Boom of pulp, paper projects drive suppliers

Forest-based sector expected to invest more than R$63m in Brazil by 2028

10/11/2022

Joao Cordeiro — Foto: Silvia Costanti/Valor

Joao Cordeiro — Foto: Silvia Costanti/Valor

The more than R$63 billion in investments planned or being executed by the forest-based industry in Brazil up to 2028 are moving the global chain of suppliers, from consulting and engineering services companies to manufacturers of machinery, equipment, and other inputs.

According to a survey by Pöyry, a global reference for the sector, in the pulp segment alone there are 11 projects under construction, of which seven are in South America. In the region, there are still seven other projects under study and Brazil is expected to get a good part of the future investments in the sector.

In cardboard and packaging paper, according to the consulting firm, it will be 12 million tonnes of additional capacity between 2022 and 2024. There are projects in Brazil, but most of them are concentrated in China.

“Since the 1980s, there has been a great deal of concentration among suppliers. The problem is not capacity [to service all projects], but timing. The queues have increased, but this also helps discipline the market,” said João Cordeiro, CEO of AFRY Management Consulting group, of which Pöyry is part.

Leader in the supply of air gases to the pulp and paper industry, White Martins opened at the beginning of the year a unit in Minas Gerais, which supplies LD Celulose’s dissolving pulp production lines, and has already started the construction of a new gas factory in Mato Grosso do Sul. This new project will supply the future Suzano unit in Ribas do Rio Pardo.

Andritz, in turn, recently informed that it will supply Bracell SP Celulose with four production lines for tissue paper, to be installed at the Lençóis Paulista (São Paulo) mill, with start-up scheduled for 2024. The new tissue paper mill will be self-sufficient in steam and electricity consumption for the drying process.

According to Gilney Bastos, CEO of White Martins and Linde for South America, the paper and pulp sector is one of the main clients, in volume, of the air gas industry, and has been growing strongly in the region. Besides Brazil, Paraguay, Uruguay, and Chile have projects under execution or already announced.

“The quality of the projects is impressive,” says Mr. Bastos. White Martins estimates its share in this market at 60%, after winning large contracts in recent years in the region.

In less than a year, the multinational opened two new units in Brazil. Besides the air separation plant dedicated to the production and supply of industrial gases in Minas Gerais, with a capacity of up to 60 tonnes of oxygen per day, it put into operation, in 2021, a unit with total production capacity of 240 tonnes of oxygen per day for Bracell in Lençóis Paulista (São Paulo).

According to Mr. Bastos, in Ribas do Rio Pardo, the unit being built to serve Suzano will be complete, the second of its kind in Brazil, and will supply different types of gases also destined for hospitals and agribusiness.

The first complete White Martins plant on Brazilian soil was also installed in Mato Grosso do Sul, in Três Lagoas, where Suzano and Eldorado produce pulp and Sylvamo (a company that was spun off from International Paper), printing and writing paper.

A gas plant for a specific client requires investments of around $15 million to $25 million. On the other hand, a complete unit requires investments of $35 million to $50 million. In all cases, the investment in the facilities is made by White Martins.

Currently, the Brazilian operation supplies about 800 tonnes of oxygen per day, in six units, which may be on or off-site. Of this volume, 90% is produced onsite. “There is still more to come. The market is receptive,” said the executive.

As far as the world consumption of certain types of paper and pulp is concerned, it is certain that there will be a need for new mills ahead. In Mr. Cordeiro’s opinion, some major trends, such as the search for more sustainable materials, open positive perspectives for the forest-based industry.

In paper, while the demand for tissue and packaging papers will continue to expand, the printing and writing segment is expected to continue to shrink globally, a reflection of digitalization. Between 2021 and 2035, according to the consulting firm, the consumption of cardboard and packaging paper around the world is expected to grow at an annual rate of 1.1%, with China’s rate of 2% standing out.

In pulp, the global demand for all types of fiber, which was at 424 million tonnes in 2020, may reach 543 million tonnes in 2035 – in market pulp, which is produced with the purpose of being sold to third parties, the volumes that today are around 70 million tonnes per year will reach 100 million tonnes shortly after 2035, driven by Chinese demand.

With available land and competitive forests, analyzes Mr. Cordeiro, Brazil is expected to continue to attract investments in this segment. “When you compare the cost, in China it is 50% more expensive to make pulp than in Brazil, considering the Brazilian pulp placed there,” he explains.

At White Martins, according to Mr. Bastos, the Brazilian operation is “a little more verticalized” than the traditional one, which makes it capable of quickly meeting the additional demand. Transferred from Rio de Janeiro to Sorocaba (São Paulo), the multinational’s mill is flexible and can also build carts and tanks. “By having this flexibility, we can quickly adapt,” he said.

*By Stella Fontes — São Paulo

Source: Valor International

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Construction materials rivals put on block will vie for same buyers

Retail chains are not part of the main strategies of their controlling shareholders

10/11/2022

The rivals of construction materials C&C, owned by the family Faria, and Telhanorte, which belongs to the French group Saint-Gobain, were put up for sale and are likely to compete for the same buyers. Although the sale of construction materials has grown in the country in 2021, the two major retail chains are not part of the main strategies of their controlling shareholders, sources familiar with the matter say.

With 77 stores in Brazil, Saint-Gobain hired Bradesco BBI to sell its retail chains in the country. Besides Telhanorte, the multinational owns Tumelero, with a strong presence in Rio Grande do Sul. C&C, which has 36 units in São Paulo, Rio de Janeiro and Espírito Santo and belongs to the daughters of Aloysio Faria, owner of bank Alfa, who died in 2020, is in talks with BTG Pactual to study the sale of the business.

The talks for the sale of the two chains have been going on informally for a few years. C&C’s Aloysio Faria resisted the idea of selling the chain he founded, sources familiar with the matter say. After the banker’s death, two years ago, the heiresses hired investment banks to evaluate the business – besides Alfa Bank and C&C, the Faria family owns the palm oil company Agropalma, the ice cream chain La Basque, the Transamérica hotel chain and radio stations.

Telhanorte is not Saint-Gobain’s crown jewel either, two sources told Valor. The French company has been looking for a buyer for at least four years, a person familiar with the matter said.

In the ranking prepared by the Brazilian Institute of Retail & Consumer Market Executives (Ibevar), the two chains are among the seven largest in the country. Saint-Gobain, which recorded revenues of R$15 billion in the country, does not disclose revenues per segment.

In 2019, the Faria family’s construction materials chain underwent restructuring, but the company arrived weakened in 2020, a year marked by the pandemic, as it was not prepared for online sales, sources say.

Last year, sales of construction materials totaled R$202.3 billion, a nominal growth of 34.3% over 2020. The real increase, however, is 4.4%, discounting inflation in the sector, according to a survey by the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre), compiled by the National Association of Construction Material Merchants (Anamaco).

Although sales will grow in 2021, retail specialist Enéas Pestana said that the construction material sector is difficult. “You can’t compare this sector to pharmaceutical and food retail,” said Mr. Pestana, who has a namesake consulting company and has seats on retail company boards.

Mr. Pestana recalled that the construction material sector has a lot of informal jobs and is formed by many small family-owned retailers. “It is an extremely pulverized sector, which has a lot of room for consolidation.”

Sources within C&C say that the points where the stores are located are likely to be of much more interest than the chain as a whole.

According to Mr. Pestana, the two chains that are for sale have strong brands in the market and are expected to entice investors, although they have already been made available to buyers informally a few years ago.

Mr. Pestana does not see the same buyer acquiring both brands. “Whoever places a bid for C&C will have to make a turnaround. I see Telhanorte more competitive at this point, since the group’s stores have a wider assortment and are more modern.”

The retail consultant sees financial investors, such as private equity funds, and strategic investors interested in the business. “But if an asset management company takes over the business, it will have to put people in the management team. It is not obvious for a private-equity firm to enter this sector without putting someone who understands the business.”

Advent entered this segment with the purchase of the building materials and homeware chain Quero-Quero in 2010. In August 2020, the fund raised R$2 billion in an IPO. Sources say the firm is not interested in returning to the sector.

Chile’s Sodimac is said to be a potential interest buyer of both businesses. The company acquired Dicico in 2013.

C&C and Saint-Gobain said they do not comment on market rumors. Bradesco BBI and BTG declined to comment.

*By Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Water agency, control bodies join forces to advance in sanitation framework

Goal is to end irregular situations in about 20% of the Brazilian cities

10/10/2022

Veronica Sánchez — Foto: Wenderson Araujo/Valor

Veronica Sánchez — Foto: Wenderson Araujo/Valor

The National Water Agency (ANA) has made an alliance with control bodies and the Judiciary in an offensive against 1,117 municipalities that have not adapted to the requirements of the basic sanitation regulatory framework. The goal is to put an end to the irregular situation experienced by about 20% of Brazilian cities, putting pressure on the local authorities to comply with the new law, which completed two years in July and requires the universalization of services by 2033.

Many state-owned water and sewage utilities, especially in the North and Northeast regions, have not proven to be economically and financially able to meet this deadline. Other municipalities – including capitals such as Salvador and João Pessoa – have no valid contracts with the current providers. In both cases, there is non-compliance with the new legal framework and the municipalities must bid for the services, opening the way for the change of operator and the advance of the private sector.

The problem is that the ANA, in practice, has no attributes to enforce anything. The change of operators in an irregular situation is at the mercy of local managers, since the municipalities hold the ownership of services, and the states are in charge of designing regionalized bidding blocks – to which mayors may or may not join. The most the federal government can do is interrupt the channels of public funding, such as transfers from the Ministry of Regional Development and disbursements from the Brazilian Development Bank (BNDES) or Caixa, for those who are outside the legal framework.

ANA’s president Verônica Sánchez says that they draw up the reference standards for sanitation, but have no power,” says. The agency signed two technical cooperation agreements to seek the implementation of the sanitation law at the local level. One was signed with the National Council of the Prosecution Service (CNMP) and another with the National Council of Justice (CNJ). The idea is to provide prosecutors, attorneys, and judges with greater knowledge about what is at stake.

This way, it is intended that the control organs act in the sector’s inspection and judges are equipped to make decisions. The ANA will be responsible for issuing general recommendations. A third agreement is being negotiated, along the same lines, with the Association of Brazilian Courts of Accounts Members (Atricon).

According to estimates by Abcon (association of private sanitation concessionaires), it will be necessary to invest R$308 billion over the next four years in order not to compromise the universalization goals contained in the new law. If this investment plan is complied with, it is expected that 91% of the population will have treated water, and 71% will have sanitary sewers by 2026. Half of the Brazilians do not have sewage treatment today.

*By Daniel Rittner — Brasília

Source: Valor International

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Project seeks to increase organic production

FGV study points ways to accelerate the transition of family farmers

10/10/2022

Organic production in Canindé, state of Sergipe — Foto: Emiliano Capozoli/Valor

Organic production in Canindé, state of Sergipe — Foto: Emiliano Capozoli/Valor

Marcelo Fukunaga’s life changed radically when his daughter was born. Besides experiencing the excitement of becoming a father, he also realized that, as a farmer, he did not have the courage to feed her with the products he grew on his property, because of the amount of pesticide he used. It was then that he took the courage and decided to migrate to organic production on his 10 hectares of land in Vale do Ribeira, in the south of São Paulo state.

But not all small producers have the motivation for such a change. And as much as some want to reduce their dependence on chemicals, they face a many challenges.

To unlock this market, the Center for Sustainability Studies of the Fundação Getulio Vargas (FGVces) prepared a study with recommendations for the public and private sectors to encourage the transition of small producers. The initiative had the support of Carrefour Brazil and the Carrefour Foundation and the collaboration of 50 organizations and more than 70 people, including Mr. Fukunaga.

Those who believe that the difficulty for organics is low productivity are wrong, he says. “In the past, I was always in debt to the poison and fertilizer industries. Today, I produce without debt, and the revenue stays all with me,” says the producer. In 2010, when he changed his model, Mr. Fukunaga reduced his production area to four from ten hectares, and his net income doubled.

The organic produced this way can be as competitive as conventional food. The difference is in the costs after the gate, logistics and certification. “Organic food can be affordable if it is produced close to where it is consumed,” says Taís Brandão, researcher at FGVces and manager of the project.

According to FGVces, it is possible to untie the knot with a tripod formed by technical assistance and rural extension of organic practices, promotion of markets suitable for organic family agriculture, and dedicated public policies. The center defends that the guidelines should also target producers “in transition”, that is, who still don’t fit in fully organic.

There are already some initiatives, such as the São Paulo government’s, which approved in February the Agroecological Transition Protocol, aimed at a “gradual” transition. “There are those who don’t use pesticide, but being organic is not only that,” says Araci Kamiyama, leader of the organic group of the Sustainable Rural Development Coordination (Cati). According to her, the biggest challenge is in the technical support.

On the leg of market access, the study says that retailers need to establish contracts with those suppliers that foresee sharing of losses and of certification costs, purchase guarantee, reduced payment terms, non-consigned sales, and flexibility in supply that respects the season of each food.

Cooperatives can play a crucial role, says the study. This is what made a quick transition possible for Mr. Fukunaga, who participates in the cooperative Coopafasb. “Were it not for the cooperative, I would not have access to markets as I do today,” he says. Coopafasb organizes food baskets sold directly to consumers.

Another leg indicated by FGVces is that of government support. According to Mr. Brandão, besides the need for credit lines for systems in transition, it is necessary that bank employees have the orientation to offer them. “Sometimes the producer wants these lines, but the manager doesn’t know about them or has no incentive to offer them, and directs the farmer to a standard line, which foresees intensive use of external inputs”, says Ms. Brandão.

In São Paulo, a line of credit from Fundo de Expansão do Agronegócio Paulista (Feap) offers up to R$500,000 for each farmer that wants to migrate to organic systems, but the demand is small. “I don’t know why. Some producers are very small and or don’t have planning, but some have capacity,” says Ms. Kamiyama, with Cati. The study also advocates public procurement of organic food and systems in transition.

There is also the leg of science. “When you talk about an organic agroecological model, you don’t have enough inputs or research, and the genetic base comes from conventional agriculture,” Ms. Kamiyama recalls.

The producers who are now seeking a transition for their crops end up learning by doing, as it was for Mr. Fukunaka. “In the previous model, I didn’t have time for my family because I always needed to increase the scale. But there are several techniques that make you produce more food and in a more diverse way. Today I work more calmly and have been able to see my children grow up.”

*By Camila Souza Ramos — São Paulo

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Gerdau targets electric vehicles market

Group invests R$700m to produce purer steel, reduce costs and emit less CO2

10/10/2022

To modernize its technology, obtain productivity gains, and be in line with the new demands for steel with the quality required by the electric mobility industry, Gerdau is setting in motion a R$700 million investment in its Specialty Steel unit in Pindamonhangaba (state of São Paulo).

The specialty steel, unlike the long carbon steel used in construction, has as its main destination the automotive market – in Brazil, the largest share goes to heavy vehicles (trucks and buses). But it also supplies light vehicles. This market represents 80% of sales, via auto parts, auto parts manufacturers, and assemblers. The remainder 20% goes to industrial applications and wind power.

With the investment, the company installed new steel production equipment, whose essential raw material is specialty steel scrap coming both from end-of-life material and from generating sources (leftovers from customers’ industrial lines and others).

“The company is preparing and bringing forward, the new scenario in the automotive industry, with hybrid and electric vehicles. We cannot let a steel shortage happen,” says Rubens Pereira, vice president of Gerdau’s Specialty Steel division in Brazil. Furthermore, automakers are beginning to seek local or regional sources for parts supply, in order to avoid problems such as the lack of chips.

The investment includes the construction of a new building and the installation of state-of-the-art equipment, with a high level of automation, for the production of billets and blocks. “We are now making a much purer steel [clean steel] which, in addition to lower costs and higher productivity, has lower carbon emissions,” says Mr. Pereira.

“At Gerdau, we are following the evolution of demand and the technological transformation of the automotive segment. In recent years, the company has undergone a profound cultural and digital transformation, which has made it even more people-focused, digital, innovative, diverse, and inclusive,” says Gustavo Werneck, Gerdau’s CEO.

With these investments – in Pindamonhangaba, Mogi das Cruzes (state of São Paulo), and Charqueadas (Rio Grande do Sul) – the group is modernizing its specialty steel facilities in Brazil, in a R$1 billion package. Other investments will come in the next two to three years, concluding the program in 2025. Pindamonhangaba’s technological upgrade is aligned with the future perspectives of increasing the mix of electric and hybrid vehicles in Brazil, highlights Mr. Pereira.

Mr. Pereira, an electronic engineer with a degree from ITA (Aeronautics Institute of Technology) and an MBA from MIT (Massachusetts Institute of Technology), came to Gerdau two years ago. He built part of his career in consulting firms (Booz Allen and BCG). After that, he spent 14 years at Cargill and two at BRF.

The Pindamonhangaba unit, which was founded by Aços Villares several decades ago, now has a crude steel capacity of 700,000 tonnes per year, employing 2,300 people. This investment, says the executive, reinforces Gerdau’s presence in its markets, with an optimistic vision for the country’s automotive sector. “In the medium and long term, the sector will recover its production levels recovered.”

The Specialty Steel division accounts for about 15% of Gerdau’s total revenues. In the first semester, sales of 843,000 tonnes generated revenues of R$6.87 billion, adding the operations in Brazil and the United States together. The business, in Brazil, represents almost 50% of the division. The U.S. operations, which also have three steel factories, account for a little over 50%.

According to Mr. Pereira, from 15% to 20% of the production in the three Brazilian factories is exported, mainly to Argentina (half of the shipments), where important automotive clients are located. The other part goes to the U.S., Mexico, and Europe.

*By Ivo Ribeiro — São Paulo

Source: Valor International

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Market is cautiously optimistic about Brazilian real

Since first round of election, local investors have increased bets on the Brazilian currency

10/10/2022

High interest rates in Brazil were already in the scenario, as was the perception that key interest rate Selic will remain unchanged over the coming months. But the results of the first round of elections improved expectations of market players for the foreign exchange rate. Caution still prevails as the U.S. dollar has gained ground around the world, but local investors have once again increased their bets on the real.

Data from B3 show that since the result of the first round was known local institutional investors increased their short positions on the U.S. dollar to $58.4 billion on Thursday from $54 billion on September 30, the last trading session before the first round. In other words, they sold $4.4 billion in the period.

The election of a more conservative Congress propped up Brazilian assets soon after the first round and dissipated part of the uncertainties in relation to the direction of fiscal policy in the next administration. Some asset management companies had already adopted a more optimistic view in relation to local markets before the election, and this bias has gained steam, at least in the short term.

“We have turned a little more positive on the real. The currency has fallen behind and investors focused on emerging markets doesn’t have much of an option. Brazil is becoming one of the few alternatives with a good price,” said Reinaldo Le Grazie, founding partner of Panamby Capital and a former director of the Brazilian Central Bank. Given the lack of investment options in large emerging markets and the more positive feeling after the first round of the general elections, the local exchange rate may be favored, at least in the short run, he said.

“The market saw the election result as a very good one. There was a fear of not having a runoff vote in the presidential election, which would be considered bad due to the lack of discussion about the direction of the economy. Now this debate is emerging. Besides this, the market liked the configuration of a more conservative Congress,” said Mr. Le Grazie.

Although Brazil’s fiscal situation remains unclear, he said, the asset management company has a more optimistic view on local assets at the moment and is more concerned with global markets. “It’s a slightly better scenario in a very difficult world. That looks good for the stock market. And, if the stock market moves forward, it is likely to take the currency with it.”

Gustavo Medeiros, Ashmore’s head of global research, had a very positive perspective for Brazilian assets even before the election. Now, by commenting on investments in Latin America, he said that “politics has been the main risk in the last few years.” He recalled that former President Luiz Inácio Lula da Silva (Workers’ Party, PT) and President Jair Bolsonaro (Liberal Party, PL), who are running in the second round, were already well known by the market, so there was no great surprise as for who the next president will be. “There are uncertainties, but they do not indicate a paradigm shift.”

Mr. Medeiros saw former Minister Henrique Meirelles’s nod as a “positive” development, as he is a free-market believer, and stressed that economists such as Arminio Fraga, Pérsio Arida and Edmar Bacha support Mr. Lula da Silva. “On the other hand, Bolsonaro is expected to keep a lean government policy, which was positive for the market,” he said.

According to Exchange B3, since the end of the first round, international investors have reduced their long dollar position by $3.7 billion, to $24.9 billion.

Ashmore remains positive on Brazilian assets. “With inflation coming under control now, more sustainable growth, and terms of trade more favorable for Brazil, there would need to be a very poorly management of the economic policy to hinder the recovery of local assets,” said Mr. Medeiros.

Kinea Investimentos has a similar view, and has made allocations in Brazilian assets rather than in international ones. “The picture of Brazil today against peers and developed countries is better. We have a primary surplus this year; the fiscal situation here is better than that of [Brazil’s] peers; the current account deficit is moderate and pretty much financed; and we are well advanced in the monetary policy cycle,” said Daniela Lima, Kinea’s economist for Brazil.

“The uncertainty today stems from who the next president will be,” she said. But, regardless of who is in office, “the incentives will be, at least at the beginning of the government, to have a more moderate fiscal agenda and a positive fiscal signal.” In Kinea’s monthly live-streaming event on hedge funds, Ms. Lima emphasized that Brazilian assets, in terms of valuation, are very attractive at the moment. Not coincidentally, the manager is long on the real and Brazil’s stock market, and holds short positions on inflation.

In this month’s letter, Kinea points out that the rationale for being long on the real “is a more proactive tactical view on Brazil, due to attractive interest rates, balanced external accounts, and our expectation that the next administration will have a reasonable fiscal stance at the beginning of its term.”

Although there is greater optimism with the real and other Brazilian assets, some market players still advocate greater caution with the currency. SulAmérica Investimentos, for example, has been trading the real in a more tactical way as there is still no good definition about the fiscal framework to be in effect as of 2023, against a backdrop of strong dollar abroad.

“We are living in a world of much greater uncertainty than we had before the pandemic,” said Alexandre Caldas da Cunha, senior manager of hedge funds at SulAmérica. “We think that if we have a better and more positive definition about how the economic guidelines of the new administration are going to be, whoever it may be, especially because the spending cap will change, there is potential for the real to appreciate. This, however, is not clear yet.”

He sees signs of improvement in the exchange rate, such as the rally seen in the trading session after the first round of the presidential elections. In just one day, the dollar lost more than 4% against the real. “But, at the current level of the dollar, considering the global scenario and the uncertainties here in Brazil, we don’t see great opportunities in the exchange rate at this moment,” he said.

Bruno Marques, a partner and manager of hedge funds at XP Asset Management, also believes that the exchange rate is not the best way to express a more constructive view of Brazil for the time being. During his monthly live-streamed event, Mr. Marques pointed out that the equilibrium exchange rate, which ranged between R$4.8 and R$4.9 to the dollar, has been converging to R$5.15. “We don’t see much of a premium in the exchange rate.”

*By Victor Rezende, Gabriel Roca — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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With a stake in Vale, Cosan raises its bet on mining

Group is expected to reach 6.5% of mining company’s capital with a R$22bn investment

10/10/2022

In a move that surprised investors and analysts, Cosan bought a minority stake in Vale, one of the world’s mining giants, and made it clear that its bet in the sector is high. With a combination of direct share purchases and derivative operations, the group owned by businessman Rubens Ometto is expected to reach 6.5% of the mining company’s capital, equivalent to an investment of R$22 billion, or two-thirds of its market capitalization before the announcement of the operation, placing itself among the major shareholders of the company without defined controlling shareholder since the end of 2020.

From the start, the investment was not well received. According to market sources, Cosan’s strategic rationale was not clear, there are doubts about the financing of the operation and the risk of worsening the financial leverage of the group, which in June was at 2.4 times (measured by the net debt-to-EBITDA ratio) in 12 months. While the holding company’s shares fell 8.7% on Exchange B3 on Friday, at R$16.65, Vale’s securities were practically stable, at R$75.51, on a day in which ore prices were also stable, at US$95.30 per tonne, according to the Platts index, by S&P Global Commodity Insights.

Still, it was an ambitious move. Cosan had already been exploring the mining sector, in which Brazil has competitive advantages and tends to be a leader in the energy transition, with growing demand for metals such as copper, nickel, and cobalt, fundamental to a low-carbon economy. A little over a year ago, the group made R$720 million for the port of São Luís, in Maranhão, which belonged to the Chinese CCCC, and announced a joint venture for iron ore exploration in the state of Pará with Paulo Brito, controlling shareholder of Aura Minerals.

Luis Henrique Guimarães — Foto: Divulgação

Luis Henrique Guimarães — Foto: Divulgação

With the investment in Vale, said Cosan’s CEO Luis Henrique Guimarães to Pipeline, Valor’s business website, the holding company complements its portfolio strategy to operate in all markets in which Brazil holds differentials. Before the mining company, the conglomerate had already invested in agricultural commodities (Rumo), oil and gas (Raízen and Comgás), renewable energies (Raízen), and carbon credits (with Raízen and Radar).

According to Mr. Guimarães, Cosan’s approach at Vale will be friendly. “It is not hostile. We want to be welcome,” he said, stressing the ability to work in partnerships with several players, such as Shell (partner in Raízen) the private equity fund CVC (partner in Moove), and Mitsui. In Vale, the group now wants to approach the board, to validate the thesis that justified the investment. The mining company is an “irreplicable” asset, he stressed.

In a conference call Friday night, Marcelo Martins, Cosan’s chief strategy officer said the company sought a financial model for buying the mining company’s shares that would not impact its financial health, nor the position of its shareholders. “We bought a 4.9% stake, reaching 6.5% after the approval of [antitrust regulator] CADE. But, the way the transaction was structured, we are converting optionality into effective participation,” he said.

According to Mr. Martins, the operation will not increase the indebtedness of the group, which initially contracted R$8 billion in financing with Bradesco and Itaú, amortized with dividends from Raízen and Compass with no fixed term. And there will be no dilution of shareholders. “We will not issue shares to finance this acquisition,” he emphasized.

Both Mr. Martins and Mr. Guimarães have reiterated that if the operation reaches the point of compromising the group’s health, it will not go ahead. In the extreme, Cosan could end its stake in the mining company, but this is not the option today, perceived as the “entry point” moment for Vale, which is still struggling with the damage from the dam collapse in Brumadinho (Minas Gerais). Cosan has a list of assets to sell and finance the operation, but not necessarily shares in controlled companies. If necessary, the idea is to sell a stake that does not compromise the controlling position.

Given Cosan’s possible future stake in the mining company, positions on Vale’s board of directors – now a corporation with a “poison pill” clause triggered by any shareholder raising its stake over 25% – would be a natural consequence of the approximation. The structure of the transaction also minimizes possible losses with oscillations of the mining company’s securities. The group did not disclose the average price paid for the shares – which were below the current level –, but the collar agreements signed with the banks limit the losses in case of devaluation of the asset.

“Our minds are aligned to see where Brazil has a competitive advantage and companies with unique assets. Our vision is one of association. Our portfolio was built with partners, and it will be no different with Vale,” said Mr. Guimarães, who said he had contacted Vale’s board members and had a positive reception.

“Vale doesn’t need major investments to continue generating value. Our role, with great humbleness, is to reach out to the board members and ensure that everyone has the necessary alignment for decisions that leverage opportunities,” he added.

“It was an audacious move by Cosan, because it is an operation with a lot of financial breath, and it makes sense from the economic-financial point of view,” assesses José Carlos Martins, a consultant at Neelix Consulting & Metals. “We will see how it evolves to become a strategic shareholder position. Cosan brings a more operational vision to Vale’s management,” highlights Martins.

In his evaluation, Vale needs an entrepreneur. It has excellent executives, but they are not entrepreneurs, who take risks. In this, Mr. Ometto comes to add”, he affirms. He recalls that the deal happens at a moment in which Vale’s stock is undervalued. “It has potential for appreciation. The stock is at $14 or $15, but it should be in the range of $22 to $23.

Vale, says Mr. Martins, is an asset of the mining sector that there is no other like it, it has room to grow and is one of the best quality ores in the world.

Besides Cosan, Vale’s main shareholders today are Previ, with an 8.61% stake, followed by Capital World Investor, with 6.69%; Blackrock, with 6.33%; and Mitsui, with 5.99%.

(Ivo Ribeiro contributed to this story)

*By Stella Fontes, Luiz Henrique Mendes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Analysis: State-owned banks still dominant in key sectors

Yet, general picture shows drop in share of credit, as President Bolsonaro promised in 2019

10/07/2022

Caixa Econômica Federal — Foto: Marcelo Camargo/Agência Brasil

Caixa Econômica Federal — Foto: Marcelo Camargo/Agência Brasil

President Jair Bolsonaro took office in 2019 promising to reduce the share of state-owned banks in credit. In fact, the general picture shows a drop in their share, but a more detailed analysis suggests that Caixa Econômica Federal and Banco do Brasil have grown or remained dominant in several market segments.

This is the case with housing credit. Caixa, which had been losing relevance in the segment due to lack of capital, is back in the game in recent years. As a result, the share of state-owned banks has fallen from the 2019 level, of 79.3%, but still accounts for 72.9% of housing loans, according to data from the Central Bank. Caixa leads the segment comfortably, despite the emergence of new competitors and sources of funds.

The same is true in agribusiness, with the dominance of Banco do Brasil. In farm loans, the state-owned banks held a 61.4% share at the end of last year, a stable level compared with recent years (61.6% in 2019 and 61% in 2020).

State-owned banks are also the most relevant segment in infrastructure financing: in this case, with a share of 95.6% at the end of last year, compared to 96.1% in 2019 and 95.6% in 2020.

The lenders have less weight in the segment of working capital for businesses but have been gaining ground. They held 27.2% of the market last year, compared with 25.4% in 2019. In the segment of payroll-deduction loans, they held 44.6% of the market at the end of 2021, a relatively stable portion compared to previous years.

The data comes from the Report on Banking Economics (REB), released by the Central Bank on Thursday. It presents more detailed data about Brazil’s banking market.

Overall, the share of state-owned banks in credit fell to 43.5% last year from 47.6% in 2019. One can infer that much of this is due to the Brazilian Development Bank (BNDES) model change. The share of development banks – of which it is the largest representative – in the pie fell to 6.3% from 8.1% in two years.

During the Bolsonaro administration, BNDES downsized even more its portfolio and started to focus on being a transaction facilitator. The biggest transformation in the development bank, however, had already happened under the Temer administration, when the long-term rate TLP replaced the TJLP in credit contracts. As a result, the rate was no longer subsidized and became more similar to market prices, which led large companies to seek other sources of financing.

*By Talita Moreira — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Irani’s next cycle will be of capacity expansion

The substitution for more sustainable materials is a trend that is here to stay, CEO says

07/10/2022

Sérgio Ribas — Foto: Divulgação

Sérgio Ribas — Foto: Divulgação

With an investment package of R$976 million underway, Irani Papel e Embalagem is already working on its next cycle of growth. While in the current program, called Gaia Platform, the focus is on existing assets, the new plan will be directed at expanding production capacity and may include the construction of a corrugated cardboard packaging plant in São Paulo.

“We are on the crest of the wave in the sustainability issue. There is a trend to increase the demand for sustainable packaging,” said Sergio Ribas, Irani’s chief executive, in a meeting with analysts and investors at Irani’s plant in Indaiatuba, São Paulo.

According to Mr. Ribas, the substitution of plastic is already a reality in the Brazilian market and this movement, coupled with the advancement of e-commerce, provides an “extremely positive” forecast for the industry.

“The substitution for more sustainable materials is a trend that is here to stay. It is a demand from society and companies are being compelled to make this move,” said Mr. Ribas. As for e-commerce, the normalization of commercial activities, which were affected by the Covid-19 pandemic, reduced online sales but the trend is still for double-digit growth in the coming years.

The three main projects of Plataforma Gaia, Irani Papel e Embalagem’s investment program, are in their final phase and are starting to bring returns in the short term, Mr. Ribas said. Irani is investing a total of R$976 million in efficiency improvement projects and capacity expansion in the south of the country.

“The return of Gaia 2 and Gaia 3 will take place this year, and Gaia 1, which is the largest project, will take place in the middle of next year,” he said.

According to the company’s director of paper and forestry, Henrique Zugman, the objective of the Gaia Platform is to answer questions of competitiveness. “There are nine projects, directing production issues, energy sufficiency, and sustainable development,” he highlighted.

Gaia 1, the biggest one, includes the expansion of chemical recovery and will receive investments of R$581 million. At this moment, the execution rate is at almost 67%. With an expected conclusion by the end of 2023, it will allow a new round of expansion in the future.

The Gaia 2 project — which increases the production of corrugated cardboard for packaging in Santa Catarina by 53% — has already reached an execution rate of 93%, and Gaia 3, which comprises the renovation of the paper machine 2, is also on time and budget.

With the implementation of the projects, which also include the repowering of two small hydroelectric plants, Irani will stop buying power in the market and, at certain times of the year, will be able to sell the surplus generated.

*By Stella Fontes — São Paulo

Source: VAlor International

https://valorinternational.globo.com/
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Brazil can exceed goals in carbon market, study shows

Country could jump to 48% from 12% share in voluntary market

10/07/2022

Brazil currently accounts for 12% of carbon credits issuance in the global voluntary market, with 45.28 million tonnes in credits offered, but has the potential to play a much larger role in the mitigation of emissions.

A study carried out by the International Chamber of Commerce (ICC Brazil) in partnership with WayCarbon consultancy indicated that in a scenario of accelerated emissions reduction in the next decade, Brazil could offer 1.5 billion to 2 billion tonnes in carbon credits in 2030, which could mean 22.3% to 48.7% of the credits in this market.

The calculations considered a price of $100 per tonne for the carbon credit, an amount that is considered by the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) as necessary for a fast reduction in emissions.

Brazil’s current share in the global carbon market is already growing fast. In 2019, Brazil had a 3% share. A study indicated that the country would only exceed the 10% share in this market in 2030, but the country surpassed this threshold in 2021.

According to the new study, the performance reflects the higher number of credits issued by nature-based solutions (NBS) and the influence of the regulation of Article 6 of the Paris Agreement at the last UN Climate Change Conference of the Parties (COP) in Glasgow, Scotland.

The trajectory for the coming years, however, still depends on solving some hurdles. In the view of ICC and WayCarbon, after interviews with several agents in this field, it is necessary to overcome market, technical, political, regulatory, and economic barriers. In these aspects, are mentioned the lack of credibility of government commitments, high complexity of land regulation, difficulty in estimating the organic carbon of the soils, and also difficulty in obtaining sources of funding.

“Our goal is to deliver a compass that shows the way to the economic agents transparently so that they can develop, structure, and strengthen this market,” said Laura Albuquerque, WayCarbon’s general manager of consultancy and the leader of the research, in a note. According to her, it is still “necessary to strengthen the flows of the stages of carbon credit generation.”

*By Camila Souza Ramos — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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