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Cementing Property Investment in Brazil

With the 2014 World Cup and 2016 Olympic Games just around the corner, construction in Brazil is poised for huge investment. Add the 13.7 million homes to be built by 2016 to the equation and it's obvious that Brazil is about to enter a construction boom.

An indication of the proximity of the boom in Brazil is the ongoing battle to gain control of Cimpor. Cimpor is Portugal's national cement company and has a major presence in Brazil. Three big players in Brazil's construction industry are bidding for Cimpor - CSN, a Brazilian steel manufacturer, Camargo Correà and Votorantim, both Brazilian cement companies.

The huge expansion of the construction industry in Brazil is fired by the forthcoming world sporting events and an unprecedented demand for Brazil real estate. This demand comes mainly from Brazilians whose recent increase in purchasing power means they are buying new properties or refurbishing their current homes.

Matching the demand for construction is a demand for cement.
In developed countries where investment in property has slowed down significantly over the last few years, the demand for cement has also fallen. In Europe, home to four out of five global cement companies, demand has dropped nearly 30% since 2007. The European market is not likely to pick up before 2012. In the US, demand is down by 44%.

On the other hand, emerging markets with their thriving real estate sectors represent a booming market for cement. Brazil is a case in point. Sales of cement ran to 45 million tonnes in 2007. This figure is expected to rise to 55 million tonnes this year with further annual hikes until at least 2016.

After China and India, Brazil is the world's most important market for cement. In this scenario, the cut-throat bidding for Cimpor is hardly surprising. Companies present in the Brazil construction industry will undoubtedly see huge expansion over the next decade. CSN has already started its growth with the construction of a cement factory near its steel mill in Rio de Janeiro.

Camargo and Votorantim are both big in Brazil and Votorantim also has a large global presence with assets in the US, Canada and four South American countries. Both cement companies are keen to expand still further by controlling Cimpor. At the moment, Camargo holds 32.5% of Cimpor shares and has Volorantim 30.8%.

Obelisk believes that this battle for control of a key player in the Brazil construction industry is a clear indication of the investment potential in Brazil. We expect this tendency to continue as the scope for investment in Brazil and Brazil's construction industry becomes clear.

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