Gasoline price gap reaches 17%

In diesel, the difference is 13%; fuel adjustments remain a challenge for Petrobras’s top management

04/08/2024

Bráulio Borges — Foto: Ana Paula Paiva/Valor

Bráulio Borges — Foto: Ana Paula Paiva/Valor

Amid discussions about Petrobras’s leadership, adjusting fuel prices remains a challenge for the state-owned company’s top management. The recent increase in oil prices has intensified pressure for an adjustment in gasoline and diesel prices to align with international market rates. Average projections from three consultancies and trade associations, as reviewed by Valor, indicate that as of Friday, Petrobras’s refineries were selling gasoline at prices 17% below international parity. For diesel, the disparity was 13%.

If Petrobras fails to adjust fuel prices for longer—in the current scenario of rising oil prices—it may see a decrease in profitability as happened in the past. In previous Workers’ Party (PT) administrations, the company went for long periods without adjusting gasoline and diesel prices, which led to losses and an increase in debt. It took years for the oil giant to fix its finances.

Between 2008 and 2012, the practice of retaining prices also reduced government revenue with taxes on Petrobras’s activities by 31.6%, as Valor reported in 2014. From 2008 to 2013, taxes paid by Petrobras fell from 2.1% of GDP to 1.6%.

On the other hand, if Petrobras increases its product prices in the domestic market, as is recommended in times of high oil prices, political pressure on the company tends to increase.

No government likes it when Petrobras increases fuel prices, as the decision is unpopular and boosts inflation. Something similar happened during the Bolsonaro administration. However, price adjustments are required to keep the company’s financial health when the scenario points to an increase in Brent prices, experts say.

To meet demand, around 30% of the diesel sold in Brazil is imported. Whenever oil prices rise abroad, Petrobras needs to pass on the rise to the domestic market. Last year, diesel supplied by Russia at lower prices helped ease the discussion about fuel adjustments. Russia outperformed the United States, a traditional exporter to Brazil.

In May 2023, Petrobras changed the pricing policy that had been in place since the Temer administration, known as Import Parity Price (IPP), which linked domestic prices to international prices.

Under the current administration, Petrobras introduced a new pricing policy, called “commercial strategy.” The model was poorly received by the market due to its lack of transparency and predictability regarding price adjustments. Petrobras has repeatedly argued that no company in any sector is required to disclose how it decides its prices. That would be a matter of commercial strategy in the face of competition.

The discussion about pricing has lost relevance since oil prices eased in 2023, according to Bráulio Borges, a researcher at the Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV) and an economist at LCA Consultores. “But that is still a matter of concern as history shows that the practice of keeping domestic prices below international prices for a long period affected the company’s profitability in the past.”

If new shocks arise on the international scene, the issue could return to the spotlight, he points out. Mr. Borges adds that the practice could also lead to a shortage in the domestic market since national production alone is not enough to meet diesel demand.

Two reasons are currently strengthening the adjustment scenario: the price of Brent broke the level of $90 per barrel for the first time in six months, and the exchange rate was traded above R$ 5 last week, leading the Brazilian Central Bank to intervene in the market with auctions. The exchange rate and Brent prices are the main variables for the adjustment.

Considering the market closing on Friday (5), consulting firm StoneX indicates a 12% gap in diesel prices, or R$ 0.42 per liter, and 12.6% in gasoline (R$0.35 per liter). The Brazilian Infrastructure Center (CBIE) estimates an average gap of 25.92% in gasoline prices, or R$0.98 per liter, and 8.22% in diesel prices (R$0.31 per liter). The Brazilian Association of Fuel Importers (ABICOM) estimates an average gap of 12% for gasoline (R$0.48 per liter) and 19% for diesel (R$0.65 per liter).

Petrobras changed gasoline prices for the last time on October 21, reducing them by 4.1% (R$0.12 per liter). Diesel prices haven’t changed since December 27, when the company reduced prices at its refineries by 7.94%.

In 2022, with record-high earnings of R$188 billion, 77% more than in 2021, Petrobras paid approximately R$248 billion in current values to the federal government (R$103 billion in taxes, R$86 billion in royalties and participations, and R$59 billion in dividends). The increase was explained in part by cyclical factors, as the international parity price (IPP) was based on international oil prices and the exchange rate.

At the time, the company attributed the record results to the rise in oil prices due to the onset of the Russia-Ukraine war. Several analysts consider the IPP a more transparent policy, closer to market fluctuations than the current model—which tended to maximize results.

Except for in 2020—the onset of the COVID-19 pandemic—the collection of Tax on Circulation of Goods and Services (ICMS) on fuels, in 2023, was at the lowest level to the total tax revenue in the country, considering the past decade. The tax revenue with fuels corresponded to 16.6% of the ICMS collected, compared to 17.7% in 2022.

The loss of share in 2023 resulted from a reduction in the ICMS rate following legal measures by the government in 2022 amid the electoral race in which then-President Jair Bolsonaro tried to fight inflation pressures. At the time, fuel prices contributed to the increase in the Extended Consumer Price Index (IPCA). The government’s decision reduced the ICMS on electricity, telecommunications, and transportation.

“The measure was a mistake since the government intended to influence prices by limiting the legal rate on gasoline,” said Felipe Salto, an economist at Warren Rena and former Secretary of Finance of São Paulo.

According to Mr. Salto, the measure shows how much fuel is a sensitive item in inflation, weighing on consumers, and also the impact on revenue, given its representation in the states’ ICMS revenue.

“Decisions to intervene in fuel price policy are worrying. We do not know whether it will be done, but it would be bad as it could impact the economy and affect tax revenue,” said Mr. Salto.

“We started to consider our best refining and logistics conditions to practice competitive prices, competing in the market with other players selling fuels in Brazil; and to mitigate external volatility, providing periods of price stability to our customers, as is currently the case,” Petrobras stated.

Carlos Kawall, an economist at Oriz Partners, argues: “The worst thing to do would be to make political use of that and follow the path of populism to hold down fuel prices, not only using the federal government funds but also affecting Petrobras management by providing subsidies for gasoline, which benefit the higher classes and go against decarbonization.”

The central government and federated entities benefit from taxes on Petrobras’s fuels. ICMS is a state tax incorporated into the prices charged at refineries and began to have a fixed value in 2022, when then-President Bolsonaro approved an act eliminating the percentage charge.

According to a person familiar with the matter, the fixed ICMS rate prevents revenue from changing even if the state-owned company changes prices. The tax was previously levied based on a percentage of the fuel liter at refineries, defined by each state. “Now, when fuel prices are high, it may affect consumption, but not tax revenue,” the source points out.

According to this person, who engaged in discussions about the ICMS, the measure is positive, as it makes taxation more predictable. In 2024, the ICMS on gasoline is R$1.37 per liter, and on diesel, at R$1.06 per liter. The federal gasoline tax is made up of federal contribution CIDE and social taxes PIS, PASEP, and Cofins.

*Por Fábio Couto, Kariny Leal, Marta Watanabe, Estevão Taiar — Rio de Janeiro, São Paulo, Brasília

Source: Valor International

https://valorinternational.globo.com/
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Seacrest hires Goldman Sachs to sell oil assets

Junior oils negotiate merger to strengthen themselves in the Brazilian market

04/05/2024

Seacrest’s sale process comes at a time of significant activity in the market — Foto: Seacrest Petróleo/Divulgação

Seacrest’s sale process comes at a time of significant activity in the market — Foto: Seacrest Petróleo/Divulgação

Seacrest is looking for a buyer amid a strong wave of consolidation of independent oil companies in Brazil, Valor found. The company, which went public last year on the Norwegian stock exchange, hired Goldman Sachs as its financial advisor, according to sources who spoke on condition of anonymity.

Other companies in the sector have already been surveyed about potential interest in the independent oil company, a newcomer in the segment.

The company’s sale process comes at a time of significant activity in the market. This week, Enauta proposed a merger with 3R Petroleum—a memorandum of understanding is expected to be signed next week, according to sources.

3R had already received a proposal to combine assets with PetroReconcavo, but the talks did not progress because the two companies could not reach an agreement on the exchange of shares between them, according to people familiar with the matter. Enauta has undergone recent changes in the shareholding base and board, and its movement reflects the agility of its creditors, Bradesco and Jive. Until last year, the independent company was identified as a target for consolidation, not as a protagonist in this process.

In the proposed merger with 3R, Enauta conveyed the message that, if the merger with the competitor materializes, the result could be a company capable of fostering other mergers and acquisitions (M&A) processes in the sector, driving the consolidation movement in an industry led by Petrobras.

A consolidation movement of these smaller companies was already anticipated by the market because the oil and gas industry needs scale. The game changed after Petrobras stopped the process of divesting more mature wells with the election of President Lula. Assets sold in previous administrations gave rise to independent oil companies.

Seacrest emerged from this process after purchasing the Norte Capixaba field from Petrobras. The initial public offering (IPO) made a year ago on the Oslo stock exchange partly aimed at financing this acquisition. The company raised $260 million at the time.

The Oslo-listed company was founded in 2020 by Erik Tiller and Paul Murray, who are co-founders of the Norwegian oil company OKEA, also listed on the Oslo stock exchange. The company’s first foray was the Cricaré field, which comprised 27 onshore oil concessions, in addition to oil production assets, an operation that was completed at the end of 2021.

Seacrest and Goldman Sachs declined to comment.

*Por Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Government studies credit for TV 3.0

New technology promises better experience for viewers

04/05/2024

Juscelino Filho — Foto: Divulgação/Isac Nóbrega/MCom

Juscelino Filho — Foto: Divulgação/Isac Nóbrega/MCom

The minister of Communications, Juscelino Filho, advocated on Wednesday (3) for the offering of credit to encourage the development and implementation of TV 3.0 in Brazil. “We have meetings scheduled with development banks to study this possibility,” the minister said, at an event held at the ministry’s headquarters to discuss the matter.

The minister said credit is necessary as the new technology requires “massive investment” and also because the broadcasting industry has lost revenue due to the rise of social media platforms. He points out that, unlike the conventional broadcasting sector, these platforms are not subjected to regulation and taxation.

“We are aware that the broadcasting industry has been heavily hit with the recent arrival of digital and social media, which took a significant share of the sector’s revenue. Naturally, we seek mechanisms like these,” Mr. Juscelino said.

TV 3.0 promises to provide a better experience for viewers. It will be more interactive, with dynamics similar to those seen in online apps. In addition to conventional live broadcasting, the new open TV will allow access to on-demand content, when integrated with internet access. The advertising market sees opportunities to broadcast ads in new formats.

The new service will feature increased quality in audio and video reception with resolution levels of up to 4K and 8K, making the experience seem “more realistic.”

The government estimates that, by the end of 2024, the new TV 3.0 technological standard should be set, by a decree, to be adopted by Brazil. The country is currently testing different technologies to evaluate which one best suits the Brazilian reality. Among the preferred models are those from Japan, the United States, and South Korea.

The government carried out a similar process in the past when it chose the Japanese standard for digital TV.

Mr. Juscelino estimates the implementation of TV 3.0 to start in 2025. “The entire industrial chain in the sector will adapt to produce the necessary equipment, ranging from transmitters, [signal] converters, new TV sets,” the minister said.

Present at the event, the president of the Brazilian Association of Radio and Television Broadcasters (Abert), Flávio Lara Resende, also defended the adoption of public policies to promote and fund the sector. Another request from broadcasters raised by the entity is the need for more frequency signals to implement TV 3.0 in Brazil.

Mr. Resende pointed out that Brazilian broadcasters initially offered around 80 open channels to the country’s population. Today, according to him, there are only 44 channels. “It is a significant reduction taking place over the years, with almost no offset,” he lamented.

He made a direct appeal to the Ministry of Communications and the Brazilian Telecommunications Agency (ANATEL), which was represented at the event by superintendent Abraão Balbino.

Mr. Resende also spoke of the importance of free-to-air TV as a service that reaches the entire Brazilian population, delivering quality programs.

“Broadcasting plays a key role in social communication in the country, of undeniable public interest, being the only media reaching the entire Brazilian population in a free, open manner. It is an essential service for the maintenance of our democracy,” the president of Abert said.

*Por Rafael Bitencourt — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Government underestimates social security spending by up to R$18bn

Spending projection was raised by R$5.6bn but experts see a higher increase

04/04/2024

Felipe Salto — Foto: Ana Paula Paiva/Valor

Felipe Salto — Foto: Ana Paula Paiva/Valor

The federal government’s estimated spending of R$914.2 billion on social security benefits this year is still underestimated, even after a recent increase of R$5.6 billion, projections from experts in public accounts, consulting firms, brokerages, and banks show. The projections range between R$923 billion and R$932.5 billion, indicating a potential gap between R$8.8 billion and R$18.3 billion compared to the government’s figure.

By underestimating spending on social security benefits, the government has minimized the necessity for a more extensive freeze on non-mandatory expenses across other ministries. Furthermore, it has prevented a deterioration in the fiscal result, currently estimated at a deficit of R$9.3 billion for the year, within the primary target range. However, nearing the end of the year, if the discrepancy is substantiated, there will be no alternative but to recognize the actual expenditure figure, given that social security benefits are mandatory expenses.

In February, the allowance known as sickness benefit exceeded 1.4 million beneficiaries, a 33.3% increase compared to the same month of the previous year. At the same time, total spending on this benefit in the last 12 months reached R$34 billion in January, the last available data. This amount represents a 22% increase compared to the same month in 2023.

Tiago Sbardelotto, an economist at XP, said that the major discrepancy in projections is regarding the growth rate of the number of beneficiaries. “We are projecting a growth rate of 2% [of beneficiaries], which is more or less compatible with what we have had in recent years. I would even say it is a conservative rate. The government, on the other hand, is implicitly adopting a rate close to zero because it is counting on management improvements and fraud combat,” said the economist. The bank estimates that social security benefits will consume R$929.9 billion from the federal budget in 2024.

“We do not believe that the government will actually implement [the savings measures], and the data we have verified so far shows that these expenses are in line with our projection and are above what the government was expecting,” he added.

Fábio Serrano, an economist at BTG Pactual, shares a similar perspective. “The key difference compared to our estimate stems from the government’s assumption of saving around R$10 billion, attributed to the implementation of faster procedures for approving temporary incapacity benefits, such as sickness benefits,” he said.

“Given the strong growth in the number of beneficiaries and the slow reduction in the queue of requests, we have adopted more conservative assumptions and have not assumed this saving,” he said, noting that BTG’s projection is for government spending of R$927 billion on social security benefits this year.

Jeferson Bittencourt, an economist at ASA Investments and former secretary of the Treasury, also said that there are signs of an acceleration in the pace of requests for social security benefits. “Studies have shown a high rate of benefit grants, as the government has made efforts to reduce the queue, but it has been reduced only slightly,” he said.

ASA Investments projects spending of R$926 billion for this budget line in 2024. Mr. Bittencourt said that, despite actions to tackle fraud, the government suspended in-person proof of life this year for 4.3 million social security beneficiaries for whom automatic verification was not possible or due to inconsistencies.

“We see the pace of benefit cessation not contributing much to expenditure containment because, on the one hand, the government is conducting a thorough review, seeking to reduce fraud and tackle inefficiencies, but on the other hand, it has decided not to suspend benefits for lack of proof of life,” he said.

This year’s budget was approved with a forecast of government spending of R$908.7 billion on social security benefits. Valor had already shown that the figure was underestimated by up to R$20 billion. In March, when reassessing revenues and expenses, the government increased its projection by R$5.5 billion, reaching R$914.2 billion.

According to Felipe Salto, chief economist at Warren Investimentos, the amount will have to be increased in the next bi-monthly reports evaluating the budget. “The numbers in the bi-monthly report are underestimated, despite the correction made when the government announced the document,” said Mr. Salto.

“The dynamics of Social Security are under considerable pressure and will require a significant freeze of discretionary spending over the next few months. This would still need to be complemented by an equally significant cost cutting, even with the recovery of revenue.” Warren projects R$932.5 billion in social security benefits.

Economists Marcos Mendes and Rogério Nagamine estimate that this budget line will require disbursement of at least R$923 billion this year, considering court rulings. Mr. Nagamine said that there is uncertainty about this projection because the government paid part of the 2024 social security precatórios (IOUs issued by the judiciary branch) at the end of 2023, but emphasized that the approximately R$10 billion in savings that the Ministry of Social Security has been estimating “does not seem likely to happen,” which will require an upward revision of expenses in the next bi-monthly reports.

Mr. Nagamine said that in 2023, the government also adopted the practice of underestimating spending on social security benefits throughout the months, having acknowledged its real impact on the budget only at the end of the year. “In 2023, in the first bi-monthly revision, the initial projection was for a financial expense with benefits of R$825 billion, but the year ended with a financial expense with benefits of about R$835 billion. That is, there was an underestimation of about R$10 billion,” he said.

Contacted for comment, the Ministry of Planning and Budget referred questions to the Ministry of Social Security, which “is the agency responsible for preparing and sending the projection in the process of preparing the bi-monthly report.” The Ministry of Social Security did not respond to Valor’s request for comment.

*Por Jéssica Sant’Ana, Marcelo Osakabe — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Long real interest rate nears 6%, highest level since October

Uncertainties over fiscal issues and rate hikes in the U.S. lead the market to price more risk; the nominal curve has a similar movement

04/04/2024

Luciano Telo — Foto: Rogerio Vieira/Valor

Luciano Telo — Foto: Rogerio Vieira/Valor

In an environment still harboring uncertainties regarding public accounts and worsening external conditions, in the face of a new hike in long-term interest rates in the United States, the market has once again embedded even higher rates in prices. It is in this scenario that the real long-term interest rate, which discounts the impact of inflation and is one of the variables that best reflects investors’ perception of the future, is already at 6%, the highest it has been since the end of October.

Real market interest rates, extracted from inflation-linked bonds (NTN-Bs) for August 2050, rose from 5.47% at the start of the year to 5.93% on Wednesday.

As a result, this is already reflected in the Treasury’s public bond issues. At last Tuesday’s (2) auction, the Treasury sold 150,000 NTN-Bs maturing in 2060 at a rate of 5.9493%, the highest level of the year.

The movement was similar to that seen in nominal interest rates, which once again visited the 11% mark last week. Part of the rise in rates is related to the external movement: real ten-year interest rates in the U.S. rose from 1.74% at the start of the year to precisely 2% at Tuesday’s close. Although it seems insignificant, the change in the level of American interest rates reinforces the feeling that global rates need to be higher.

Data from the U.S. economy continued to show resilience in the first few months of 2024, which put nominal and real interest rates around the world back on an upward trajectory, noted Luciano Telo, the chief investment officer for Brazil at UBS Global Wealth Management. “In the U.S., activity has remained strong and, in the coming months, inflation should continue to fall, but at decreasing rates. Ten-year Treasuries have been the password for aversion to risky assets all over the world. It’s a force that causes nominal and real interest rates around the world to rise.”

“We have to recognize that Brazil cannot reverse this premium in real interest rates with a domestic story,” emphasized Mr. Telo.

“It was a repricing of both nominal and real interest rates,” agreed Miguel Sano, fixed income manager at SulAmérica Investimentos. “The main difference for the rise in these longer rates is the issue of longer-term uncertainties, such as fiscal uncertainties, and the level of international interest rates. These are factors that will count.”

Mr. Sano also points out that American long rates have been at their highest levels since the 2008 financial crisis. “At that time, a long NTN-B oscillated between 6.3% and 7.4%. We’re in a global environment where interest rates are higher. From the point of view of the global investor, if you’re looking at interest rates in various countries at levels that haven’t been seen for 15 years, you have to wonder whether it’s worth putting money in Brazilian, American, or British interest rates. Naturally, the rate here needs to be higher,” he said.

In addition, domestic uncertainties are also cited by Mr. Sano, noting that the Central Bank estimates a neutral real interest rate in Brazil of 4.5%, while much of the market is already working with higher levels. “This creates a limit to the potential gain from a long NTN-B.”

Despite the exogenous component of the increase in American long interest rates, uncertainties related to meeting the fiscal target also play an essential role in the dynamics of NTN-Bs, according to Carlos Eduardo Eichhorn, the director of asset management at Mapfre Investimentos. “The real interest rate curve has already been opening up [rising] over the year, also because the issue comes and goes. We notice that the more medium and long-term part of the real interest rate, which has risen from 5.5% to levels closer to 6%, is even more sensitive and has been rising more than the pre [nominal interest rate] itself,” he noted.

Agents’ distrust of the domestic fiscal issue eased in the short term after more robust federal tax collection data, but it is still present in the long term.

Mr. Eichhorn believes that much of the fiscal debate has already been incorporated into asset prices over the year, and so a rate close to 6% for medium-term real interest rates, such as those extracted from NTN-Bs for 2035, is already proving more interesting for allocation. “We already have a bit of this position, and we’ll probably increase it to 6%,” he said.

According to the executive, if it becomes clear that the parameters established in the fiscal framework by the government will be respected, there could be a reversal of the perception of risk embedded in prices from the beginning of the year to now. “In fact, there will be a bigger discussion point [about the 2024 fiscal target] between May and June, and that could be decisive for this dynamic. Or, if there is an early and stronger signal from the government authorities that there will be no change to the target, we may also see a relief in the curve,” explained Mr. Eichhorn.

Mr. Telo, from UBS Wealth, also believes that, despite some obstacles in the short term, the premiums embedded in real long-term interest rates in Brazil should guarantee good returns further down the line. “If you buy an NTN-B above 5.5% and carry it for four years, the return is higher than the CDI almost 90% of the time. So we see that there is a good premium.”

According to the executive, global investors are not looking at Brazil at the moment, given that Treasuries are still paying very high interest rates. “And domestic institutional investors have also been shy, and we don’t see individuals wanting to add too much risk at the moment. With the CDI rate high and inflation low, real interest rates on the CDI also remain attractive. The market hasn’t found the participant who is going to make this closing movement [fall] in real interest rates,” explained the executive.

According to Felipe Guerra, partner and investment director at Legacy Capital, in a monetary easing cycle, when nominal interest rates cross the 11% level, medium and long-term NTN-Bs tend to perform well. The professional made the comment based on a study prepared by the manager at a Bradesco BBI event on Tuesday (2).

“We’ve already crossed that mark [of 11% nominal interest], but NTN-Bs haven’t done well so far because there’s strong competition with incentivized bonds. When this competition is over, I think NTN-Bs will close 60 basis points [or 0.6 percentage points] above fixed-rate bonds. So, if you have a portfolio of NTN-Bs there will be a time when you’ll make a lot of money,” noted Mr. Guerra.

In Mr. Sano’s view, there may be a more favorable movement for long NTN-Bs further ahead, but shorter papers may perform better. “The rate is interesting and seems less likely to worsen to 6.2% and more likely to fall to 5.5%, for example. Looking ahead, the symmetry becomes more favorable, but if you don’t have cash constraints, a shorter-term instrument may be more guaranteed. In some portfolios, we prefer the NTN-B for 2028,” he said.

*Por Gabriel Roca, Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Soybean planting expected to fall in Mato Grosso in 2024/25 season

Falling profitability with lower prices and productivity should lead to a smaller planted area in the season

04/03/2024

Falling soybean prices and productivity are reducing the profitability of the crop in the 2023/24 season and should lead to a smaller planted area in the following cycle in Mato Grosso, the largest producing state.

According to the Mato Grosso Institute of Agricultural Economics (IMEA), the total cost of soybean production for the 2024/25 crop will increase by 1.2% compared to the current cycle, reaching R$7,367 per hectare. The expected gross revenue is R$5,517 per hectare, down 6.1%.

“In general, we expect a reduction next season because if the same investment package is maintained, farmers will not be able to monetize the crop,” IMEA Head Cleiton Gauer told reporters during an online event on the state crop. IMEA will release the first planting estimate in May.

Brazil’s soybean and corn production is expected to see the greatest loss in the 2023/24 harvest in the last 25 years amid a drop in grain prices and productivity, according to the Center for Advanced Studies in Applied Economics (CEPEA).

In the 2023/24 harvest, the 18.4% drop in the average price of soybeans and 18.2% in productivity outweighs the positive effect of the 36% reduction in fertilizer prices and 24% in seeds, said Mauro Osaki, a researcher at CEPEA. According to these calculations, farmers face losses with any productivity below 50 bags per hectare and any price below R$100 per bag.

Regarding the 2024/25 harvest, CEPEA calculates that productivity of 55 bags per hectare will be required to cover costs.

According to Mr. Osaki, the outlook for the second corn crop is more positive, but profitability is still insufficient to cover losses from soybeans. “Considering the current price of R$38 per bag and the average productivity of 120 bags per hectare, the profitability is R$3 per hectare,” he said.

Glauber Silveira, the executive director of the Brazilian Corn Growers Association (ABRAMILHO), said that the current corn crop is “less weird” than soybeans because of the rains in March and early April. But he added that prices do not pay production costs and the consequence should also be a reduction in corn planted area in the 2024/25 season.

IMEA estimates for the 2024/25 corn crop in Mato Grosso an increase of 8.1% in the cost of production, to R$6,345 per hectare. Gross revenue is projected at R$3,214, down 8.1%. With the average price of corn at R$30 per bag, the crop will have a negative EBITDA of R$1,456 per hectare in the next cycle—in the current crop, the loss is R$547.05.

For soybeans, with the average bag price at R$94.80 and costs similar to those of the current cycle, the estimate is EBITDA of R$91.08 per hectare, considering the historical average productivity of 58 bags per hectare. In the 2023/24 harvest, the productivity calculated is 52.81 bags per hectare, which generates a negative EBITDA of R$164 per hectare, according to IMEA.

*Por Cibelle Bouças — Belo Horizonte

Source: Valor International

https://valorinternational.globo.com/
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GE Aerospace boosts Rio de Janeiro operations to curb engine shortages

The unit in the country serves more than 30 airlines around the world

04/03/2024

Facing a shortage of turbines in the market and long maintenance queues, the airline industry is grappling with a severe shortage of aircraft. This scenario has prompted GE Aerospace to invest in expanding its capacity in Brazil. GE Celma, located in Rio de Janeiro, is set to be expanded in 2025. “Our focus is now on expanding Três Rios,” H. Lawrence Culp Jr, the company’s global CEO, told Valor.

GE Aerospace will officially be launched to the market today as an independent company, following its separation from the conglomerate GE, which will now operate through three independent entities—GE Vernova (energy) and GE Healthcare (whose separation had already occurred). Mr. Culp, who previously served as president of GE and of GE Aerospace, will continue to lead the aerospace division.

In Brazil, the company has been operational for over 100 years—currently focused in Rio—and employs 3,500 people. The unit provides services to more than 30 airlines worldwide.

The operation reached the milestone of testing and overhauling 500 aero engines in 2023—no public target has been set for after the construction ends. The new facility is expected to be completed in the second quarter of 2025, adding 40,000 square meters of built area.

“We have begun the hiring process and expect to create around 600 jobs. This will enable us to better serve our clients, including Embraer,” said the executive. The partnership with the Brazilian manufacturer, lasting over 25 years, has been reinforced by the recent order of up to 133 E175 jets placed by American Airlines.

The company has an installed base of approximately 44,000 commercial engines and 26,000 military and defense engines worldwide. In 2023, it generated revenues of $32 billion, around 70% of which came from services.

The increase in capacity comes at a crucial time. The newest models (LEAP-1A and 1B engines, used in the Boeing 737 Max and Airbus A320neo) have achieved a reduction of more than 20% in emissions but have ended up requiring more maintenance.

“There is a recognition that challenges exist in the supply chain and not just with the engine manufacturers,” he said. In March, the company announced investments of more than $650 million worldwide.

*Por Cristian Favaro — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Corporate bonds grab larger share of Brazilians’ portfolio

Digital currencies are also attracting investors, survey shows

04/03/2024

Marcelo Billi — Foto: Divulgação

Marcelo Billi — Foto: Divulgação

Most Brazilians are unfamiliar with investments and savings accounts are still the favorite alternative, but corporate bonds and digital currencies are gaining ground, according to a study by the Brazilian Association of Financial and Capital Market Entities (ANBIMA) and pollster Datafolha.

Six thousand Brazilians from different social classes and regions were surveyed about what investments they use. The majority (57%) of respondents say they are unfamiliar with investments or do not use them, compared with 58% in the previous year. The second-largest group (25%) says it uses savings accounts, compared with 26% in the last survey.

The third-largest group (5%) says it invests in certificates of bank deposit (CDBs), structured transaction certificates (COEs), debentures, agricultural credit bills (LCAs) and real estate credit bills (LCIs), compared with 4% in the previous year. These fixed-income securities saw an increase for the second consecutive survey.

The purchase and sale of real estate, investment funds, and digital currencies are tied in fourth place (4%). The share that invests in real estate and funds remained the same, but the population that invests in cryptocurrencies increased compared to the previous year (3%). Crypto assets gained ground in the survey for the second time in a row.

In addition, 3% of Brazilians leave their money at home or “under the mattress” and 2% invest in stocks, private pension plans, or Tesouro Direto (government bonds). Among these products, the only one that grabbed a larger share was Tesouro Direto, which was mentioned by only 1% of the respondents in the previous edition. In addition, 1% of those surveyed invest in coins or gold.

Marcelo Billi, ANBIMA’s head of sustainability, innovation, and education, says that most Brazilians who invest in savings accounts use them as checking accounts or to keep their money safe. He says that what Brazilians understand as savings accounts are often remunerated accounts where the balance earns money in digital banks.

“The word ‘poupança’ [savings] has more meanings than the typical savings account,” he said. “Savings accounts have a pedagogical role in preparing people for the world of investments. I think it will not lose relevance as an organization tool for most Brazilians. People know that other investments are better, but they are getting organized,” he said.

In Mr. Billi’s view, many factors contribute to the spread of investments beyond savings, such as the deepening of the financial market, investors’ search for more profitable investments at times of lower interest rates, and social media influencers, who popularized the conversation about financial investments in those platforms.

Young people are taking the lead in searching for investments beyond traditional savings accounts, he said. “Digital currencies are a phenomenon and the conversation about bitcoin has become very popular on social media. Corporate bonds such as CDBs are usually the number one investment when Brazilians leave savings accounts, “he said. “They are publicized as safer options that also offer better yields. Plus, the idea of lending money to a bank is better understood compared to funds, for example,” he said.

The study also showed that 37% of Brazilians invest in financial products now, compared with 36% the previous year and 31% two years ago. The rest of the population does not save money nor use financial products to save money.

*Por Julia Lewgoy — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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RGE focuses on Brazil, boosting investments through Bracell

Present in Brazil for more than 20 years, the conglomerate also controls April and has already invested more than $6.5 billion in Brazil

04/02/2024

Praveen Singhavi — Foto: Gabriel Reis/Valor

Praveen Singhavi — Foto: Gabriel Reis/Valor

Brazil is at the center of the strategy of the Asian conglomerate Royal Golden Eagle (RGE), owner of Bracell, a Brazilian producer of dissolving and bleached eucalyptus pulp that has been one of the most prominent investors in the local forestry sector in recent years.

With more than $35 billion in assets and 70,000 employees globally, the Singapore-based group, which also owns April and Asia Symbol, leading pulp and paper companies in Asia, is currently the second-largest producer of market pulp (sold to third parties) in the world, behind Suzano, and has plans to expand further in the country.

In addition to the billion-reais investment to buy and expand the former Lwarcel plant in Lençóis Paulista (state of São Paulo), which began in 2018 with the acquisition, Bracell is investing R$2.5 billion in a mega-factory for tissue paper in the same town, and another R$2.5 billion in a plant for chemicals used in pulp production, also in Lençóis. In 20 years, Bracell’s investments have already exceeded $6.5 billion (more than R$30 billion at the current exchange rate).

“Brazil is the sweet spot of the global pulp industry,” Bracell CEO Praveen Singhavi told Valor in his first interview in the position he has held for about a year. Neither Brazil nor RGE, however, is new to the executive’s career. For almost 16 years, he led another of the group’s operations, April. Before that, between 2006 and 2007, he was the head of Olam International, one of the global names in agricultural commodities trading in Latin America.

Government support for the pulp and paper sector, the existence of a mature ecosystem that contributes to the evolution of the local industry, and the availability of land give Brazil a vital position in the plans of major investors in the sector, including the Asian group, according to Mr. Singhavi. Added to that is the competitiveness of the raw material produced here, which has the lowest costs in the world and is also favored by the climate and soil.

It’s no surprise that the country is now the world’s largest pulp exporter. RGE uses dissolving pulp produced in the interior of São Paulo at mills owned by Sateri and Asia Pacific Rayon (APR), subsidiaries that place it at the top of the global viscose market ranking. Between Camaçari (in the state of Bahia) and Lençóis, Bracell can produce 3 million tonnes of kraft pulp or 2 million tonnes of dissolving pulp per year. To transport its production abroad, it invested R$1 billion in a terminal at the Port of Santos, also in the state of São Paulo.

With the completion of the OL Papéis purchase in 2023, Bracell will now operate two tissue units in the country with a capacity of 50,000 tonnes per year, marketed under the Familiar (single- and double-ply toilet paper) and Absoluto (paper towels) brands. “Brazil is an important tissue market, and we see opportunities for growth,” he commented. It is now installing an additional 240,000 tonnes of capacity at the new Lençóis plant, which will start operating in the second quarter.

Bracell’s upcoming project entails a R$300 million investment over two years aimed at modernizing its Camaçari plants that produce dissolving pulp, used in making viscose, and special dissolving pulp, a higher-quality fiber for medicines, food, cosmetics, and more. The Bahia factory was the group’s entry point into the country when it acquired the former Copener Florestal and Klabin Bacell in 2003. By 2030, the investment is expected to reach R$1 billion.

Some say that Bracell, which today has industrial and forestry operations in Bahia, São Paulo, Pernambuco, and Mato Grosso do Sul, with more than 11,000 employees—almost four times the number it had four years ago—is preparing a forestry base to build a new pulp mill in Mato Grosso do Sul. The company’s management denies such an intention. “Our focus is on having access to timber. Launching the tissue project and marketing are the priorities,” said Mr. Singhavi.

Bracell’s drive has annoyed competitors, not only in the pulp and paper industry but also in other agribusiness segments vying for land, especially in the São Paulo region where its largest operation is located. That has even led to a lawsuit over foreigners purchasing land. The strong demand for land and timber in certain regions, notably the South, Southeast, and Midwest, to supply new pulp projects has resulted in significant appreciation in recent years. “Bracell is a Brazilian company with a foreign investor,” said the executive. “The important thing is to follow the country’s laws, so we are within the land legislation.”

Regarding sustainability, Mr. Singhavi highlighted that past issues, such as the exploitation of native forests, which once troubled April, have been addressed and resolved. The RGE group company is in the process of seeking recertification from the Forest Stewardship Council (FSC), which represents the gold standard for responsible forest management practices. Mr. Singhavi added that the company not only fulfills all necessary criteria but also pursues one of the sector’s most ambitious conservation goals: for every hectare of land planted, an equivalent hectare will be preserved. Currently, they are close to achieving this goal, with the target standing at almost 90%.

*Por Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Minister asks for penalties as Enel “crossed a line”

In a meeting with the Electricity Regulatory Agency, Mines and Energy Minister Alexandre Silveira says he is considering measures to revoke the power utility’s concession

04/02/2024

Alexandre Silveira — Foto: Valter Campanato/Agência Brasil

Alexandre Silveira — Foto: Valter Campanato/Agência Brasil

The series of problems with the electricity supply in the São Paulo area could jeopardize the continuity of Enel’s concession contract. On Monday, the minister of Mines and Energy, Alexandre Silveira, ordered Brazil’s Electricity Regulatory Agency (ANEEL) to open disciplinary proceedings against the utility. In a meeting with the agency’s board, Mr. Silveira said the company had “crossed the line” and that “all possibilities” of punishment should be considered by the agency.

In an official notice to ANEEL, the minister cited the “repeated episodes” of power outages in Enel’s concession area and said that the dissatisfaction of the population served by the company is “notorious.” Mr. Silveira commented on the decision to initiate the process in an interview with cable news channel GloboNews.

At the meeting with the agency officials, Mr. Silveira reiterated his arguments, pointing out that the plan to renew concessions currently being analyzed by the government could be affected by Enel’s problems. For this reason, he advocated that the company should be sanctioned severely in order to send a message to others, according to an excerpt that Valor had access to.

In addition to the technical problems with the power supply, Mr. Silveira told Enel’s executives that the company had “little dialogue” with governments. “Enel goes beyond all limits in its relationship with the states and the federal government. Given this, we need to be a little more radical,” he said.

For him, the regulator should “consider all the possibilities of punishing the company” and “better evaluate its condition as a concessionaire of energy services in Brazil.” Pointing out that all rights of defense must be granted, Mr. Silveira mentioned a possible action to declare the concession null and void, which means terminating the supply contract.

“Enel has the right to an adversarial hearing, which is natural, but it’s important to note that over R$300 million in fines have been imposed, yet none have been paid. It has consistently failed to meet the required quality of service as outlined by regulations.”

Experts interviewed by Valor believe that it is the ministry’s prerogative to request an investigation, take action, and adopt measures against the company. Still, they believe that the service provided by the company is within the limits set by the agency.

Mr. Silveira informed ANEEL that the case could impact the concession renewal process. He emphasized that any requirement to re-tender the contracts would lead to “chaos.” He said, “If investments regulated for medium and low voltage are already restricted, imagine the reactions if these investment plans were disrupted. It would result in chaos in the Brazilian electricity sector.”

He added that “when distribution contracts were signed 10, 15, 20 years ago, they were very loose, which gave the freedom to provide a quality of service far below what the Brazilian population demands.”

He also urged ANEEL to prioritize the most pressing ongoing cases. Besides Enel, Mr. Silveira mentioned Amazonas Energia, a utility whose concession the agency had already advised to terminate. Although the case is still under evaluation, he noted that President Lula has the final say on the matter.

ANEEL’s board of directors has already rejected a request to transfer control of Amazonas Energia. The distribution company, controlled by the Oliveira Energia group, requested the transfer of control to regularize the situation, as it was no longer able to guarantee the economic and financial sustainability of the concession.

Enel said it was “in full compliance with all contractual and regulatory obligations and is implementing a structured plan that includes investments to strengthen and upgrade the network structure, digitize the system and expand communication channels with customers, as well as mobilizing teams in the field preventively in case of failures.”

The utility said it has made “significant investments to improve the quality of service and face the challenges of the electricity sector considering the impact of climate change.”

The company claims to have invested R$8.36 billion since 2018 when it assumed the concession in São Paulo, averaging R$1.4 billion per year, nearly double the investments made by the previous concessionaire.

*Por Murillo Camarotto, Rafael Bitencourt — Brasília

Source: Valor International

https://valorinternational.globo.com/
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