Magda Chambriard to champion government agendas at Petrobras

Newly appointed CEO committed to investments in refineries, gas, and fertilizers

05/16/2024

Magda Chambriard — Foto: Ana Paula Paiva/Valor

Magda Chambriard — Foto: Ana Paula Paiva/Valor

Appointed as the new CEO of Petrobras, Magda Chambriard had at least two key meetings this week, according to government sources, before starting her term at the lead of the state-owned company in alignment with her two direct bosses in the federal government. On Tuesday (14), before Jean Paul Prates’ dismissal was announced, she met with President Lula. On Wednesday (15), the conversation was with Minister of Mines and Energy Alexandre Silveira.

The distancing of Mr. Prates from the president and the minister is cited as one of the factors that contributed to the ousting of the executive from the helm of the country’s largest state-owned company. Other reasons that caused clashes with the government leadership were addressed in the conversations to avoid new friction after the change in command.

In the meeting, President Lula highlighted which of the company’s projects he would like to see thriving, such as increasing investments in refineries, gas, and fertilizers, the resumption of the naval industry, and exploration studies in the new Equatorial Margin offshore frontier.

This was their second meeting recently. The first one took place about a month ago, as Valor found. The president met Ms. Chambriard when she was a managing director at the National Petroleum Agency (ANP), during the Rousseff administration. The name of the new CEO, who engaged in the current administration’s transition team, was endorsed by former President Dilma Rousseff, as well as president of the Brazilian Development Bank (BNDES) Aloizio Mercadante, Chief of Staff Rui Costa, government leader in the Senate Jaques Wagner, and former Petrobras CEO José Sergio Gabrielli.

Mr. Lula usually listens to Messrs. Costa and Wagner about Petrobras, given their political background in the Camaçari petrochemical complex, in Bahia, in the 1980s.

Among the reasons behind President Lula’s dissatisfaction with Mr. Prates, in addition to the payment of dividends, is Petrobras’s 2024-2028 investment plan. The then CEO prioritized energy transition projects, with $5.2 billion for wind and solar energy.

According to sources at the Planalto Palace, President Lula was especially bothered by the amount of funds allocated to offshore wind farms, with three of the 10 plants expected to be installed in Rio Grande do Norte, Mr. Prates’s electoral stronghold—he was a senator between 2019 and 2023, before taking over Petrobras.

One of President Lula’s requests to Ms. Chambriard was the resumption of halted works in refineries, projects that were dear to the president in his previous terms, especially the Abreu e Lima works, in Ipojuca (Pernambuco).

In January of this year, Mr. Lula visited Pernambuco to announce the resumption of construction works in the refinery. The Abreu e Lima works were the targets of the anti-corruption task force Car Wash, which President Lula criticized in his speech in January, saying that “some judges and prosecutors in this country, subordinate to the United States Department of Justice, never accepted that Brazil had a company like Petrobras.”

Regarding the resumption of the shipping industry, Messrs. Lula and Mercadante are in alignment so that BNDES and Petrobras could work together. About three weeks ago, Mr. Mercadante acknowledged past mistakes in this area but added that investments from the development bank for the shipping industry are expected to increase to R$5 billion this year, with resources coming from the Merchant Marine Fund, which is 75% managed by the bank.

The meeting with Mr. Silveira, the first after Ms. Chambriard was formally appointed, served to review strategic points of the oil giant’s investment plan.

Optimistic about the appointment of the new CEO, the minister reinforced the need to accelerate priority actions to boost economic growth. Topics such as the expansion of refining, fertilizer, and petrochemical plants, as well as the Brazilian naval industry, were discussed at the two-hour meeting.

*Por Rafael Bitencourt, Andrea Jubé — Brasília

Source: Valor International

https://valorinternational.globo.com/
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U.S. elections, Fed influence Lula administration’s economic choices

Entrepreneurs, government officials, and sector experts review business opportunities between Brazil and the U.S.

05/16/2024

Gabriel Galípolo, the Brazilian Central Bank’s Monetary Policy Director, alongside former Fed members James Bullard and Kevin Warsh — Foto: Vanessa Carvalho/Valor

Gabriel Galípolo, the Brazilian Central Bank’s Monetary Policy Director, alongside former Fed members James Bullard and Kevin Warsh — Foto: Vanessa Carvalho/Valor

Two significant events in the United States later this year—the potential start of the Federal Reserve’s interest rate cut cycle and the U.S. presidential elections—will shape the economic policy options of the Lula administration in the coming months. This topic was a key focus at the Summit Valor Econômico Brazil-USA held on Wednesday (16). The event, which took place at The Plaza Hotel in New York, gathered Brazilian and American businesspeople, government officials, and sector experts to discuss the challenges and main business opportunities between the two countries. It also marked the start of a series of activities celebrating Valor’s 25th anniversary, set to conclude in May next year. One goal of these events is to intensify international debates and deepen understanding of Brazilian realities and business prospects.

Frederic Kachar, the general director of Editora Globo and the Globo Radio System, commented, “We are an economy with one of the five largest trade balances in the world and a monetary policy committed to fighting inflation. However, we still face issues with the exchange rate. We have a clean energy mix, which truly sets us apart from the rest of the world, yet we are not a priority for investment, even by the United States.” He noted that the Brazilian economy has many attributes and differentials that should be more appreciated both domestically and internationally. The event’s eight panels explored ways these could be leveraged for sustainable growth.

On the fiscal side, the need to control spending was emphasized, as stated by Dario Durigan, the executive secretary of the Ministry of Finance. He noted that, alongside initiatives already underway since last year to restore revenues, further efforts to contain spending are necessary. However, Secretary Durigan cautioned that this must be balanced to avoid exacerbating political polarization in the country.

In terms of monetary policy, Gabriel Galípolo, the Central Bank’s monetary policy director, indicated a move towards greater cohesion and a more conservative strategy in response to the worsening inflationary scenario following a contentious vote in the Monetary Policy Committee (COPOM) that stirred market unease.

Additionally, the government faces challenges in mobilizing resources for emergency relief and rebuilding infrastructure in Rio Grande do Sul, which was severely damaged by heavy rains—an extreme weather event expected to become more frequent. This concern was echoed by many participants at the event, who emphasized the necessity of aid for the state.

“The need for aid in rebuilding, considering this new reality, is crucial,” stated Ilan Goldfajn, president of the Inter-American Development Bank (IDB), which is collaborating with the government on a R$5.5 billion rescue package for the state. “Countries must adapt and prepare to face what is coming.”

The anticipated start of the Federal Reserve’s monetary easing process continues to be delayed, contributing to rising international interest rates due to the increased need for the U.S. Treasury to finance its public deficit. This situation constrains the availability of capital for emerging economies. Kevin Warsh, a former Fed member and potential future head of the institution, stated that if Donald Trump wins the presidential elections again, “I don’t think there will be an interest rate cut until December, and I think that’s the right decision. I don’t see how the Federal Reserve could make cuts before that.”

The upcoming U.S. elections are expected to exacerbate political polarization, which could have similar effects globally and might lead to heightened protectionist measures within a divided geopolitical landscape. “Isolationism is present in both parties,” remarked Scott Jennings, a Republican Party strategist. “There is a multi-party isolationist movement.”

The ongoing political polarization further complicates achieving consensus on addressing the U.S. public deficit, which is increasingly necessary given the rise in public debt since the 2008 financial crisis and the likelihood of the Fed maintaining higher interest rates for a prolonged period. Mr. Warsh criticized the fiscal expansion under the Biden administration and the Fed’s initial misjudgment of inflation as temporary, stating, “The bigger the inflation problem, the more regressive the tax on the poor in the United States and around the world. The United States has an obligation to have responsible fiscal and monetary policies.”

Following a divided vote last week, Gabriel Galípolo, speaking publicly at the Summit Valor Econômico Brazil-USA for the first time since the vote, aimed to demonstrate a unified approach to monetary policy that might entail less easing than previously anticipated. He referenced a statement by Central Bank President Roberto Campos, emphasizing the importance of not debating but instead pursuing the target. “Discussing the pursuit of the target is a forbidden discussion for a Central Bank director. You don’t discuss the target. The target is pursued.”

Mr. Galípolo elaborated on last week’s COPOM meeting debate, which focused on whether to proceed with a signaled 50-basis-point cut in interest rates. New directors like himself argued for adhering to the signaled cuts to establish credibility with the market. “It’s up to the Central Bank’s directors to set interest rates at a sufficiently restrictive level for as long as it takes to meet the target,” he stated. He also mentioned considering a 20-bp drop and supported the majority’s technical argument for this decision.

The Summit Valor Econômico Brazil-USA, held with master sponsorship from Gulf and JBS and additional sponsorship from Gerdau, JHSF, Cedae, Copel, and Aegea, was supported by multiple government entities and featured Latam and Delta Airlines as the official carriers. The event was organized by Valor Econômico.

*Por Alex Ribeiro — New York

Source: Valor International

https://valorinternational.globo.com/
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U.S. prepared to partner with Brazil in energy transition, says American ambassador

Green energy and energy transition areas are ripe for cooperation between the two nations, said U.S. Ambassador to Brazil Elizabeth Frawley Bagley

05/15/2024

Elizabeth Frawley Bagley — Foto: Vanessa Carvalho/Valor

Elizabeth Frawley Bagley — Foto: Vanessa Carvalho/Valor

The U.S. ambassador to Brazil, Elizabeth Frawley Bagley, stated today (15) at the Summit Valor Econômico Brazil-USA that the United States is ready to invest and cooperate with Brazil in partnerships related to the energy transition and green energy, areas she said have great potential to increase trade relations between the two nations.

Participating in a panel on the 200th anniversary of the bilateral relationship between Brazil and the United States at the Summit Valor Econômico Brazil-USA, Ambassador Elizabeth Frawley Bagley highlighted the promising prospects of the green economy. “Brazil’s focus on the energy transition to clean energy is an area in which the U.S. is ready to invest and which offers excellent opportunities to further solidify the partnership between the two countries,” she said. The event, held today (15) in New York, gathers Brazilian and American businesspeople, government officials, and experts from various sectors to discuss the challenges and main business opportunities between the two nations.

Ambassador Bagley, whose diplomatic experience includes serving as a senior advisor to Secretaries of State John Kerry, Hillary Clinton, Madeleine Albright, and as a special representative to the United Nations General Assembly, praised the efforts of both countries to create jobs and increase prosperity for their people.

She highlighted the partnership announced last year by Presidents Biden and Lula, aimed at combating precarious work and promoting the creation of decent jobs. This initiative, formalized during the UN General Assembly, involves collaboration with trade union partners from both countries and the International Labour Organization (ILO).

The U.S. Ambassador also expressed solidarity with the people of Rio Grande do Sul, mentioning that the United States is sending donations and supplies in partnership with the Army and the Foreign Affairs Ministry to mobilize resources for the affected regions. “We are with you. Ten of our people have lost everything, and we share not only the pain of this tragedy but also the solidarity,” she said.

Private sector creating jobs

Ambassador Bagley pointed out that American exports to Brazil support almost 150,000 jobs in the U.S., underscoring the significant role of the private sector in both countries in generating job opportunities for their citizens. She also mentioned that the United States is proud to be by far the largest foreign direct investor in Brazil, with a total of $191.6 billion invested in 2021.

The primary U.S. imports to Brazil include industrial and energy-related products such as refined fuels, natural gas, fertilizers, aircraft, and medical instruments, according to the U.S. embassy. Conversely, Brazil’s main exports to the U.S. are crude oil, aircraft, iron and steel, coffee, and cellulose.

Ambassador Bagley addressed an audience of Brazilian and American businesspeople, government officials, and experts from various sectors on Wednesday (15) at The Plaza Hotel in New York. The event is part of a comprehensive program celebrating the 25th anniversary of Valor, which will conclude in May next year.

Celebrating 200 years of bilateral relations

Regarding the bicentennial of relations between Brazil and the U.S., celebrated this year, Ambassador Bagley noted that hundreds of events are planned, including exchange programs, art exhibitions, concerts broadcast via YouTube, and the first NFL game in Latin America. “The bicentennial is an opportunity for an even better future, highlighting the importance that our bilateral relationship has had for the economy and our peoples.”

She also emphasized the historical support of the U.S. in significant moments for Brazil, such as being the first country to recognize Brazil’s independence in 1824, even before Portugal. “We recognized Brazil’s independence before Portugal, and we’re proud of that,” she remarked.

The ambassador stressed that the economic partnership forms one of the relationship’s foundations between the two countries.

“As the largest democracies in the Western Hemisphere, the partnership between Brazil and the U.S. is rooted in a shared commitment to sustainable economic growth and prosperity,” she said.

In an interview with Valor editor-in-chief Maria Fernanda Delmas following her panel discussion, Ambassador Bagley highlighted the importance and potential for growth in sports diplomacy activities, including investment partnerships in sports courts and training for Brazilian athletes by NBA professionals. “We will also collaborate in soccer between the women’s soccer teams of the two countries,” she added. “A lot is going on.”

Regarding the Brazil-U.S. CEO Forum, a group formed in 2007 that brings together up to 12 U.S. CEOs and 12 Brazilian CEOs to develop joint recommendations for both governments on how to increase bilateral trade, Ambassador Bagley praised the role of the American Chamber of Commerce (AmCham) in bringing companies together. “We talk about the green economy and green energy; we’ve been working with Embrapa [Brazilian Agricultural Research Enterprise] for several years. Everyone was very impressed with the Brazilians, their commitment to entrepreneurship, and their technical knowledge.”

On potential investments in the transition to a green energy economy, the U.S. Ambassador mentioned that several proposals on green hydrogen and infrastructure will be presented at the G20 Leaders’ Summit in November 2024 in Rio de Janeiro, attended by leaders of the 19 member countries, plus the African Union and the European Union. “We have a lot of cooperation and coordination [going on] and a lot to discuss.”

*Por Ligia Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil sees second-largest dollar outflow ever

Movement helps explain shift in expectations for the real’s performance

05/14/2024

Fabio Landi — Foto: Leo Pinheiro/Valor

Fabio Landi — Foto: Leo Pinheiro/Valor

Investor hopes for a stronger Brazilian real at the turn of the year quickly dissipated. The robustness of Brazil’s trade balance bolstered renewed expectations for the real’s appreciation, similar to last year, when the commercial flow was solid. However, a significant outflow of dollars through the financial account dashed these expectations.

In the first four months of the year, Brazil saw the second worst financial flow since the official records began in 1982—a net outflow of $20.8 billion—second only to 2020, which helps to explain the change in expectations for the real’s performance.

“The contracted exchange rate at the start of this year is much worse than in the same period last year, and the main culprit is the financial flow,” said Ronie Germiniani, head of Itaú BBA’s exchange desk. “The trade balance, on the other hand, is in line with what we saw in 2023, with even better numbers, as expected.”

While the financial flow was negative by $20.8 billion in the first four months, the trade balance showed the opposite movement: it recorded the second-largest dollar inflow since official records began between January and April, totaling $27.6 billion.

The mismatch between the commercial and financial flows frustrated many Brazilian investors. Focusing mainly on the influx of dollars from exports, some managers began to bet on the real’s appreciation, anticipating some easing of U.S. monetary policy. For example, Verde Asset bet on the real against the dollar in November last year, citing a “structural improvement” in the trade balance.

Like Verde, other local asset managers started to view the commercial flow as a key factor for the real’s appreciation. From May 2023 to the end of January this year, local institutional investors’ bets on the Brazilian currency’s appreciation through the derivatives market increased to $17.5 billion from around $4.7 billion, according to data from B3.

Fabio Landi, a partner at Adam Capital, recalls that at the turn of the year, “the entire market” calculated the trade balance with the rise in exports and began to work with the expectation of the real’s appreciation. “The short position in dollars and long in real became consensus, partly due to the perception that the U.S. Federal Reserve would reduce interest rates, leading to a weaker dollar against all currencies; Brazil still had a positive carry, and the balance of payments was strong, meaning all factors pointed towards a real appreciation.”

The local market correctly anticipated a strong trade balance, which would translate eventually into a robust commercial flow. However, the surprise on the financial account was much more negative than agents had expected.

Adam Capital started the year with long positions in the real but began to switch to short positions (betting on depreciation) by the end of February. “We never believed in a weak U.S. economy. Despite [Fed Chair Jerome] Powell’s political will to cut rates, we didn’t think the data would be sufficient to warrant a rate cut. This scenario was delayed, and the market realized we were in a high U.S. interest rate environment with a strong dollar. Consequently, the idiosyncratic factors of each country became secondary,” said Mr. Landi.

Mr. Germiniani of Itaú also emphasized the importance of the Fed’s decisions for the global market, noting their significant impact on the Brazilian stock exchange’s performance. “While it’s challenging to pinpoint the exact reason for the entire outflow through the financial account, one easily traceable factor is the foreign exit from the stock market,” said Mr. Germiniani. “We’ve seen between $6.5 billion and $7 billion in foreign capital outflows from the stock market this year, which is very significant, accounting for about a third of the total outflow.”

However, the Fed isn’t the only reason for this outflow. Mr. Germiniani said that with the prospect of a more conservative U.S. monetary policy and a market with lower liquidity, foreign investors become more selective and sensitive to local uncertainties. “Doubts about fiscal policy, Petrobras, and even the COPOM [the Brazilian Central Bank’s Monetary Policy Committee] scare money away from the stock market,” he said, noting that the return of this capital is also more uncertain. “When making choices, foreign investors opt not to buy assets from places where there are constant disturbances.”

While a third of the capital outflow via the financial account can be explained by disinvestment in the stock market, the explanation for the remaining two-thirds is more elusive. Luís Afonso Lima, head of analysis at Mapfre Investimentos, looks to the balance of payments for answers, “even though the numbers don’t always align.”

“There’s been a significant increase in dividend payments by foreign and Brazilian companies to overseas,” Mr. Lima said. This scenario is “curious” because although the Brazilian economy is doing well, it isn’t robust enough to generate such high profits and lead to such substantial remittances. “The explanation likely lies in the fact that much of this capital is sent by mineral extraction companies, mainly Vale and Petrobras, benefiting from commodity prices.”

Additionally, a third factor in the capital outflow through the financial account involves spending on services. “When you look in detail at the balance of payments, you notice many expenses related to transportation because conflicts in the Middle East increase freight costs; there are also higher insurance costs and services for telecommunications and computing,” said Mr. Lima. “It’s hard to say how relevant each factor is for the financial account outflow, but U.S. interest rates certainly explain a large part.”

Mr. Lima also suggests that the contracted exchange rate scenario will likely worsen before improving. “Perhaps by mid-year, as U.S. disinflation shows consistent signs, we might have more predictability regarding rate cuts in the U.S. In this case, I can see chances of improved flows to emerging markets,” he said.

For Mr. Germiniani, the mere signal of rate cuts in the U.S. isn’t enough to guarantee a reversal of the capital outflow seen earlier this year. “We can’t be overly optimistic about the stock market and the flow because the U.S. narrative remains very strong. They have high, very restrictive interest rates, and their economy is booming. Just look at the S&P 500 chart,” he said. “Even though rate cuts would benefit emerging markets, I don’t believe the recovery will be strong.”

Similarly, Mr. Landi, with Adam Capital, said, “We’re not yet at a point where we don’t have a strong dollar.” The firm continues to hold small positions in the dollar against the real. Mr. Landi said that the timing for the Fed to start cutting rates remains uncertain, and in Adam’s view, the U.S. central bank may continue to delay the start of a monetary easing cycle.

*Por Arthur Cagliari, Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Rains compromise soybean crop potential

Consultancy Pátria Agronegócios predicts loss of 2.4m tonnes

05/14/2024

Soybean field in Viamão, one of the regions most affected by the floods in Rio Grande do Sul: with more rain forecasted, losses are expected to increase — Foto: Marcelo Beledeli/Valor

Soybean field in Viamão, one of the regions most affected by the floods in Rio Grande do Sul: with more rain forecasted, losses are expected to increase — Foto: Marcelo Beledeli/Valor

The heavy rains battering Rio Grande do Sul have made losses in the state’s soybean crop inevitable. According to projections by the consultancy Pátria Agronegócios based on the climatic impacts observed up to Monday, Rio Grande do Sul producers are expected to harvest 17.57 million tonnes in the 2023/24 cycle.

This estimate is 2.4 million tonnes lower than initial projections for the state. Nevertheless, it represents a 35% increase compared to last year’s crop, which was severely affected by drought. In April, the consultancy projected a yield of 19.93 million tonnes.

Matheus Pereira, director of Pátria Agronegócios, confirmed to Valor that the revised forecast for the Rio Grande do Sul crop is the most conservative possible within a scenario where producers and analysts expect further losses, given that the rains persist and hinder a more detailed assessment of the situation. “It will be challenging to grasp the full extent of the crop failure in the state at this moment. I believe it will take months to measure how much will not be harvested,” he said.

An analysis by the consultancy shows that the most affected crops are in the eastern region of Rio Grande do Sul. However, even in the northwest of the state, where the main producers are concentrated, losses are not ruled out.

“In the northwest of the state, the crops did not suffer from flooding. However, there was an excess of rain that will certainly impact the quality of the plants that can be harvested,” Mr. Pereira said.

Décio Lopes Teixeira, vice president of the Association of Soybean and Corn Producers of Rio Grande do Sul (Aprosoja-RS), said that farmers should not harvest soybeans in extremely wet conditions.

“Those who risked harvesting under these conditions might face even greater losses. There are reports of producers who harvested the grain in such conditions, and the industry refused to accept it. It is not worth harvesting with high humidity. The ideal is to wait for the rain to pass,” he said.

Mr. Teixeira estimates that between 200 to 300 hectares still need to be harvested in the Planalto Médio region, an area in the northern half of Rio Grande do Sul that he monitors closely. In this area, the losses are not yet consolidated, according to him.

“The excess rain has left the crops black, which is a sign that the grain is spoiled. But there is still a chance for harvesting. The damaged soybeans still contain oil and protein that can be utilized. The main impact will be a 50% loss in grain weight,” he estimated.

The heavy rains that have battered urban and rural areas of Rio Grande do Sul since the end of April have already caused losses of R$1.3 billion in the state’s agriculture. An additional R$73.7 million in losses have been recorded for livestock, according to updated calculations by the National Confederation of Municipalities (CNM) on Monday.

According to a report from the entity, considering all sectors of the economy, the total damage exceeds R$8.6 billion, with R$2.3 billion in the public sector and R$ 1.7 billion in the private sector. The housing sector, with R$4.6 billion in losses, has been the hardest hit.

*Por Paulo Santos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil aims to advance bioeconomy discussions at G20

Civil society survey will support the federal government in negotiations in the group

05/13/2024

Luana Maia — Foto: Divulgação

Luana Maia — Foto: Divulgação

The main innovation introduced to the G20 agenda by the Brazilian presidency, the bioeconomy, still has a long but urgent road ahead of it, starting with its very definition. Throughout this week, representatives of governments and civil society discussed the issue at length in Brasilia, where the first of three face-to-face meetings of the bioeconomy working group established within the G20 structure took place.

Defining what the bioeconomy encompasses was a significant part of the debate. Financing the sector, which presents itself to the world with the potential to generate trillions of dollars, was also a major topic. In the short term, however, the primary goal is to ensure that the bioeconomy gains enough traction to be included in the final declaration of the group’s summit in Rio de Janeiro in November.

Upon arriving in Brasília last Monday (6), negotiators received a detailed inventory of global discussions and publications on the topic. The document, organized by the international NGO NatureFinance and the Getulio Vargas Foundation (FGV), cites an estimate that bioeconomy projects could reach $30 trillion by 2050.

But what exactly would these projects entail? The report acknowledges a wide range of opinions on what constitutes the bioeconomy. “This is due to the fact that G20 members have different priorities and strategies, contexts, and motivations,” the document states, compiling about 7,000 articles on the subject.

Annelise Vendramini, FGV project coordinator, explains the differing perspectives, for example, between countries rich in “financial resources” and those rich in “nature.” According to her, the former group tends to focus more on technology and innovation, while the latter emphasizes economic and social development.

The closest consensus on the concept is that it is an economic activity based on adding value to the “assets” found in nature, combined with the preservation and restoration of biodiversity. For instance, some argue that the social inequalities and cultural aspects of the traditional communities involved should be considered.

“It’s not just any bioeconomy. The document itself mentions that the bioeconomy can benefit some populations at the expense of others. That’s why ensuring equity is crucial,” argued Luana Maia, senior manager at NatureFinance.

Activities ranging from producing cupuaçu-based chocolates to selling carbon credits and manufacturing biodiesel could be included under the bioeconomy umbrella. “The great challenge is to offer sectors the possibility of aligning with the parameters of what the bioeconomy encompasses. We have to clarify where we want to aim,” said Carina Pimenta, head of the National Bioeconomy Department, a body established by the current government specifically to advance this promising agenda.

In Brazil, activities most commonly associated with the bioeconomy are currently concentrated in the cosmetics, chemicals, and food sectors. “The challenge is scale,” added Juliana Lopes, director of Nature and Society at the Brazilian Business Council for Sustainable Development (CEBDS). She emphasizes that addressing the challenge of scale necessarily involves technology and innovation.

“Discussing the scientific bottlenecks to achieving this scale is our concern,” stated Osvaldo Moraes, director of the Climate and Sustainability Department at the Ministry of Science and Technology.

Securing reliable sources of funding for investments in the sector is another current priority. Cristina Reis, Undersecretary for Sustainable Development at the Ministry of Finance, highlights some of the government’s initiatives, such as issuing green bonds and structuring a fund for tropical forests, developed in partnership with multilateral banks.

If some proposals for reforming these institutions—a cornerstone of Brazil’s leadership during the G20 presidency—succeed, the possibilities for financing the bioeconomy could expand.

Despite occasional updates, “no one knows for sure where the money will come from,” said Ms. Vendramini from FGV. In March, during a visit to Brazil, French President Emmanuel Macron announced an investment program worth €1 billion (R$5.5 billion) for bioeconomy projects in the Amazon. Since then, the specifics regarding the origin, instrument, or destination of this funding have not been clarified.

The document organized by NatureFinance was distributed to members of the delegations who went to Brasilia for meetings this week. There will be another round of meetings for this working group in Manaus in June and a final one in Rio de Janeiro in September. The expectation is that other G20 countries will submit contributions to be incorporated into the final document.

“It’s important that Brazil has introduced the bioeconomy to the G20 for the first time to build a global vision of what the bioeconomy is. It’s important both technically and politically,” said Simon Zadec, co-CEO of NatureFinance. “It’s about encouraging countries to develop their strategies because it’s going to take years to develop this economic and financial environment.”

Luana Maia says that addressing the issue is “the big step on a long and urgent road.” In her view, defining a concept common to all is not necessarily a goal in itself. For her, it would already be a great victory if the G20 summit adopted some “high-level principles” around the bioeconomy that could be embraced by the group’s next presidency (South Africa).

Ambassador André Corrêa do Lago, Climate Secretary at the Ministry of Foreign Affairs, is Brazil’s lead negotiator. According to him, the large turnout of representatives from G20 countries at the face-to-face bioeconomy meetings indicates that the topic has “caught on.” However, he cautions: “This is all a new economic paradigm. We have to be careful that they don’t think we’re going to solve everything.”

*Por Murillo Camarotto — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Floods put Brazil’s 2% GDP growth at risk

Economists estimate an impact of 0.2 to 0.3 percentage points driven by agribusiness

05/13/2024

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The impact of the floods in Rio Grande do Sul, the state with the fourth-largest share of Brazil’s Gross Domestic Product, on the national economy may range between 0.2 and 0.3 percentage points, according to preliminary estimates. That could put in check the possibility of a GDP growth above 2% for 2024, despite the resilient general activity.

XP Asset has revised its projection for Brazil’s GDP this year to 2.1% from 2.4%. While the previous expectation was for growth of 0.7% in the second quarter compared to the first, the financial firm now expects a drop of 0.2%. “And I think the impact could be even worse than our estimates suggest,” said chief economist Fernando Genta.

That is because the estimate considers rather the direct effect of the floods on the economy of Rio Grande do Sul than an overspill into other areas, Mr. Genta explains. For example: as the annual minimum wage raise is already given, the increase in food prices due to problems with crops in Rio Grande do Sul could lead to a deterioration of households’ purchasing power and, therefore, affect consumption in the GDP.

Fernando Fenolio, chief economist at Wealth High Governance, estimates that the adverse impact could vary from 0.02 percentage points on the national GDP, if there is a full recovery of industrial capacity in Rio Grande do Sul and a 25% loss of the remaining local harvest, to 0.34 percentage points, if the loss of the remaining harvest is complete and industry recovery does not exceed 25%.

An impact of 0.22 percentage points, caused by a total loss of the remaining harvest, although with 75% recovery of industrial capacity, seems a more likely scenario at the moment, according to Mr. Fenolio. “We will review our GDP projection. It could go to 1.8%, compared to the 2% we were expecting for this year, mathematically,” he said. Inflation, in turn, would shift to 4% from 3.8%. “It’s a classic supply shock, less GDP and more inflation.”

In preliminary estimates by 4intelligence, the Rio Grande do Sul’s GDP growth could reach just 0.5% this year, from 5.5% previously projected, due to the disaster. Considering that the state accounts for around 6.5% of the national economy, the floods could reduce Brazil’s GDP growth by 0.2 percentage points in 2024, according to the estimates. As a result, 4i’s official projection of a 1.9% increase in Brazil’s GDP this year could be reduced to 1.7%.

“The main impact on activity will occur in May. In June, we believe that most activities will be back to normal, depending on the material damage and the pace of reconstruction,” Bradesco said in a report. The bank also sees a potential impact of 0.2 to 0.3 p.p. on the Brazilian GDP as a result of the disaster.

G5 Partners has a similar estimate, indicating a loss of 0.3 percentage points. “As we have never experienced a natural disaster of the magnitude seen in Rio Grande do Sul, we sought references from other locations. We used the effects of hurricanes Katrina and Rita in the U.S. in 2005 as examples,” said Luis Otávio Leal, G5’s chief economist.

Based on a study by the U.S. Department of Commerce, which measured the impact of these hurricanes on the U.S. GDP quarterly, and adapting to metrics in Brazil, Mr. Leal estimated that the floods could take 10.5 percentage points off the variation in Rio Grande do Sul’s GDP in the second quarter of 2024, compared to the first quarter. As a result, his projection for the Brazilian GDP growth in 2024 would fall to 1.8% from 2.1%.

G5 did not change the estimate, but, before the floods, the firm was expecting to raise its annual forecast for national GDP following the release of official data for the first quarter.

“I believe the comparison with the effect of hurricanes Katrina and Rita makes sense, as there was similar material damage. However, the estimate does not consider other variables, such as the difference in the countries’ ability to act,” Mr. Leal points out, as the U.S. has an organized structure to act in cases of disasters like this.

According to Banco Pine, the projection for Brazil’s GDP growth in 2024, of 2.3%, can be revised to 2.1%, in an initial estimate.

“The impact tends to be mitigated for the national GDP. Regionally, it’s much more, and thinking in trillions of reais, there’s a loss of wealth. But I’m even more concerned about agribusiness,” said the chief economist of the bank, Cristiano Oliveira. He notes that if the state accounts for 6.5% of the national GDP, its participation in the agricultural GDP is almost double, around 12.5%.

Considering the state alone, 4i estimates that the most affected sector will be agriculture, which could grow 25% less than expected in the second quarter. “Rio Grande do Sul’s agricultural GDP, alone, was expected to grow 18.9% in 2024, recovering from a giant crop failure in 2022 that was not entirely replaced in 2023. Now, the increase could be just 1.9%,” said Bruno Lavieri, 4i’s chief economist.

Assuming that half of the unharvested crop on the fields has been lost, 7.5% of rice production and 2.2% of soybeans in Brazil could be impaired, according to Bradesco. The bank argues that these estimates may still be conservative.

With that in mind and considering a possible impact on wheat planting, which has just begun, and on the slaughter of chicken and, mainly, pigs, Bradesco estimates that the drop in Brazilian agro GDP in 2024 could aggravate to 3.5% from the expected 3%.

“There is also all the infrastructure involved in agribusiness, with storage silos, roads, and energy transmission. All of that should be impaired for some time,” said Mr. Oliveira of Pine. Therefore, he says the effect of the disaster on GDP tends to “last longer and worry more” than on inflation.

In services, transportation is likely to struggle for longer due to road closures. In services provided to households, activities related to leisure, hospitality, and personal services could also be strongly impacted, Bradesco points out. 4i’s projection for services in Rio Grande do Sul was reduced to a drop of 3.1% in the year from an increase of 1.9%, with losses concentrated in the second quarter.

The industry could be less impacted: the estimate for 2024 was reduced to 1%, from 1.8%. “Extractive activities have almost no weight in the state, while manufacturing, which is important given vehicle and machine production, should experience a specific impact and recover in the future, as demand was only pent-up. Furthermore, we should see some boost in construction, as the damage should boost construction works,” said Mr. Lavieri.

For 2025, 4i raised its GDP forecast for Rio Grande do Sul to 6.1% from 2%. “We maintain our projection for services and industry, which should grow a little less in 2024, but would recover next year. Agriculture is expected to continue below what was initially expected,” said Mr. Lavieri.

“Agribusiness in the region will likely suffer the consequences of the current event for many months to come, maybe casting doubt on the success of the next harvest,” said Mr. Oliveira. He points out that the La Niña phenomenon is expected to return in July, making the weather dry in Rio Grande do Sul. Although this could seem positive given the damages caused by excessive rainfall, it harms crops. “Unfortunately, extreme weather events tend to hit the state hard given its location,” he said.

*Por Anaïs Fernandes, Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Floods cause soy to rise more in Brazil than in Chicago

Some analysts see a price mismatch, while others believe that speculative movement and exchange rates explain differences

05/13/2024

Soybean crop affected by rains in Soledade, Rio Grande do Sul — Foto: Daniel Calegari/Arquivo Pessoal

Soybean crop affected by rains in Soledade, Rio Grande do Sul — Foto: Daniel Calegari/Arquivo Pessoal

The heavy rains that damaged soybean crops in Rio Grande do Sul left their mark on the grain market last week, including the sign of a possible decoupling between prices in Brazil and Chicago.

On the U.S. stock exchange, prices rose in the first days of the floods, reflecting fears about potential losses, but the rate of increase lost strength, and the commodity ended the week with an appreciation of 0.33%, at $12.19 per bushel. In Paranaguá, the Esalq/BM&FBovespa soy index rose 2.05% in the same period, to R$133.86 per bag, according to Valor Data.

Some analysts see a decoupling between the two markets. For Leandro Guerra, from LC Guerra Corretora de Cereais, one sign of a disconnect in soybean prices in Chicago and Brazil is the improvement in export premiums, which were negative until last month.

“There is a difference of up to 15 million tonnes between estimates from consultancies and those from official bodies about the [soybean] harvest in Brazil. Furthermore, the floods in Rio Grande do Sul have increased the uncertainties about the harvest, which also contributes to the positive premium,” he said.

Luiz Pacheco, an analyst at TF Consultoria Agroeconômica, sees soybeans with more room to rise in the domestic market than in the foreign market due to the demand for biodiesel—soybean oil is the main raw material for production. “There is a dispute between trading companies for soybeans that will be crushed and those that will be destined for export,” he said.

Mr. Pacheco assesses that not even the losses in the Rio Grande do Sul harvest caused by excessive rain justify the rise in prices in Chicago since the United States Department of Agriculture (USDA) indicated a surplus supply on Friday in its new report on the global harvest.

“World ending stocks grew by 11 million tonnes in this harvest [2023/24]. Even with a likely reduction of up to 2 million tonnes in Rio Grande do Sul, there is still a lot of soy left in the world,” he said.

João Birkhan, CEO of Sim Consult, disagrees with the notion of a decoupling between the two markets. He assesses that the price of soybeans is not “detached” from the international market, even though, at various times, prices follow opposite paths. “We don’t have such a large consumption of soybeans in the domestic market to the point of decoupling. Brazil is a large exporter. Therefore, prices will rarely diverge from the international market. It can happen in specific cases,” he said.

Mr. Birkhan adds that the foreign exchange rate helped the recovery of soybean prices in the domestic market. The exchange rate rose to R$5.3 per dollar last month, which favors the conversion of values into reais by farmers.

The rise in soybeans on the domestic market amid the rains in Rio Grande do Sul also had a speculative component, said Darcy Pires of União Corretora. According to him, this movement caused trading companies to pay up to R$2 more for a bag of soybeans at the beginning of last week. But, last Friday, the price returned to an average of R$130 at the ports, according to the broker. Despite the uncertainties about production in Rio Grande do Sul, Mr. Pires believes there is “a downward trend,” as Brazil still has a good volume of soybeans.

Cotrisoja, a cooperative based in Tapera, Rio Grande do Sul, saw a “sudden rise” in prices. “There was a rapid accommodation in prices, with the market waiting for new information about the Rio Grande do Sul harvest. Despite the expected loss of productivity, there is no rush to purchase soybeans for now,” said Adriano Borghetti, commercial director at Cotrisoja.

Currently, a bag of soybeans is worth R$118 in the region. “But it’s difficult to say whether it will remain at this level. We don’t know how the harvest and logistics issues, which affect almost the entire state, will unfold,” he added. There remains uncertainty about the scale of the losses, which could increase with the new wave of storms in the state.

*Por Paulo Santos, Raphael Salomão — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras discusses new stage of share buybacks

Sérgio Caetano Leite, the oil company’s chief financial and investor relations officer, says that the pilot project involving 157 million shares is 86% complete

05/10/2024

Sérgio Caetano Leite — Foto: Leo Pinheiro/Valor

Sérgio Caetano Leite — Foto: Leo Pinheiro/Valor

Petrobras is studying a new stage in its share buyback program, which began last year, Sérgio Caetano Leite, the company’s chief financial and investor relations officer, told Valor. “All the big oil companies, the counterparts, do it and treat the buyback as shareholder remuneration,” said Mr. Leite.

The first step was taken in 2023 and involved a pilot project of around 157 million preferred shares, which is 86% complete, Mr. Leite said. “We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%,” he compared.

The executive spoke to Valor between appointments at the Offshore Technology Conference (OTC), the oil industry’s main event, in Houston, Texas. Mr. Leite said that the company has enough cash to finance the planned investments, without the need to resort to the financial market. The company recently issued $250 million in bonds abroad to exchange expensive debt for cheaper debt. According to the executive, the company is monitoring the market for similar operations.

Mr. Leite also said that volatility explains the long period without any change in fuel prices: diesel oil has not been adjusted for more than 100 days, while gasoline has had no change in refineries in the last six months. The volatility, he said, prevents the company from seeing a clearer scenario to define the direction of the prices of oil products. Read below the main excerpts from the interview:

Valor: Petrobras carried out a share buyback program last year. Does the company have any plans for a new round?

Sérgio Caetano Leite: The body that authorizes the buyback is the board of directors and there is prior governance: we do internal studies, which go through committees. The management team approves [the proposal] and it goes to the board, which approves [the operation]. Share buybacks were included as another form of shareholder remuneration. All the big oil companies, the counterparts, do it and treat the buyback in this way, as shareholder remuneration. We approved this pilot project, around 157 million preferred shares, and we have already surpassed 86% of the total number of shares put up for repurchase. We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%. We respond to Brazilian legislation and U.S. legislation, CVM (Securities and Exchange Commission of Brazil) and SEC (U.S. Securities and Exchange Commission). So we had to be careful before starting this program, hence the decision to do the pilot first. One of the characteristics of the buyback program is that if you are going to release any notice of material fact, any press release, anything that could impact the share price, you have to stop the buyback. It takes two or three days to be able to repurchase. Petrobras issues more than two announcements a week. Another characteristic is that if the company’s board of directors learns of something that could affect the share price, even if they haven’t communicated it, they have to stop [the buyback operation].

Valor: Companies usually buy back shares when they believe they are cheap. Do you agree with this view?

Mr. Leite: It’s a sign, but note that in the case of Petrobras, we bought and canceled the shares, we didn’t hold them in treasury to sell again later. That would be legal, but it wasn’t our strategy. Some companies buy back shares and hold them when they see that prices are low. This is not the case, as Petrobras has reduced the number of shares on the market. That’s why it’s considered a form of remuneration. A Petrobras shareholder has two forms of remuneration. One is dividends and the other is appreciation. If I bought a set of shares for R$100, the end of the year comes and they are worth R$150, then we distribute value in the form of earnings in addition to dividends. They are also divided by the number of shares. When you reduce the share base, you can earn on the appreciation and the next dividends will be divided among a smaller number of shares. That’s why it’s considered shareholder remuneration. We are discussing the new phase of the program. The idea is to propose it to the board of directors and, if approved, we will continue to expand the program.

Valor: Can the discussion about dividends return in the face of higher oil prices?

Mr. Leite: We’ve chosen to distribute extraordinary dividends at the end of the year, and there’s a reason for that: it’s because you visualize the full year. You can have good quarters and bad quarters. To be clear, for years we’ve only released extraordinary dividends at the end of the year because we’ve been able to see the full picture. The dividend formula is in place and until someone decides to change the policy—and this decision was not made—it [the current policy] will be applied and the extraordinary dividend will be paid. Of course, if oil prices surge, we generate more cash because we sell abroad at a higher price.

Valor: Oil prices are volatile. Does this make setting fuel prices opaquer?

Mr. Leite: Since we revised our commercial strategy last year, we have maintained and reinforced the objective of not passing on volatility directly to the end customer, for various reasons, including the fact that it’s not good. Brazil runs on diesel. Imagine a truck that leaves home with one price, calculates the freight, the price of fuel changes halfway through, and when it gets there [at the destination] to return it’s another freight price. It makes no sense. And it’s bad for Petrobras’s cash flow predictability. If we sell assuming volatility, you can sell with the price down and lose money, or sell a contract [with the price] up and leave the market, because the competitor starts putting in more product.

Valor: So what is the strategy?

Mr. Leite: The strategy has a variation range and we follow it. As long as it’s in the range, we don’t make any sudden moves. When there is a structural change, that’s the time to make the move. Petrobras always ends up being the target of comments, but what happens is that companies, associations, and operators have no way of calculating Petrobras’s price [exactly]. Petrobras is the most efficient fuel importer on the market because of its infrastructure. We have logistical and competitive advantages. Our policy dictates that we shouldn’t sell below the marginal value and, when Petrobras is at the marginal value, it has a very good margin. We keep observing the market every day, every week. When we have to change, we will.

Valor: The company used to be the world’s most indebted oil company and today it’s holding its own. Is there room for Petrobras to take on more debt?

Mr. Leite: At Petrobras, debt is made up of two parts, financial and accounting, which comes from IFRS [International Financial Reporting Standards] rules. Our debt is made up of contracts, such as Floating Production, Storage, and Offloading (FPSO) units, helicopters, all kinds of ships. The financial debt comes from issuing bonds. And 100% of the investments in Petrobras’s strategic plan, those R$500 billion, just over $100 billion, are paid for with cash generation. Petrobras doesn’t raise money for investment. The strategic plan is funded with the company’s own money. Up until now, capital discipline has meant that the company has financed the entire plan with its own cash. Last year, Petrobras won two or three awards with a global bond we issued, for $250 million. A pool of 13 or 14 banks handled the operation. We got low rates, and we were equivalent to AAA [investment grade] companies. The market recognized the quality of the securities and we had overdemand. If we issued twice as much, people would buy it. We haven’t issued since 2020 or 2021. And we did it for several reasons. One was to see how the market was viewing the company. And because the rates were in our favor. It’s important to be in the debt market. We had a financial debt of $28 billion, we issued R$1.25 billion [$250 million] and today we owe $27 billion. In the past, rates were higher, we borrowed R$1.25 billion and used the money to buy bonds. We call this debt curve management. Whenever the market shows a rate mismatch in our favor, when there is an opportunity to lower the debt, we tap the market and buy the old debt. We don’t need to issue to do projects. That’s with our cash reserves, it [the cash flow] gives [space] and there’s leftovers, which you see in the form of dividends.

*Por Fábio Couto — Houston

Source: Valor International

https://valorinternational.globo.com/
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Suzano to look at opportunities in different regions, CEO says

Company made $15bn offer to buy IP, sources say; earnings fell 96% in Q1, to R$220m

05/10/2024

Walter Schalka — Foto: Ana Paula Paiva/Valor

Walter Schalka — Foto: Ana Paula Paiva/Valor

Just under two months before stepping down as CEO of Suzano, Walter Schalka said the pulp and paper company will maintain its long-term investment perspective and, consequently, growth. However, the executive declined to comment on the company’s interest in International Paper (IP), arguing that Suzano does not speak about specific operations.

“The company, in a rationalist manner, will look at organic and inorganic opportunities in different geographies,” he said. According to sources, Suzano made an informal offer to acquire the U.S.-based company, valued at $15 billion. However, one of the obstacles to a potential deal is a requirement made by Suzano—the end of the agreement involving the acquisition of DS Smith by IP.

Suzano released its first quarter results on Thursday (9), which brought the effects of the strong pulp depreciation in the first half of 2023. Net earnings fell 96%, to R$220 million, also pressured by the financial result. Net revenue totaled R$9.46 billion, a drop of 16%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 26%, to R$4.56 billion.

Pulp prices have been recovering since the middle of last year. According to Mr. Schalka, the market is more favorable than last year, with “robust” demand in the three main regions: Asia, Europe, and North America. Non-recurring events, such as strikes, logistical issues, and unexpected factory shutdowns, led to a better price moment, with a gradual increase.

“The average price realized in the first quarter has not yet captured all of the increases,” he said.

At the beginning of the year, pulp price in China was $617 per tonne, compared to $740 this month. Given this scenario, the expectation is that the average price realized in the second quarter will be higher than at the beginning of the year.

According to Mr. Schalka, pulp revenue in the first quarter also reflects a movement to replenish stocks, which in December were below safe levels and, if maintained at those levels, could put supply to customers at risk in the future.

The Cerrado Project, which involves the construction of a plant with a capacity to produce 2.55 million tonnes of pulp per year in Ribas do Rio Pardo, Mato Grosso do Sul, is on schedule and the forecast for starting operations by the end of June has been maintained. Suzano is investing R$22.2 billion in the project.

With the start of operations, the expectation is for a gradual reduction in financial leverage, which reached 3.5 times in March, within the cap set by the debt policy in investment cycles. According to Mr. Schalka, with a cash cost of pulp production of R$812 per tonne in the first three months of the year, which is 13% below a year earlier, Suzano should see a further drop in this item after the stabilization of the Cerrado Project.

Marcelo Bacci, chief financial, investor relations, and legal officer, says that Cerrado will bring a “quite significant” return at current pulp price levels. “The new projects will have a higher investment per tonne than those that are being carried out now, as wood, land, and industrial capex have become more expensive, and will have to be justified by higher pulp prices,” he pointed out.

*Por Stella Fontes — São Paulo

Source: Valor Inaternational

https://valorinternational.globo.com/
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