Study shows urbanization needs of Amazon

Flavia Chein — Foto: Arquivo
Flavia Chein — Foto: Arquivo

The Amazon urbanization pattern has a dispersed population, low demographic density, only two metropolises and the absence of medium-sized cities. A great distance separate urban centers, there is lack of access to basic services such as sewage and water networks, garbage collection, power and broadband. The cities have their backs to the forest or to the rivers. The more than 700 municipalities in the so-called Legal Amazon are out of step with Brazil in all indicators. The good news is that there is still time to design urban centers in a planned and sustainable way.

Two researchers with the Federal University of Juiz de Fora — economist Flavia Chein and Igor Procópio — studied the Amazon cities in detail and produced the report “The cities in the Legal Amazon: diagnosis and challenges for sustainable urbanization”. The report is part of the series of studies on the region of the Amazônia 2030 project.

“The Legal Amazon region is historically configured as the least developed in the country and the urbanization process was not able to create sustainable cities,” says Ms. Chein, “A path was opened in the forest with the construction of roads and there was an explosion of municipalities around, but they were not able to create a network of services. This would be fundamental in the region, because the distances are very large. There is no integrated urban network”.

Many Amazonian municipalities are small, with up to 20,000 inhabitants. There are few medium-sized ones and only Belém and Manaus are metropolises. This lack of intermediary centers worsens the possibility of developing conditions for urban habitability,” says Ms. Chein.

The idea is to identify solutions and policies for a more sustainable urbanization of the region. “We still have a territory to be occupied. The occupation in the past happened in a disorganized way. The Amazon is in a different stage of occupation from the rest of Brazil. It has a demand for housing and equipment that can be designed incorporating the ecosystem”, he says. “It is not because we made mistakes in the past that we need to continue with this non-existent urban design project.”

The analysis defined what is urbanization considering the features of the huge municipalities in the Legal Amazon. “Amazonian cities are less urbanized than those in the rest of Brazil.” She explains: “If one analyzes the Amazon municipalities, most have up to 60% of the people residing in urban areas, while in the rest of Brazil the percentage is higher than 90%. What we have are scattered urbanization spots in giant municipalities, places where the populations are more agglomerated. It is there that the typical problems of a non-ordered and unplanned urbanization can be identified.”

The researchers considered two measures in the diagnosis. The first shows the percentage of the municipality’s total population that lives in an urbanized area. The second relates the total area of the municipality and the percentage of urbanized area.

Ananindeua, in the metropolitan region of Belém, is the Amazonian municipality that has the highest level of urbanization — 100% of the population lives in the urban area. But in relation to the total area of the municipality, urbanization does not reach 32%. The most urbanized municipality in Brazil, which is Belo Horizonte, has 75% of urbanized area.

“When you look at the distance from the municipalities in the Legal Amazon to the nearest metropolis, what you see are great distances. In the rest of Brazil, with many municipalities and metropolises on the coast, the distances are much smaller,” she says.

In the Amazon the distances are barriers. The scattered populations have no connection with the large centers. Another difficulty is the heterogeneity within the municipalities themselves. “From the point of view of urbanization, the Amazon cannot be treated as a single space. There are many Amazons hidden in there”, says Ms. Chein. To deal with the difficulties, the economist says that “it is necessary to have a much greater pact between the several government levels. Besides this, the role of the municipal governments is fundamental.”

“It is necessary to think of the Amazon inside the Amazon and not as something important for the world or for Brazil,” she recommends. “It is necessary to generate well-being in the cities, work conditions and access to culture for those who live there,” she says. “It is in the cities that things happen. Today we have a generation of young people in the Amazon that needs to be encouraged and recognize the region as a place that welcomes them. This starts with designing cities with sanitation, power, communication, schools, bookstores, theaters and cinemas.

Source: Valor International

https://valorinternational.globo.com

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Vetoquinol expands in Brazil, develops products for export

Vetoquinol

Vetoquinol, one of the largest veterinary companies in the world, expanded revenues in Brazil by 22% last year, to R$129.4 million. By 2026, the French multinational expects to double the size of the operation by creating and exporting products to nearby markets.

Jorge Espanha, the company’s chief executive in Brazil, linked last year’s performance to the expansion of the company’s portfolio, the higher rate of medicalization of pets and the performance of animal protein exports, which provided conditions for the sector to invest.

The acquisition of Clarion Biosciences, a Brazilian company based in Goiás, in 2019, is the main growth driver for Vetoquinol, Mr. Espanha said. Last year alone, the company put 10 new products on the market, five of them developed in Brazil. “These are products that will be exported to the world,” he said. Before the purchase, the company’s revenues in the country stood at R$88 million.

The closer relationship between guardians and pets during the coronavirus pandemic also favored the business of the Brazilian subsidiary – even though the pet segment currently represents only 15% of the operation in the country. Globally, the rate is over 65%.

More representative in terms of revenues at this moment, livestock also had a favorable year for the adoption of technologies focused on animal health. According to Mr. Espanha, the strong pace of exports, especially of poultry and beef, allowed producers to add value.

The executive was cautious when talking about the future. According to him, government programs will be necessary after the elections to generate jobs and encourage consumption. Otherwise, an eventual increase in supply – livestock enters the cycle of high availability of animals this year – can reduce margins.

The company is also pressured by the high cost of inputs used to make its products, in addition to international freight. As a result, the company has been moving up purchases and using its global operation as a trump card in negotiations.

Vetoquinol is investing R$5 million in the expansion of its industrial complex in Goiás. The plan is to have three production lines and export products. Listed on the Paris stock exchange, the company expanded sales by 22% worldwide last year, to €427 million. The business was driven by the acquisition of antiparasitic products for pets.

Source: Valor International

https://valorinternational.globo.com

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EU seeks companies in Brazil to encourage transition technologies

Maioria das organizações planeja fazer transição digital em 2019 - Revista do Call Center

A Brazilian farmer who wants to adopt some practice that reduces greenhouse gas emissions in his property may not always know or have available the necessary technologies to put his ideas in place. But these technologies do exist, and the European Union is making its efforts to show that there may be companies in the bloc capable of meeting this demand.

Through Low Carbon Business Action (LCBA), a business platform created by the European Union from the European Green Deal of 2020, the bloc wants to encourage commercial agreements between small and medium-sized European technology suppliers and Brazilian companies that want to invest in energy transition, circular economy and climate change mitigation in the country.

Some deals have already started to be made. Since the beginning of its operations in Brazil, the LCBA has already negotiated 14 agreements totaling €22 million, implying a potential reduction of more than 430,000 tonnes of carbon dioxide equivalent per year. And, to accelerate its operations in Brazil, the LCBA will launch a public call to draw more Brazilian entrepreneurs in search of technologies for greener businesses.

For this cycle of client prospection, the platform listed priorities to foster in Brazil: biogas and biomethane, low carbon agriculture, waste management, renewable power (including bioenergy, wind and solar) and recycling.

“The European Union has tested technologies for this. The challenge was how to bring them to Brazil and other countries,” said Marcelo Perpétuo, LCBA’s country manager. The effort is also in place in other countries of the Americas, including Argentina, Chile, Canada, Colombia and Mexico. LCBA initially maps small and medium-sized European companies that have developed green technologies, creating a portfolio that currently includes more than 500 companies in Europe.

The proposal is to offer solutions from European companies that do not usually have the same means of multinationals to reach the market, but that also have disruptive technologies for energy transition or circular economy.

Mr. Perpétuo cites cases like that of a small business in Serbia that developed an enzyme that can be added to animal feed and is able to reduce methane emissions from cattle, or of a company with presence in Spain and Finland that can identify the species within an area of vegetation using microsatellites and radars.

Besides bridging the gap with clients on the other side of the Atlantic, LCBA also offers to support investors in their investment and business projects. This support can be technical, organizational, or even financial. Thus, if the inputs need financing, the team of the European initiative helps to structure the investment plan and offers the financial firms an environmental analysis of the proposal.

“Today there is a lot of capital set aside for ESG, but there are few robust projects for this capital to be delivered. When we enter the process, it makes things easier,” Mr. Perpétuo said. All the support is funded by the EU.

The fact that LCBA also proposes to work with companies from different segments paves the way for technologies that are usually directed to some fields that can be explored in different businesses, in a kind of “cross-pollination” of technologies, the executive said.

He guarantees, however, that the Brazilian companies interested in the initiative need to ensure that the investments they intend to make are in fact transformative of the business, to avoid the risk of greenwashing. To this end, the projects are evaluated based on environmental indicators and by an independent auditor.

Source: Valor International

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Agribusiness exports grow 65% in February

Soy export in Paranaguá — Foto: Fabio Scremin/APPA
Soy export in Paranaguá — Foto: Fabio Scremin/APPA

Brazilian agribusiness exports reached $10.51 billion last month, 65.8% more than a year earlier and a new record for February, according to data from the Secretariat of Foreign Trade (Secex) compiled by the Ministry of Agriculture. So far, the best February ever had been 2019.

Both the average prices of exported products and volumes increased and helped the result — rising 24% and 33.7%, respectively. As a result, the share of agriculture in Brazil’s total exports grew again and reached 45.9%. In February 2021, the share was 38.7%.

The sector’s trade balance saw a surplus of $9.2 billion, as imports dropped 2.1% in February, to $1.25 billion, despite the increase in average prices of several imported products, such as wheat, malt, salmon and palm oil.

Imports compiled by the ministry do not consider inputs used in the sector, but it released a balance of purchases of these products in February – fertilizer imports increased 124.1%, to $1.63 billion. The average price grew 128.7% in the period.

“It is important to point out that, in February, the survey of international fertilizer prices carried out by the World Bank indicated an average price increase of almost 100% in the last 12 months. To clarify this point, the volume of fertilizers imported by Brazil was about 2% lower compared to February of the last two years (2021 and 2020): from 3 million tonnes in February 2021 to 2.94 million tonnes in February 2022,” the ministry said. The main fertilizer suppliers to Brazil were Russia, Canada, China, Oman and Qatar.

The positive performance of agribusiness exports in February was driven by shipments of soy beans, fresh beef, green coffee, soy meal, fresh chicken and wheat, the latter a product that typically makes up the country’s import basket.

The volume of soybeans exported was a record in February, with 6.27 million tonnes, up 137% compared to the same period last year, when 2.6 million tonnes were shipped.

The value of these shipments saw an even more expressive increase, 203%, to $3.1 billion from $1 billion. The average price per tonne increased 28%, to $501 from $392.

China is the largest importer of soybeans from Brazil. In February, the Asian country increased the amount purchased by 130%, reaching 4.3 million tonnes, about 69% of all Brazilian soybeans sold to the world. The amount paid for the product increased 186.6% year over year and stood at $2.17 billion.

With the normalization of sales to China, exports of fresh beef grew by 75.1%, reaching $965 million. The volume exported increased by 42%, and the average export price grew by 23.3%.

China doubled the value of purchases compared to February 2021, to $546.49 million and 87,100 tonnes from $261.79 million and 56,410 tonnes.

Foreign sales of chicken meat rose 26%, to $643.11 million. The increase in the average export price was 18.8%, and 6% in the volume exported.

Brazilian exports of green coffee increased 83.5% in price. Brazil exported 208,500 tonnes, up 9.1% from 2021.

The ministry also highlighted wheat in the list of the main products exported. “The grain exports exceeded imports: $246.3 exported (836,600 tonnes), compared to $141.58 million imported (498,800 tonnes).”

According to a report by the Center of Advanced Studies on Applied Economics (Cepea) of the Luiz de Queiroz College of Agriculture (Esalq/USP), the favorable conditions of international prices and the greater external acceptance of wheat with lower pH, a characteristic of the local product, have driven the increase seen in Brazilian exports.

Source: Valor International

https://valorinternational.globo.com

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Canada opens market for Brazilian beef, pork

Livestock in Mato Grosso do Sul: Brazil surpassed the threshold of 200 open markets since the beginning of 2019 — Foto: Divulgação
Livestock in Mato Grosso do Sul: Brazil surpassed the threshold of 200 open markets since the beginning of 2019 — Foto: Divulgação

Agriculture Minister Tereza Cristina said on Monday that Canada has authorized the start of imports of beef and pork produced in Brazil. She is in the country to meet Canadian executives to try and expand the potash supply to Brazil.

“The opening means that we exceed the 200 markets set by me as a goal in the Ministry of Agriculture, and it is also very good news for Brazilian meatpackers, who can employ and bring income to the interior of the country,” the minister said in a video posted on social media.

With the authorizations confirmed on Monday, Brazil surpassed the threshold of 200 open markets since the beginning of 2019, when Ms. Cristina took office. She said that Canada is “one of the most important markets in the world.”

The Brazilian Animal Protein Association (ABPA) celebrated the opening of the Canadian market for pork from Brazil. The organization clarified that, at first, the green light is valid only for the product from Santa Catarina, which was the only state free from foot-and-mouth disease without vaccination when the request was made.

“Negotiations will continue for the inclusion, in the future, of new areas already recognized with the same status by the World Organization for Animal Health,” the ABPA said in a note. Santa Catarina accounts for over 50% of Brazilian pork exports.

Ms. Cristina left for Canada on Saturday. In Ottawa, she met with representatives of Brasil Potash, a Canadian-controlled company that explores a deposit in the Amazon, and with Canada’s Deputy Minister of Agriculture, Paul Samson.

“For our country to continue increasing the food supply and contributing to world food security, we will need potassium fertilizers,” the minister wrote in another post. “This does not just mean ensuring current levels of purchases, but expanding them. We can and must strengthen our ties and strengthen long-term partnerships. This means, in practice, food in quantity and quality at affordable prices on everyone’s table,” she said.

Tereza Cristina will also meet with the chief executives of Gensource, Mike Ferguson, of Nutrien, Ken Seitz, of Canpotex, Gordon Mckenzie, and of Fertilizer Canada, Karen Proud.

Source: Valor International

https://valorinternational.globo.com

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Brazil commits to increase oil exports after U.S. request

Eberaldo de Almeida Neto — Foto: Leo Pinheiro/Valor
Eberaldo de Almeida Neto — Foto: Leo Pinheiro/Valor

The Brazilian government has committed to increase oil exports amid a U.S.-led effort to mitigate the impacts on global supply in the face of U.S. sanctions on Russian production and to contain the appreciation of the barrel on the international market.

Yet, despite its growing share in global exports in recent years, Brazil has a limited capacity to raise domestic production immediately. The Brazilian contribution in the short term, therefore, is expected to be marginal, experts say.

Overall, Brazil exported, on average, 1.3 million barrels/day in 2021, equivalent to 45% of the volume extracted from domestic fields. The country is one of the ten largest producers of the commodity in the world and is on its way to becoming one of the most relevant exporters in the next ten years.

The Ten-Year Energy Plan, from the Energy Research Company (EPE), projects that, starting in 2022, most of what Brazil produces will be exported. The forecast is that 51% of the volume produced in the country will be sold on the foreign market this year. In 2031, about two thirds of the national production will be shipped, which could raise Brazil to the position of one of the five largest exporters in the world, the state-owned research company says. It turns out that the growth of exports will be gradual and there are no prospects that the country can, immediately, contribute in a relevant way to replace a potential reduction in the Russian supply. Brazilian oil accounts for about 4% of global production of the commodity.

Fernando Valle, a senior oil and gas analyst at Bloomberg Intelligence, says that Brazilian production, concentrated mainly in the pre-salt layer, has particularities that make a short-term response to the increase in global production difficult when compared to the reality of onshore unconventional oil and gas fields (shale) in the U.S. and Canada – where producers take between three to nine months to increase production, depending on market conditions.

In the pre-salt layer, the development of new projects takes years to getting off the drawing board, Mr. Valle said. Floating platforms (FPSO), for example, are typically leased three to four years in advance, and Asian shipyards now concentrate the business – which now face delays in the delivery of orders due to the imbalance of global chains after the outbreak of the pandemic.

“In addition, Brazil imports diesel and gasoline, so exporting oil means importing oil products. [Any increase in exports] is marginal. Can it increase 100,000 barrels/day? Yes, but the only way [to increase exports substantially] would be if there was a drop in domestic demand, but this scenario is not the best for Brazil,” Mr. Valle said.

Overall, Brazil produced on average 2.905 million barrels/day of oil in 2021, 73% of which from the pre-salt, according to data from the National Petroleum Agency (ANP). This year, only one major rig is expected to start operating in the country: the Mero 1 unit, in the Santos Basin pre-salt.

Petrobras, which accounts for 72.5% of the volume produced in the country, is the largest exporter of domestic oil. Yet, foreign oil companies like Shell, Repsol Sinopec, Petrogal, Equinor, TotalEnergies and Petronas have reported growths in the volumes produced in Brazil – and, unlike Petrobras, which sends most of its barrels to domestic refineries, they have the foreign market as the main destination for local production.

Onshore production, whose production structure is simpler and has a faster response capacity, is small in the country, accounting for 3% of domestic production last year.

The skyrocketing price of oil, driven by the uncertainties in the international market with the war in Ukraine, led the United States to ask Brazil and other major producers, including Venezuela, to expand global production. The U.S. Energy Secretary, Jennifer Granholm, made the request to the Minister of Mines and Energy, Bento Albuquerque, during a videoconference talk last week.

Eberaldo Almeida Neto, head of the Brazilian Institute of Oil and Gas (IBP), is also skeptical about a substantial increase in Brazilian exports in the short term. “Brazil is a market economy and will always produce according to economic rationality, unlike OPEC [Organization of the Petroleum Exporting Countries] countries, which are subject to supply quotas, or countries under sanctions,” he said. “Furthermore, to make offshore areas viable, it is necessary to prove long-term resilience. These investments will not be made based only on the short term,” he added.

Mr. Almeida Neto believes, on the other hand, that a scenario of high barrel prices in the international market, as the current one, tends to favor the extension of the lifespan of mature fields – which are in a natural decline phase, especially in the Campos Basin post-salt and onshore basins. According to him, more expensive oil can make viable reserves that would not be economically attractive with a cheaper commodity. These fields, however, tend to have a lower potential for increasing volumes.

In late February, when commenting on the possibility of Petrobras accelerating investments, in view of the recent rise in oil prices, the company’s chief financial officer, Rodrigo Araujo, said he did not see “much room” for that.

“The only space is when we consider new wells on existing platforms. There is no room to change the production plan in the next three to four years,” said João Henrique Rittershaussen, the company’s head of production development, on the same event.

Marcelo de Assis, head of Latin America upstream research at Wood Mackenzie in Latin America, also believes that Brazil has limitations to respond immediately to the new market conditions. He says that, in the short term, what oil companies operating in the country can try to do to capture the gains from an appreciated oil is to postpone by a few months the maintenance shutdowns of platforms. The analyst also sees limitations in the possibility of adjustments to existing projects, through the connection of new offshore wells to platforms that are already producing. “These are also time-consuming processes, the drilling and connection of the wells takes months,” he said.

Source: Valor International

https://valorinternational.globo.com

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Foreign capital brings R$80bn to Brazilian stock market

1000+ Stock Exchange Pictures | Download Free Images on Unsplash

The foreign investors have already brought almost R$80 billion to the Brazilian stock market this year, including purchases on the spot market, futures and stock offerings. In less than three months, Brazilian stock exchange B3 has already attracted 57% of the volume that came in last year. In the face of the Russia-Ukraine conflict, Brazil and other Latin American countries have benefited from the connection to commodities and the rotation of portfolios, from growth stocks to value stocks.

The question is how long this movement will last. There are those who consider that there is still a flow to arrive, since Brazilian assets are cheap in dollars. Others think that the new money won’t go that far because there are elections in Brazil, an unresolved fiscal and interest rate hikes in developed economies.

“Money looks for two things: growth differential and interest, where there is more interest. Ideally, if the region has a positive interest rate differential and also growth, at the margin, it will attract more capital. What the country experienced recently that performed so well was the fact of having depreciated prices. Brazil suffered before with a very devalued currency in relation to comparable peers and had no interest or growth. Press the forward button and the nominal interest rate is adjusted, but not growth,” says Marcelo Santucci, partner and head of international portfolios at BTG Pactual.

“Some of the money came from depreciation and interest rates, what is lacking is structural growth, reforms, there is the challenge of fiscal adjustment and uncertainty with the elections. To have the real big money, you need the structural. That’s one last unknown.”

For Mr. Santucci, this recent movement of foreign flow does not seem to be lasting. Despite the recent international setback, he believes that the diversification of currencies and regions remains a valid strategy for the Brazilians to smooth out periods of high tension as seen in global markets.

Long before the escalation of the war in Eastern Europe, there was already a reallocation of assets in global portfolios that to some extent accompanied the rise in U.S. Treasuries futures, says Leonardo Morales, partner at SVN Gestão de Recursos.

With the rise in long rates, investors reduced their exposure to growth companies, mainly in the technology sector, with more stretched multiples, and went to assets more linked to the commodity chain and banks, which had more attractive prices, segments considered value stocks in the traditional economy. “When you look at the Ibovespa, 60% is made up of commodities and banks. In this rotation, Brazil was favored, as well as all of Latin America: Peru, Colombia, Chile, all had an appreciation, and their currencies, too.”

Mr. Morales says that Brazil has lost a lot of weight in international indices in recent years and any increase brings a strong inflow of capital to the country. He also recalls that Russia usually has a similar participation in the benchmarks of emerging exchanges, but sales there didn’t even happen because the Russian stock market has been paralyzed since the invasion of Ukraine. “There is always a ‘smart money’ that must have sold before and bought Brazil and Latin America.”

It was a money flow that ended up giving outlets to equity managers and local multimarkets that continue to take redemptions, he adds.

A diagnosis of how long this movement will extend over time is, however, the “$1 billion question”, says Mr. Morales. His perception is that it will continue at least until the end of the quarter, in the face of inflationary pressures and commodity prices aggravated by the military confrontation between Russia and Ukraine, benefiting raw material manufacturers. “These are companies that are generating cash, without debt, the rotation from growth to value has room to continue.”

The intensity of the inflow of resources in these first months of the year in Brazil was really surprising, but it is basically explained by the fact that the domestic market is supported by commodity exporters. The global investor makes this association here and with other economies in the region, says Marcelo Arnosti, chief strategist for equities, multimarkets and offshore assets at BB DTVM.

He observes that most companies listed on the local stock exchange are evaluated as being of value, in which the expected return on invested capital is not in the very long term as in growth companies. “The [American index] S&P500 and the Asian one are more recognized as ‘growth’ by the weight of tech companies,” he says. “Asia lost part of its flow to Latin America and Brazil, which explains why the stock market is resistant and the real has been appreciating.”

For Mr. Arnosti, this movement is difficult to fully anticipate, but the rotation should continue, even if the dynamics more directly related to commodities falls.

Looking ahead, this inflow of funds will not necessarily be replicated in the next three, four months, says Marcus Vinícius Gonçalves, Franklin Templeton’s president in Brazil. “Things can go a different way. It does not mean that we have a negative reading, the reading is positive, there will still be flow, but the electoral uncertainty will weigh,” he says. “Brazil is stupidly cheap, the Brazilian stock market is cheap. It could be a very good year for allocators here and abroad.”

Some sectors of the Brazilian stock market were reasonably discounted. The war only accentuated this perception for the commodities segment, says Daniel Celano, head of third-party resources management at Schroders in Brazil. “But we see it as a very one-off thing. For foreigners, in fact, to place Brazil on the list of long-term investments, they need to see growth and GDP, for now, is uncertain.”

For him, the Brazilian exchange rate was closer to the fundamentals, given the good numbers of the external accounts, but he does not see the currency much lower than around R$5 per dollar.

He claims that inflationary concerns remain a global phenomenon, a side effect of the pandemic that ended up being amended by the military conflict in Ukraine. In Brazil, inflationary uncertainties, with growth, elections and the fiscal framework tend to take off the drive from the flow that has been observed.

Source: Valor International

https://valorinternational.globo.com

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Market projects higher benchmark interest rate

Interest Rate Benchmarks | Refinitiv

A scenario that was already difficult for the disinflation process took on even more complex contours, which is ex require a higher interest rate. The significant worsening of the balance of risks for inflation, in the wake of the war in Ukraine, knocks on the door of the Monetary Policy Committee (Copom) of the Central Bank, which is expected to raise the Selic, Brazil’s benchmark interest rate, again this week. While the prevailing assessment is that of a slower tightening now, the new challenges already signal the need for a higher base rate ahead.

In its last three decisions, the Copom promoted increases of 150 basis points in the Selic, but signaled that, at this week’s meeting, the magnitude of the rise should decrease. With the basic interest rate at 10.75%, the market believed the signal from the monetary authority and, of 93 financial institutions consulted by Valor between March 10 and 11, 82 expect the Selic to be raised by 100 bp, to 11 .75%.

The worsening of the inflationary scenario, however, made nine institutions project a 125 bp increase, while two – Austin Rating and UBS BB – believe that the committee will maintain the pace of interest rate hikes at 150 bp at the Wednesday meeting.

Despite this, it is clear to the market that the scenario has worsened significantly. Valor also consulted institutions about inflation this year and in 2023. The survey, conducted on Thursday, covered scenario revisions that took place after the fuel price hike by Petrobras and after a new surprise observed in Brazil’s benchmark inflation index IPCA in February. If, in the previous survey, the midpoint of the estimates indicated inflation at 5.2% this year, now the expectation is that the IPCA will close 2022 at 6.5%.

It is worth remembering, however, that this week’s Copom meeting is expected to be the last in which the 2022 calendar year will continue to be considered in the relevant horizon for the performance of monetary policy. The deterioration of expectations for 2023, which become more important, also triggers a warning signal. In February, the median indicated the IPCA at 3.4% at the end of next year and, now, the midpoint of the projections is at 3.8%.

Part of the market also adjusted its estimates for the Selic and began to see a higher rate ahead. In the Valor survey, the median of 91 projections collected points to the Selic at 12.75% at the end of the cycle (compared to 12.25% in the previous survey). A relevant part of the market, however, believes that the basic interest rate can reach at least 13% – which was stated by 44 institutions (48.3% of the total).

“When we think about the design of monetary policy from now on, we see that the Central Bank is dealing with an increasingly persistent inflation,” says Gustavo Arruda, BNP Paribas’ head of economic research for Latin America. “With a new shock on top of already high current inflation and inflation expectations above the target, what the Central Bank should do is continue in action, and that means raising interest rates for longer.”

Last week, the French bank raised its forecast for the Selic to 13.25% from 12.25% at the end of the cycle, which would take place in June. “It’s not a big change of scenery, it’s 100 bp higher. I believe that this is an adjustment for the Central Bank to coordinate inflation expectations and avoid the transmission of these shocks throughout the economy,” says Mr. Arruda.

Despite the deterioration of the inflationary scenario, the vast majority of agents continue to see a 100-point rise in the Selic rate this week as the most likely move. This is the case of Apex Capital’s chief economist Alexandre Bassoli, who projects the basic interest rate at 12.75% at the end of the current cycle.

Although he emphasizes that monetary policy “still has a lot of work to do to make inflation converge to the targets,” Mr. Bassoli still expects a deceleration in the pace of the Selic increase, from 150 bp to 100 bp, when considering the lagged effect of interest rates. “We have already advanced a lot in the cycle here in Brazil and, considering the uncertainties, this Copom guideline to produce a deceleration in the pace of growth seems reasonable. But there is still work to be done,” he emphasizes.

The economist recalls that the Copom had already mentioned “next adjustments”, in the plural, and, in the current context, there is a suggestion that the hike to be carried out this week will not be the last. “We have at least one more to go. I would expect at least two more,” he says. According to Mr. Bassoli, the probability of an extension of the cycle has increased, as the inflation figures in Brazil showed unfavorable dynamics even before the conflict, which tends to worsen.

On Brazilian stock exchange B3, the digital options market indicated, on Friday afternoon, a 66% chance of a 100 bp increase in the Selic in March. This possibility, however, has already reached more than 90%. In addition, the market has now built in higher odds of a 125 bp increase (20%) and a 150 bp increase (15%).

“In our view, even with a scenario of more perennial shocks, the Central Bank has a more limited total budget to raise interest rates, given the advanced stage of the cycle,” assesses Mirella Hirakawa, senior economist at AZ Quest. “It makes sense to go as planned and reduce the dose of adjustment.”

Although also pointing to a slowdown in pace, chief economist at Panamby Capital, Tatiana Pinheiro, notes that a good part of the factors advocates in favor of maintaining it. “Inflation surprised upwards; expectations continued to be revised upwards; commodity prices in reais also increased despite the appreciation of the real; even economic activity came in a little better than expected… These are indicators that go in the opposite direction of a reduction in the pace of adjustment.”

A focus for investors’ attention, in the current environment of high uncertainty, will be what the Copom will signal for the next steps. There are those who believe that it would be more prudent for the committee to anticipate a further deceleration of pace for the May meeting. This is the case of Fernando Honorato, chief economist at Bradesco, for whom the Central Bank should re-emphasize, as in the last meeting, the lag in monetary policy and also give weight to the transitory aspect of the shock in the balance of inflation risks.

“The Central Bank’s reference scenario projections will change significantly, but it has to assume some reversal of the commodity shock by the end of 2023, which is the horizon it is looking at. If not, we will be thinking about Selic levels above 13%, eventually, and that would involve a very big sacrifice for the activity”, evaluates Mr. Honorato. Last week, Bradesco increased its Selic forecast at the end of the cycle to 12.75% from 11.75%, but the economist expects more moderate interest rate adjustments ahead so that there is time for the Copom to observe the effects on economy.

In addition, he says that the Central Bank should emphasize the fight against the secondary effects of a classic supply shock like the current one. “If it doesn’t do that, the monetary authority will give the impression that it wants to endogenize an external supply shock, which is like saying it intends to fully combat this local effect of global inflation. It actually makes more sense to emphasize combating secondary shocks.”

For Mr. Hirakawa, with AZ Quest, what remains for the Central Bank “is to slow down the pace while maintaining the hawkish tone for the next meetings. “The Copom has to remain vigilant, but it must lengthen the cycle with more moderate doses of tightening because inflation expectations for 2023, lower than those for 2022, will become its exclusive focus after this week’s meeting,” she says.

At the other end, UBS BB started to project an increase of 150 bp and a Selic of 13.75%, in view of the increase in commodity and energy prices, which should make inflation this year and in 2023 higher than previously expected and lead to a slower normalization of relative prices. Thus, it is of “extreme importance” that no central bank, in particular the Brazilian one, allows inflation expectations to move upwards, at the risk of losing control, economists point out in a note to clients.

Source: Valor International

https://valorinternational.globo.com

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A “state plan” for fertilizers without government investment

Bento Albuquerque — Foto: Divulgação

The National Fertilizer Plan will not receive direct financial contributions from the federal government. Instead, investments in new factories for the expansion of fertilizer production will come essentially from the private sector, although companies are likely to take advantage of fiscal and tax breaks – if these facilities actually get off the drawing board.

The effort was launched on Friday by the Bolsonaro administration amid the turmoil that tripled the international prices of some agricultural inputs because of the pandemic, the energy crisis in some countries and the Russia-Ukraine war, which threatens the supply of inputs from Eastern Europe to Brazil.

“These waves of private-sector investment will guarantee Brazil’s growth in the coming years,” Economy Minister Paulo Guedes told reporters on Friday. “Brazil’s growth cannot be limited to the investment capacity of Petrobras and Eletrobras,” he said, citing behemoth state-owned companies in the oil and power industries.

The government will use direct investments to improve the country’s business environment, Mr. Guedes said. “Eliminate dysfunctional taxes, make industrial research, production and transformation easier. We will create a private-sector complex and draw those investments. The speed of response is much faster.”

The Minister of Mines and Energy, Bento Albuquerque, pointed out that the mineral industry is expected to invest about $40 billion by 2025 in the country. The post-pandemic economic recovery and the rise in fertilizer prices are also expected to make private-sector business for production in Brazil more attractive. “With this crisis, several projects are being put back into operation, such as hibernated nitrogen plants that are now economically viable. And this is also due to the 22% increase in natural gas production in the last three years,” he said.

“The increase in production is already a fact,” Mr. Guedes added, saying that “interventionist administrations” would act differently, focusing on public investments. President Jair Bolsonaro made fun of it, saying he will not create “Adubobras,” or a Brazilian state-owned company to produce fertilizers. He also said that the climate is “favorable” for the Chamber of Deputies to pass in a few weeks a bill to allow mineral exploration and other economic activities on indigenous lands.

Mr. Guedes acknowledged that food prices are likely to increase in the medium term with the indirect impact of the rise in global costs of fertilizers and grains. He is also following the unfolding of the war, which may require additional tax efforts. The minister argued that tax adjustments could reindustrialize the country, and cited the possibility of eliminating the Tax on Industrialized Products (IPI) to encourage domestic production of fertilizers.

The Economy minister also cited facilities for imports of machinery and equipment used in the production of fertilizers and the creation of tax credits from the purchase of imported inputs. “We are convinced that indirect taxes are destroying the domestic industry. The idea is to reduce the taxes that caused a decline of manufacturing in Brazil,” he said.

One concern at the moment is in cutting taxes on Brazilian fertilizers. Sales tax ICMS on these inputs are being adjusted after approval by the National Council of Finance Policy (Confaz) last year. By 2025, domestic production will gradually drop to a 4% tax from 8%, while imported products, currently exempt, will pay 4%. Luis Eduardo Rangel, a director of the executive secretariat of the Ministry of Agriculture, said that fair taxation is the starting point to make the Brazilian fertilizer industry competitive again.

According to Mr. Rangel, with the rebalancing of tax rates, it will be possible to increase the domestic production by 35% by 2025 and regain 10% of domestic autonomy. Bernardo Silva, head of the National Union of the Fertilizer Raw Material Industry (Sinprifert), said that the growth projected in the short term is not irrelevant and will help reduce the “risk” the country faces today.

The fertilizer plan, in his view, is a “good, optimistic and bold” message. Even so, the Brazil cost remains high with obstacles such as environmental permit, transportation, logistics, energy and natural gas. “We need a positive message because the industry needs heavy investments. A nitrogen plant requires investments of $1.5 billion, and needs a long time to mature. We look up to 50 years ahead. We need institutional stability and security for this,” he said.

Agriculture Minister Tereza Cristina said that it will be necessary to administer the “dose very well” to know the best time to rebalance the ICMS rates on domestic and imported products. “If the war gets worse, we have to zero taxes,” Mr. Guedes said.

Source: Valor International

https://valorinternational.globo.com

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High oil prices boost collection of states, municipalities

Are we in for another round of high oil prices? - The H Group - Salem, Oregon

Besides putting pressure on fuel prices, high oil prices are likely to contribute this year to a greater-than-expected growth in revenues from royalties and special participations — an additional amount levied on specific fields — collected by the federal government, states and municipalities.

The total value of government participation may increase to R$111.5 billion this year, potentially an all-time high, compared with R$77.82 billion last year, according to calculations by the Brazilian Center for Infrastructure (CBIE) prepared at the request of Valor.

For states and cities, the combined amount could increase to R$59.6 billion this year from R$41.6 billion last year. The distribution, however, is concentrated and benefits relatively few states and cities.

Of the total revenues from royalties and special participation projected for this year, R$42.5 billion are expected to be collected by the federal government. Part of this amount – whatever exceeds the federal government’s budget forecast – can be allocated to the fund to mitigate the ups and downs of fuel prices in the domestic market. Royalties and special participations intended for states and municipalities are unlikely to be affected. The proposal, however, is still being debated.

Currently, of the royalties received by the federal government, about 25% are allocated to the special fund, which is expected to transfer resources to states and municipalities. The remainder goes to the Navy Command and the Ministry of Science, Technology and Innovation. In the case of special participation, 80% goes to the Ministry of Mines and Energy and 20% to the Ministry of Environment.

The former director of the National Petroleum Agency (ANP) and now fiscal advisor to the Legislative Assembly of Rio (Alerj) Magda Chambriard says there is flexibility in the allocation of the portion of royalties and participations that remains with the federal government, which would allow the government to direct part of the resources to the new fund of equalization. Ms. Chambriard, who has already worked in this division, says that it is difficult to change the portion destined for the social fund, which serves Health and Education, but that it is possible to redirect the rest of the resources sent to the Navy and ministries.

“The federal government usually allocates part of these resources to specific bodies in the structure of ministries to reduce the primary deficit. But funding for [Health and Education] actions is more rigid,” she says. For her, the equalization fund is a good way out, but it should have a temporary nature, under the risk of draining resources from the federal government in a scenario of continuous rise in oil prices. “Money is short, so it is not appropriate to give this instrument a permanent character.”

According to CBIE projections, R$36.2 billion in government participation are expected to be allocated this year for the states and R$ 23.4 billion for cities. The other participations, such as the rate of occupation or retention of area, signature bonus payments and others, are seen as totaling R$9.4 billion.

The calculation considered an increase in the production of oil and liquid natural gas (LNG) to 3.1 million barrels a day in 2022 from 2.9 million barrels a day on average last year. It also considered an average price this year of $95 a barrel, 34% higher than the average price of $70.86 last year. The average exchange rate for 2021, of R$5.4 to the dollar, was maintained for this year. The 2022 values were projected based on the governmental participations received last year.

The expected increase in revenue from royalties and special participation, therefore, has a structural component, from the increase in production already expected for 2022 and for the next few years, and a cyclical component, given mainly by commodity prices, said Adriano Pires, head of CBIE.

The production of the sector this year is expected to virtually double by 2027 to between 5 and 6 million barrels per day, Mr. Pires said. Such an increase is likely to be driven by oil from the pre-salt layer, a vast reserve off the coast that accounts for 70% of production and is expected to reach 90% in five years, he said.

Even if prices fall in relation to current levels, Mr. Pires said, the collection with participations related to oil is expected to grow due to the higher production volume. “This money can cause a revolution in the public accounts and it is necessary that governments start thinking about what to do with it.”

Economist Sol Garson, a specialist in public accounts, says that high oil prices are expected to raise revenues with royalties and special participations, but in a very concentrated way among states and municipalities, since they are determined by the existence of oil wells.

Ms. Garson, Rio’s former finance secretary, is also concerned about what additional funds from oil would mean for public accounts. Even if states set aside these funds for social security, for example, they can reduce the contribution of the Treasury in the year and thus free up resources for other functions. In São Paulo, the resources are fully allocated to SPPrev, an agency that manages the state’s pension system.

According to the CBIE projections, Rio de Janeiro is expected to receive 76.6% of all governmental participations paid to states, while São Paulo gets a little more than 10% and Espírito Santo will have 8.9%.

In Rio de Janeiro, Secretary of Finance Nelson Rocha said that higher production and oil international prices, now intensified by the Russia-Ukraine war, made the initial forecast for the state collection of royalties and special participations from oil in 2022 jump to R$30 billion from R$19 billion.

Secretary technicians point to an amount of R$31.7 billion, a calculation that takes into account the Brent barrel at $102.11 and the dollar at R$5.50. As a rule, most of the resources are transferred to state social security, which is in deficit, shared between municipalities and municipal funds. The last ANP official projection, published on February 9, before the war, therefore, indicated collection of $26.54 billion for Rio in the year.

If the Rio’s forecast is confirmed, oil revenues will be 63.8% higher than the R$19.35 billion of 2021. For comparison, the amount is equivalent to almost a third of the net revenue contained in the Annual Budget Law, of R$92.9 billion. It is also similar to the net current revenue of Rio’s capital city in 2021 (R$31.3 billion), discounting the proceeds from the concession of water utility Cedae’s services (R$6.2 billion).

In Espírito Santo, 40% of the oil royalties and 15% of the special participations go to the state’s sovereign fund, which aims to generate intergenerational savings mechanisms and to help and to finance the state’s economic development projects.

The Espírito Santo state government has also been following oil swings and has revised the estimates of participations revenues for 2022, said Luiz Claudio Nogueira, coordinator of the Espírito Santo oil and gas team. The projection for this year’s collection of royalties and special participations of oil rose to R$2.5 billion from R$1.4 billion. The estimate, he said, considers a barrel at $90 and exchange rate at R$5.50 to the dollar.

Source: Valor International

https://valorinternational.globo.com

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