Free market to invest R$152bn in power generation

Investors in the free power market — a segment in which it is possible to choose your supplier — have increased their participation in new generation projects. This group accounts for 83% of the total 45 gigawatts (GW) of power plants under construction and scheduled to start operating by 2026, according to a survey by the Brazilian Association of Power Trading Companies (Abraceel).

Of the total R$183 billion that will be allocated to new plants by 2025, R$152 billion are in the free market. Among the types of sources, the biggest highlights are solar photovoltaic and wind generation, with an 82% share of the projects.

The numbers raised by the association confirm a trend already observed at the beginning of the Covid-19 pandemic, when the expansion of the energy supply started to be driven by the free market. Until then, this was the “regulated market’s” role, formed by the distribution companies, in which the consumer cannot choose who will supply his electricity and the cost of power is defined in the annual tariff hikes.

With the economy shutting down in 2020, the drop in consumption and the increase in defaults led to the temporary suspension of auctions to hire new power plants to meet the demand of the distribution companies.

It was then that the free market took the leading role in the expansion. Its participation in new projects rose to 72% in 2021 from 34% at the beginning of 2020, as published by Valor in February last year.

The increase of 45 GW in generation capacity in five years will make the system more robust. Today, the country has 183 GW available, according to data from the Brazilian Electricity Regulatory Agency (Aneel). Of this total, 56.3% are from large hydroelectric plants, 24.6% comes from thermoelectric plants, 11.8%, from wind power, 3% from small hydroelectric power plants (PCHs), 2.7% from solar farms, and 1% from nuclear plants.

Although the new ventures reinforce the renewable character of the power generation mix, the predominant investment in wind and solar power farms challenges the planning and operation of the system to deal with the intermittency of the two sources.

There are power oscillations caused by the variation in the intensity of the winds and sunlight throughout the day. This does not happen with hydroelectric plants, also considered a “clean” source, and with thermoelectric plants, which emit polluting gases and are more expensive.

Luiz Barroso, former president of the Energy Research Company (EPE) and currently head of consultancy PSR, assesses that Brazil has the advantage of being able to integrate renewables at a lower cost than that observed in other countries. For this, he defends that it is necessary to use the “abundant availability” of hydroelectric plants with reservoirs as batteries, capable of conferring greater stability.

Mr. Barroso considers that the transmission system, formed by the large high-voltage grids that cross the country, allows the use of the “complementarity” factor between the sources distributed in the different regions.

Mauricio Tolmasquim — Foto: Luis Ushirobira/Valor
Mauricio Tolmasquim — Foto: Luis Ushirobira/Valor

About the challenge of increasing the participation of intermittent sources, Mauricio Tolmasquim, also a former EPE president, pointed out that the system needs “flexible” gas thermoelectric power plants, which are on hand to operate when necessary.

“The big problem is that a good part of the existing thermoelectric plants were contracted by the regulated market. So, in moments of bad hydrology [little rain], the operation cost of these thermoelectric plants, which is very high, falls only on the captive consumer, through the payment of the tariff flags,” said Mr. Tolmasquim, professor at the Energy Planning Program at research institute Coppe, Federal University of Rio de Janeiro.

Today, only large energy consumers — such as industries, shopping malls, and large retailers, which account for 35% of demand in the country — can go to the free market.

Congress is expected to approve this year Bill 414/21, which defines a schedule for opening the market. This would guarantee, within 42 months, the right to choose the energy supplier for residential consumers and small and medium-sized companies.

For Abraceel’s president Rodrigo Ferreira, the bill also foresees a “balanced division” of expenses with thermoelectric plants, which provide more security to the system, between the free and captive markets. He predicts that the greater access to the free market, followed by increased competition, will make power cheaper.

“Bill 414 is the structural overhaul that will actually reduce the price of energy in Brazil, by empowering the consumer. Any very short-term measure does not address this issue and, on the contrary, creates regulatory instability,” said Mr. Ferreira, referring to the recent threat by the Chamber of Deputies to suspend tariff increases above the 20% approved this year by Aneel.

Source: Valor International

https://valorinternational.globo.com

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Fintechs make number of financial institutions grow

Financial Institutions Instruments | ManagEnergy

The intense innovation process experienced in recent years has created a fertile ground for the digitalization of financial services and products. In this context, after six years in decline, the number of financial institutions grew again in 2019, a movement that gained traction amid the Covid-19 pandemic. In February, according to the last data released by the Central Bank, the country had 649 banks, fintechs and finance companies, 15% more than in 2019.

The growth was driven by the boom of fintechs and digital banks. Payment institutions, for example, more than doubled in the period and went to 43 in February this year from 19 in 2019. Direct lending and person-to-person lending companies, meanwhile — which are credit fintechs — went to 78 from 15 in the same period, up 420%. This increase reverses the trend seen between 2013 and 2018, when the industry shrank. In the period, the number of financial institutions fell by 11%.

The number of banks, however, remained stable and reached the lowest number in 2018, with 171. In February 2022, there were 177, the same number registered in 2013 and in the last two years. When including cooperatives and consortium administrators, the total number of participants in the financial system rises to 1,648, up 1.16% compared to 2019.

In March 2021, the Central Bank changed the rules for payment institutions, which may explain part of the growth of companies authorized by the monetary authority in this segment. With the change, those fintechs need to apply for authorization before setting up the business. Before, non-regulated institutions could operate until they reached R$500 million a year in transactions and only then would ask for approval.

“To create a fintech after March 2021, one needs to request authorization from day zero. That is why we have seen the increase in authorized institutions, and we will see exponential growth this year and next. The institutions that already existed before the new norm and were not authorized are still able to operate, but the there is a decreasing order of volume until 2023, when all of them will need authorization,” says Marcelo Martins, head of the Brazilian Association of Fintechs (ABFintechs) and CEO of the payment company Iniciador.

Although they have grown in number, fintechs are still not very expressive in the credit market. To a large extent, this is because large banks can receive demand deposits (in current accounts) and lend those resources, a dynamic known as leverage.

Payment institutions, which offer simpler digital accounts, cannot provide financing with customers’ money, as can credit fintechs, which must use their own capital.

“New fintechs certainly help in the deconcentration of the industry, as end users have more options. It is one of the main measures for the dilution [of the segment]. As the concentration is still very large — more than 85% of financial services are held by five banks — the result is that you can’t realize it immediately,” points out the president of ABFintechs, Diego Pérez.

The executive points out that, in the payments market, the presence of those new institutions is more relevant. “Pix boosted a lot the access of small entrants, because a fintech has the same computational, availability, and financial settlement capacity as a large bank, because the structure is maintained by the Central Bank itself,” says Mr. Pérez.

Source: Valor International

https://valorinternational.globo.com

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Winter corn drives record grain harvest

The Risks of Leaving Corn Standing in Fields Through Winter

With the accomplishment of the harvest of crops such as summer corn and rice, and the expectation of an increase in the planting area of winter corn, the National Supply Company (Conab) has raised its estimate for the national production of grains and fibers in this 2021/22 season.

The projection now indicates 270.2 million tonnes, 851 million tonnes more than estimated in April and a record volume, 5.7% higher than the 2020/21 cycle. According to the Brazilian Institute of Geography and Statistics (IBGE), which also updated numbers on Thursday, with a slightly different methodology, it will be 261.5 million tonnes, a rise of 3.3%.

“This improvement in production is explained by the larger planted area in the second-crop of corn, in addition to the better development at the end of the crops cycle, especially rice, corn and soybeans,” writes Conab in its 8th report on the season – which was revised at the end of the day, due to an error about the second yearly crop

For corn, total production is now estimated at 114.6 million tonnes, a 31.6% increase in comparison with 2020/21, when there was a harvest loss due to drought in the winter. “The longer window for planting the second harvest, together with market conditions, favored the growth of the cereal area,” Conab says.

Last month, the state-owned company forecasted a total corn harvest of 115.6 million tonnes. The second crop production alone is expected to reach 87.7 million tonnes, an increase of 44,4% over 2020/21.

“During field trips, the company’s technicians identified sown areas even outside the ideal window, which shows that the expected profitability for the crop is still attractive to producers,” says Conab’s president Guilherme Ribeiro in the text released.

This increase reduced the negative impact of adverse weather conditions in important producing regions for the second harvest, such as the state of Goiás and part of Mato Grosso.

“The current harvest will not reach the potential productivity, but it still tends to be a good production, mainly because of earlier plantings. However, we still need to pay attention to the crop development,” Conab points out.

Another important second yearly crop production, cotton has counted on favorable weather. And, also with a gain in area, production should reach 2.82 million tonnes, the same volume projected in April. If confirmed, it will be the second best result since official records began, with a 19.5% increase over the previous harvest, being lower only than the 2019/20 cycle.

The expectation of a good second harvest is being confirmed for beans, according to Conab. “The more favorable weather has contributed to a higher grain yield, in most producing regions, which brings a harvest expectation at 1.4 million tonnes, an increase of 23.3% compared to the same period of the 2020/21 season.” Together, the three bean crops are expected to total 3.1 million tonnes – the same volume expected last month, 8.4% higher than 2020/21.

Among the first-crop products, soybeans are already 95% harvested. The estimated production is 123.8 million tonnes, a reduction of 10.4% in relation to the previous harvest, but with an increase of 1.14% in relation to last month’s calculation.

In the case of rice, the harvest had already reached 91% of the sown area when the Conab report was completed, and Brazil is expected to produce 10.7 million tonnes, slightly above the forecast in April (10.5 million). Compared to last year’s harvest, there is a drop of 9.1%.

“The drop reported for these grains [soy and rice] in this cycle is explained by the drought in the Southern states of the country and in part of Mato Grosso do Sul between the end of 2021 and the beginning of this year,” explains the Conab text.

Among the winter crops that have not yet been sown, the international scenario stimulates the planting of wheat. Conab expects the area to increase by 3% in relation to the previous cycle, to 2.82 million hectares. With this, and if good weather conditions are maintained, production may reach 8.13 million tonnes, 5.9% more than last season.

Source: Valor International

https://valorinternational.globo.com

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Enel Green Power to build new wind farm

The wind power is the second most desired form of electricity generation in Finland – Baltic Wind

Enel Green Power, the renewable energy arm of Italy’s Enel, has started to build a 348-megawatt wind farm in Bahia as part of its investment plan in clean power. The plan is to install a solar farm and a battery system in the future so that the venture becomes hybrid. Located in the municipalities of Umburanas, Morro do Chapéu and Ourolândia, the wind farm will have investments of R$2.5 billion and will consist of 81 wind turbines, all already contracted with Nordex Acciona.

Power generation will be intended for the free market. Becoming hybrid, however, still depends on the definition of technical regulations — rules for hybrid farms were approved last year — but Enel is already ready for this step, said Roberta Bonomi, head of Enel Green Power in Brazil. The company is also ready to expand if demand for power in the free market remains high, she told Valor.

Ms. Bonomi pointed out that not only Aroeira, but all the company’s plants are being considered for hybrid operation, with solar plants or storage systems. At the first moment, clean and cheap energy development was the focus in the country, and now, with the possibility of working with hybrid power plants, the company seeks a solution for the intermittency of wind and solar.

“Considering that the country has a large hydroelectric capacity, which is the natural batteries of the electrical system, [systems of] batteries would be the perfect way to achieve stability,” she said. She points out that wind and solar complement each other at the peak of operation — wind generates more electricity at night — and batteries, today more competitive, will add stability. “This will allow us to take even more advantage of the Northeast region’s resources and increase the system’s capacity,” Ms. Bonomi said.

In the free market, it is possible to choose the power supplier, and decarbonization, as a rule, has led many companies to seek renewable generation as a way to meet the goals of reducing greenhouse gas emissions. Even with the effects of war and a more adverse economic scenario, Enel Green Power’s plans for Brazil are maintained. “The energy transition is a movement that cannot stop,” the executive said.

She commented that energy transition, and an eventual acceleration in this process, places more responsibility on the companies in the industry and forces them to have a broader look at issues related to sustainability, especially because they are increasingly seen as driving a less carbonized energy.

Bahia, she exemplifies, is a state where the company has been active since 2011 and is considered key for the company since 40% of Enel Green Power’s total 4.7 GW of installed capacity is in the state. For the implementation of the new farm, the company is negotiating with the authorities so that local professionals keep 50% of the 1,200 direct jobs to be generated. In the world, the company has accelerated the goal of zero carbon, which has to be reached in 2040, 10 years before the initial target, and wants to leave the coal-fired generation business by 2026.

As for offshore wind power, an offshore installation technology that is at the center of debates in the power industry, Ms. Bonomi says that the company is not yet considering entering this segment because it is still more expensive than onshore plants.

She pointed out that wind farms are close to the coast in Brazil, which means a very high cost for the benefits that would be obtained by the source. Another reason is that the country still has large tracts of land and potential for onshore plants, which is not the case in other countries.

For her, the source can make sense in the future, but the ideal would be to let other countries advance in the development of offshore generation, even as a way to reduce implementation costs. “At this moment, it doesn’t make sense to invest in Brazil in a technology that is more expensive. Our main goal is to reduce the bill for the final consumer.”

Source: Valor International

https://valorinternational.globo.com

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Schwab mulls buying Itaú’s stake in XP

U.S.-based Charles Schwab is said to be interested in a deal with Itaú — Foto: Reprodução
U.S.-based Charles Schwab is said to be interested in a deal with Itaú — Foto: Reprodução

After Itaú exercised the option to buy another stake in XP two weeks ago, of 11.36%, investors began to approach both to discuss a potential purchase of the shares. One interested buyer in talks is U.S.-based Charles Schwab, Valor’s business website Pipeline found out.

Finding a buyer for a relevant stake paves the way and speeds up Itaú’s intended exit, which, in principle, is seen as happening gradually after two block trades since last year. XP is very interested in moving forward with the talks with Schwab and replacing Itaú with a new strategic partner, the sources said.

The U.S.-based company inspired XP to become a retail investment platform. It is not the first time XP and Schwab get closer. The American financial firm studied investing in Guilherme Benchimol’s company years ago, but the size of the business did not make sense for Schwab then.

Although the seller is Itaú, XP has been directly involved in this matter to reach an outcome that makes sense for the company in the long run, one source said. XP said last week that it would study buying Itaú’s stake. XP unveiled Thursday a share buyback program of up to R$1 billion. Finding a partner in the market is a more economical and much more strategic way to do so.

XP started the international retail expansion with a project of international investment accounts abroad – it already offers “private” clients access to products through offices in New York and Geneva. XP could stand out with Schwab on its board and explore these markets.

“There are interested buyers approaching XP and Itaú. All they have to do is to put it on the block,” said another source, who declined to name investors. The potential sale of Itaú’s stake is a window for investors with a long-term vision to buy a relevant position into XP at a discounted price – the company continues in operational growth mode, but shares dropped to $18.95 from $27 in the IPO, in December 2019.

XP took another step to go global on Thursday. The company rose almost 7% right after unveiling XTAGE, a trading platform for digital assets in partnership with Nasdaq Market Technology, the group that operates the U.S.-based technology exchange.

XP is valued at $10.8 billion on Nasdaq. Schwab is worth $123 billion.

The original story in Portuguese was first published on Valor’s business website Pipeline.

Source: Valor International

https://valorinternational.globo.com

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Labor market reflects racial inequality in country

The Brazilian labor market is another segment of society that reflects racial inequality. Unemployment is higher among blacks (16.3%) and brown people (15%) than among whites (10.8%), according to data for 2021 from IBGE’s Continuous National Household Sample Survey (Pnad). The informality rate is also higher for blacks (52.9% for brown people and 49.4% for blacks) than for whites (43.8%).

The index measures the proportion of informal jobs in relation to the total number of jobs. In income, the gap is clearer: the average income of a black worker was R$1,907 in 2021 – only 57% of that of a white worker (R$3,310).

For specialists, the differences reflect, besides situations of discrimination, a previous trajectory of unequal opportunities according to race and social origin, especially in education. It is in this context that they highlight the role of racial quotas for universities — whose law is 10 years old — as one of the instruments to try to mitigate the problem.

The percentage of black and brown students between the ages of 18 and 24 in public universities, which was 32% in 2001, rose to 40% in 2012 and then to 52% in 2021, according to an estimate by Luiz Augusto Campos, a professor at the State University of Rio de Janeiro (Uerj).

Education explains a good part of the income difference between whites and blacks in the labor market, says Ipea researcher Rafael Guerreiro Osório, although there are regional influences, by occupation and type of activity.

Boards of directors

In the early 2000s, Wellington Silva was in company boards and never met any other black executive. More than 20 years later, discussions about racial diversity in the business world have increased, driven mainly by the adoption of ESG (environmental, social and governance) metrics in investment analysis. In practice, however, the evolution is very small.

Currently, some boards include members like Denísio Liberato (Neoenergia), Rachel Maia (Vale, BB and CVC), Fausto Augusto de Souza (Copel) and W. Don Cornwell (Natura). These black people represent a tiny slice of the more than 3,500 seats in Brazilian public companies considering board members, chief executive officers and chief financial officers.

Carlos Portugal Gouvêa, a professor at the University of São Paulo (USP), decided to conduct an unprecedented survey to map this situation. The research indicated that the chance of a white person to occupy some of the best paid jobs in the country is 58 times greater than that of person of color.

The study, conducted between January and May 2021, investigated the racial profile of the top management of companies listed on B3, the Brazilian stock exchange, by analyzing photos published on the internet. In all, 442 companies and 3,561 positions were surveyed. In this first stage, seven potential black and 28 brown board members were identified. Among CFOs and CEOs, it was noted that one CFO could be considered black. Among brown officers, the survey identified three CEOs and one CFO.

Afterwards, the racial information was submitted to the companies themselves for validation, and 69 of them (15.61% of the total) answered back. This new set, which represented 727 positions, showed that 712 of them were occupied by white people, nine were yellow, and six were brown. No black person was identified in this second stage among all the positions.

“We need much higher percentages for the numbers to become representative,” said Mr. Gouvêa, who, in addition to teaching at USP’s Law School, is the founder of law firm PGLaw. If racial diversity remains low, there is a risk of “tokenism,” when symbolic inclusion occurs with the aim of making superficial concessions to minority groups.

There is a mismatch between those who have the decision-making power in companies and the rest of society, which can be dangerous for companies, the professor warned. “It is important not to turn the subject into a marketing event. The idea of the diverse board is to offer new perspectives on the functioning of the company itself and for its own business plan,” says Mr. Gouvêa.

Cristina Pinho — Foto: Leo Pinheiro/Valor
Cristina Pinho — Foto: Leo Pinheiro/Valor

There are still barriers and cultural biases for the ascension of women and black people in the executive career, an important step for those who wish to join a board of directors, said Cristina Pinho, a member of the board of Ocyan, a private company. The rise to a position like this also depends on interpersonal relationships. “The nomination of white women comes from white men, who predominate on the boards. Where are the black men? They are not on the boards. That gear feeds on itself.”

Specific programs for the inclusion of blacks in top management positions in companies are still rare, said Cássio Rufino, a partner at MZ Consult. He is the chief operating and investor relations officer at the company that offers market solutions in IR. “Finding a white man among ‘farialimers’ is much easier,” he compares, citing the executives who work on Avenida Faria Lima, the corporate address of several companies in São Paulo.

When he attends trade shows and meetings with investor relations professionals, Mr. Rufino sees himself, more often than not, as the only black person present. These events bring together many analysts, managers and executives, who may in the future become CFOs or CEOs.

Large companies have a responsibility to be influencers for small ones, said Rachel Maia, board member and founder of RM Consulting. “Companies are looking for referrals for greater plurality.”

“I couldn’t even imagine that I would be able to do a college degree in engineering. My intention was to finish the technical course and work in Curitiba,” said Fausto Augusto de Souza, employee representative on Copel’s board of directors. Elected in 2021, he was the only black person among the candidates. The executive, who lived in the interior of the state of Paraná, studied electrical engineering after joining the company and then took a master’s degree. Now Mr. Souza is looking to expand his specialization and become an independent board member in the future.

Source: Valor International

https://valorinternational.globo.com

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Embraer to hire 1,000 people in Brazil

Carlos Alberto Griner — Foto: Silvia Costanti/Valor
Carlos Alberto Griner — Foto: Silvia Costanti/Valor

Embraer, the world’s third-largest manufacturer of commercial aircraft, is hiring 1,000 people in Brazil for different positions and levels in preparation for the projected growth cycle in the coming years.

Firm demand for executive jets, expectations of an upturn in commercial aviation, entry into new markets – including the launch of a cutting-edge turboprop and Eve Holding’s electric vertical take-off and landing vehicle (eVTOL) – and the expansion of affiliates underpin the opening of jobs across different units in the country.

“Hiring is the materialization of what Embraer had been indicating for the future,” Carlos Alberto Griner, the company’s vice president of people, ESG and communication, told Valor.

According to the executive, the move is aligned with the forecast that 2022 would be a year of recovery, with the resumption of growth in 2023. “Since the industry has a long cycle and requires qualification, we have to start looking at future needs with some anticipation,” he said.

In 2022, the company expects to deliver 60 to 70 commercial aircraft and 100 to 110 executive jets, compared to 48 and 93, respectively, last year – so the guidance already includes some growth.

Resumption of production at Embraer, creation of Eve, acceleration of EmbraerX, growth of Atech and Tempest, and other projects were considered in the package. “This brings a new demand for talent,” he added.

At the end of last year, the company boasted almost 18,000 employees worldwide, 80% of them in Brazil. By the end of 2022, there will be more than 19,000 employees.

The hiring comes two years after 900 workers were dismissed in Brazil as part of the efforts to face the crisis triggered by the Covid-19 pandemic and the losses from the cancellation of the sale of the commercial aviation business to Boeing. The entire aviation industry, from manufacturers to airlines, suffered from the effects of the pandemic that reduced the volume of travel worldwide.

About half of the new jobs were opened by Embraer in operation, and most of these positions are expected to be filled by people dismissed in September 2020.

According to Mr. Griner, the company will also take the opportunity to seek more diversity, in line with the environmental, social and governance commitments assumed. The working model is flexible now and can be in-person, remote or hybrid, depending on the requirements of the position. “The people strategy is to anticipate, qualify and take advantage of diversification,” he said.

Source: Valor International

https://valorinternational.globo.com

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Analysis: Consolidation takes off in airline industry with Avianca-Gol deal

Decision reinforces view of analysts and market experts that there are many mergers to come in the industry — Foto: Blende12/Pixabay
Decision reinforces view of analysts and market experts that there are many mergers to come in the industry — Foto: Blende12/Pixabay

The decision by Avianca and Gol shareholders to move forward with the creation of a holding company reinforces the view of analysts and market experts that there are many mergers to come in the industry. The Covid-19 crisis has caused many companies to suffer severe losses and led some, like Latam, to ask for protection from creditors. The situation is now compounded by the skyrocketing price of oil.

The main shareholders of Colombia’s Avianca and the Constantino family, which is the controlling shareholder of Gol, have signed an agreement to create a holding company that will control both airlines and hold a non-controlling stake of 100% of the economic interests in Viva’s operations in Colombia and Peru, as well as a convertible debt investment representing a minority stake in Chile’s Sky Airline. The holding company, called Grupo Abra, will be a UK-based private company. The Constantino family will have the largest stake, sources say.

This is a hot market. Besides the consolidation movements abroad, Latam became the target of competitor Azul, which sought to take advantage of the Chapter 11 plan (judicial recovery) of the Chilean company in the United States and is in talks with creditors to buy the rival. The effort, however, lost steam after Latam’s successful negotiation with creditors, which suggests that Azul’s approaches will not have an effect.

Gol CEO Paulo Kakinoff told Valor recently that mergers and acquisitions are likely to gain steam and cited American Airlines, which bought 5.2% in Gol, as an example. Now, the company has taken a new step.

Avianca Holding was once controlled by businessman German Efromovich, brother of José Efromovich, who owned now extinct Avianca Brasil. The businessman ended up losing control of the company because of an unpaid debt of $456 million with United Airlines. As a result, United emerged as one of the largest shareholders of Avianca before the pandemic and the company’s judicial reorganization.

Avianca completed its reorganization recently and raised $1.7 billion through financing. Shareholders now include Kingsland International Group, Elliott International and South Lake, as well as U.S.-based Delta. It is not clear what role United will play in the new holding company to be created.

On the other hand, Citi analysts pointed out that the agreement between United Airlines and Azul ends on June 26. As Gol has already received an injection from American Airlines, “it will be interesting to see if this business development will increase the urgency for United to reach a similar agreement with Azul,” the bank said. United currently owns about 8% of Azul.

In an earnings conference call this week, Azul executives were asked about talks to expand the agreement with United, but did not provide details. They only said that there is a window to extend the agreement and that there are ongoing talks.

The move by Gol and Avianca still lacks regulatory approval. Yet, sources signaled that there is no concern because the deal is not seen as creating much route overlap – the issue is one of the most sensitive in the analysis of antitrust agencies.

When Azul started approaching Latam, the former showed a strong appetite for consolidation. Behind the scenes, Azul even signaled that if talks with Latam were not successful, it would approach Gol.

In an interview with Valor in the middle of last year, Gol’s chair Constantino de Oliveira Júnior, who will take over as CEO of Abra, emphatically said that “by nature, we place ourselves in the position of consolidators, buyers, and not sellers in this process [of market consolidation].”

In view of the expected success of Latam’s judicial recovery, the group is expected to come out stronger than ever in view of the more favorable negotiations with partners, especially lessors, that Chapter 11 brings. The same happened with American Airlines and Delta, which faced restructuring.

At the end of the day, Azul, which has always signaled interest in consolidation, ended up lagging behind. It remains to be seen how the partnership with United will unfold and if the group has more cards up its sleeve.

Source: Valor International

https://valorinternational.globo.com

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New reading shows inflation persistently at double-digit levels

Will Gold Save You From Inflation? - Macro Hive

The result of the Extended Consumer Price Index (IPCA) for April reinforces the complicated scenario for inflation. It is yet another price index showing inflationary pressures spread throughout the economy, with strong increases in food, fuel, industrial goods and services prices.

It was the eighth month in a row with the 12-month inflation at double digits, which shows the difficulty of the Central Bank to bring down inflation to levels close to the targets, of 3.5% this year and 3.25% next year.

This points to the need for further monetary tightening, with interest rates likely to remain high for longer.

The IPCA in April was 1.06%, above the 1% expected by the analysts heard by Valor Data, even with the 6.27% deflation of the electric energy item. In 12 months, the indicator has risen 12.13%, the highest since October 2003. In the first four months of the year, the variation already stands at 4.29%, 0.79 percentage points above the Central Bank’s target for 2022.

The diffusion index once again brought bad news. The data, which show the percentage of items on the rise in the month, was 78.25%. It is the highest since January 2003, according to MCM Consultores Associados. It is a highly pervasive inflation.

There are effects of the war between Russia and Ukraine, which puts pressure on commodity prices and affects global supply chains, and the impact of the reopening of the economy with the easing of social distancing measures due to the improving numbers of the Covid-19 pandemic.

The cores, which seek to reduce or eliminate the influence of the most volatile items, continue at very high levels. The average of the five measurements most closely monitored by the Central Bank was 0.95% in April, close to the 0.98% seen in March, according to MCM figures. In 12 months, the average of these cores went to 9.69% from 9.01%. In summary, even indicators that seek to isolate or reduce shocks to inflation are close to double-digit levels.

The rise in food at home prices slowed down a little last month in relation to the 3.09% seen in March, but the increase was still very strong, at 2.59%. In 12 months, food at home went to 16.11% from 13.72%. Fuels had another significant increase, with gasoline prices rising 2.48% in the month.

The trajectory of rising prices of industrial goods is impressive. In April, they increased 1.22%, the ninth month in a row with 1% or over, points out MCM. In 12 months, these products have advanced 14.22%. Two years ago, in April 2020, the inflation of industrial goods on this basis of comparison was 0.05%.

The problems in global supply chains, due to the pandemic and the war in Eastern Europe, put pressure on the prices of these products. A lower exchange rate could ease these pressures, but the rate has appreciated again in recent weeks, to around R$5.15 to the dollar.

Finally, there is services inflation, which accelerated to 0.66% in April from 0.45% in March, taking the 12-month inflation to 6.94% from 6.3%. In the case of core service inflation, which excludes the domestic services, courses, tourism and communication groups, the picture is even worse. The rise last month was 0.79%, bringing the 12-month inflation to 7.74% from 6.98%. This measure is concentrated in the items that are most sensitive to demand, pressured in the services sector by the reopening of the economy.

This inflationary picture is president Jair Bolsonaro’s greatest weakness in his quest for reelection, as it wreaks havoc on the population’s purchasing power. And new pressures on prices are underway. The increase in diesel oil prices announced on Monday, of 8.87% in refineries, will not have a great direct impact on the IPCA, but has an important effect on the economy, by increasing costs in various industries. Such high inflation for so long is one of the main reasons for the low popularity of Mr. Bolsonaro, who heavily criticizes Petrobras’s pricing policy.

Some analysts project a double-digit IPCA also this year, which will contaminate next year’s indicator, because of the carryover effect, the phenomenon whereby past inflation increases future inflation. This scenario requires higher interest rates for longer, which will hit economic activity in the second half of the year and next year. The Selic, Brazil’s benchmark interest rate, which was at 2% until March 2021, is expected to rise to at least 13.25%.

Source: Valor International

https://valorinternational.globo.com

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Government eliminates import tax to curb inflation

Marcelo Guaranys — Foto: Marcelo Casal Jr./Agência Brasil
Marcelo Guaranys — Foto: Marcelo Casal Jr./Agência Brasil

The government is zeroing the import tax rate of several products to contain inflation, said on Wednesday the executive secretary of the Ministry of Economy, Marcelo Guaranys, in an interview to announce decisions taken by the Executive Management Committee of the Foreign Trade Chamber (Gecex/Camex). “These measures don’t reverse inflation, but businessmen think twice before raising prices,” Mr. Guaranys said. The discussion about steel was intense in the last two days, he added.

Beef, chicken meat, wheat and wheat flour, corn grain, cookies and crackers, and other pastry products had their import tariffs reduced to zero. Besides these, sulfuric acid and mancozeb (the latter had its tax reduced to 4%) are also on the list.

Tariffs were also reduced for two categories of steel, which are rebar used in construction, said Camex secretary Ana Paula Repezza “The impact, in this case, will not be direct on inflation,” she added, noting that the request to reduce steel taxes had been under consideration for eight months. For rebar, the import tariff fell to 4% from 10.8%.

The reductions are valid until December 31, 2022, and will bring an impact of R$700 million in tax waivers, said Herlon Alves Brandão, undersecretary of Intelligence and Statistics of Foreign Trade at Camex.

This loss, however, will not need to be compensated with the indication of other sources of revenue, because it is a regulatory tax, clarified the deputy executive secretary of Camex, Leonardo Diniz Lahud. “Import taxes don’t have a collection function, they regulate the market, either for one side or the other,” he said.

About the import tax of 4% established for steel rebar, Ms. Repezza said it is in line with the world average. She also added that the meeting held the day before with businesspeople from the steel sector was not the first to analyze the issue and that the decision taken now is the result of a process that has been going on for months and included a wide debate.

On Tuesday, after the meeting, leaders of the Instituto Aço Brazil, which represents steelmakers, said that Economy minister Paulo Guedes had instructed the team to re-examine plans to cut the product’s import tariff to 4% from 10.8%. The tariff cut is a request made by the construction industry, which complains of rising prices.

Mr. Guaranys contextualized the decision on the import tax by speaking that the opening of trade is related to improving the business environment and increasing productivity and competitiveness, one of the major pillars of economic policy. “We have made very important steps in this context,” he said. “Minister Paulo Guedes’s line is to make gradual opening.”

The first move was the 10% cut in import tariffs on capital goods and technology; then the 10% reduction of practically the entire Mercosur Common External Tariff (TEC). Then, an additional 10% cut was made on the tariffs for capital goods and technology and at the moment there are negotiations with Mercosur for a new cut in the TEC. Internally, the government cut the Industrialized Products Tax (IPI) by 35%.

“We have been going through a moment of great inflation, harmful to the population,” said Mr. Guaranys. “We he reduces rates on some specific products, with an impact on the population”.

Source: Valor International

https://valorinternational.globo.com

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