Brazil's economic recovery and stronger currency should help the steel and power sectors post firm third quarter results, although retailers are unlikely to have benefited as much, analysts say.

Strong demand for Brazilian steel at home and from Asia -- China in particular -- has also helped boost prices and should help underpin the sector's earnings for the three months.

"The steel sector remains a good performer because ... the (rise in the) price of steel is offsetting the drop in the dollar," said Mauro Giorgi, an investment consultant at Geracao Futuro brokerage.

Fator, a Brazilian brokerage, said sales of flat steels rose 21.3 percent from July to the end of August, while long steel sales grew 15.7 percent. Domestic steel sales in August were almost 37 percent stronger than in the same month last year, it said.

"The data points to excellent third quarter results for the companies in the sector," it said in a research note.In a hint of what's expected from earnings, the share prices of producers like Gerdau and Companhia Siderurgica Nacional (CSN) have forged ahead on the Sao Paulo Stock Exchange's Bovespa index.

Mining companies like Caemi , a unit of Cia Vale do Rio Doce (CVRD), the biggest iron ore miner in the world, have also seen their stock price surge.

Power utilities, many of which have high dollar-denominated debts, should also stand out in the third quarter as their financial costs shrink due to the Brazilian currency's appreciation against the dollar in the third quarter.

Other companies with debts in dollars, including several fixed-line telephone companies, should also benefit from the appreciation.

The real ended June at 3.087 per dollar and finished the third quarter at 2.860 per dollar, meaning it strengthened 7.9 percent over the three months.

"That's a positive point for the electrical, energy and telecommunications companies," Giorgi said.If we also take into account that those companies also benefited from stronger economic activity in the period, that should also help them perform slightly better than last year."

A report from Banco Brascan last week said the consumption of electricity has been on the rise across the country and that it "would certainly be reflected on the balance sheets of the companies in this sector in the third quarter."

Local research firm Economatica said Caemi led the Bovespa's percentage gainers with a 52.5 percent rise in the third quarter. The common stock of Federal power holding company Eletrobras gained 48.7 percent, while Sao Paulo power utility Cesp firmed 44.6 percent.The Bovespa rose 9.7 percent over the three months.

But analysts say the retail sector has yet to feel the full force of the economic recovery, and the central bank's recent quarter percentage point interest rate increase has raised a question mark over results in the fourth quarter.

The shares of Companhia Brasileira de Distribuicao, the No.1 retailer in Brazil, rose a little more than 5.5 percent in the third quarter, Economatica says.

"Incomes are not sufficiently high enough to have that (economic) gain," said Ricardo Junqueira, an analyst at Atico Asset Management.

(From Reuters, October 04, 2004)

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