by W Simo )

UPDATE 2-Brazil Sept industry output falls on steel, autos