The country’s primary and most diversified industrial hub accounts for approximately 33% of the national industrial output
09/13/2024
Over 12 months through July, Brazil’s overall industrial production rose by 2.2% — Foto: Rogerio Vieira/Valor
Following a cumulative increase of 4.1% over three consecutive months, São Paulo’s industrial production fell by 1.8% in July compared to the previous month, according to the Monthly Regional Industrial Survey (PIM Regional) released recently by the Brazilian statistics agency IBGE.
São Paulo is the leading and most diversified industrial hub in Brazil, contributing about 33% to the national industrial output. This decline significantly impacted the overall performance of Brazil’s industry in July, which saw a decrease of 1.4%.
“The 1.8% drop, exceeding the national average, partially offset the accumulated growth from the previous period. The pharmaceutical sector negatively influenced São Paulo’s production output,” said Bernardo Almeida, who leads the survey.
Despite the decline, São Paulo’s industrial production remains 2.2% above pre-pandemic levels.
Compared to July 2023, São Paulo’s industrial sector grew by 5.4%, which is below the national average growth rate of 6.1%. For the year up to July, the growth was 4.7% in São Paulo and 3.2% across Brazil.
Over the 12 months leading up to July, São Paulo’s industrial production increased by 2.5%, while Brazil’s overall industrial production rose by 2.2%.
The impact of two months of rain in Rio Grande do Sul was comparable to the more than R$7bn in losses seen over two years of the pandemic
08/13/2024
Pasture burned by fire in the Campinas region, São Paulo: Insurers’ risk assessment models, based on historical series, are becoming less effective in the face of climate extremes — Foto: Luciano Claudino/Código 19/Agência O Globo
Climate change, with its increasing frequency and intensity of events such as heavy rainfall, heatwaves, and droughts, is pushing the insurance industry to rethink how it manages risk. The growing realization is that this is the “elephant in the room” that insurers must address with urgency.
This shift is essential because what seems to be the new normal is challenging the sector’s traditional business model. “We’re witnessing events that used to occur once every hundred or 200 years happening more frequently. That’s an increase in risk, and when risk increases, insurance premiums rise. As a result, people stop purchasing insurance because it’s become more expensive—precisely at a time when insurance is more critical than ever,” said Marcos Falcão, CEO of IRB(Re), in an interview with Valor. He added that reinsurers will need to improve their valuation and pricing models to adapt. “This is a significant challenge for the entire industry.”
Earlier this year, IRB(Re) established a dedicated research and development unit to focus on climate risks. One of its first actions was hosting a forum in Rio de Janeiro, bringing together public and private sector leaders and researchers to discuss the current situation and explore ways to mitigate and adapt to the effects of climate change.
Not long ago, Brazil was considered relatively free from extreme natural events, unlike other countries, but “now they’ve learned the way here,” said BrasilSeg president Amauri Vasconcelos.
A striking example of this was the heavy rains that battered Rio Grande do Sul between April and May, causing devastation comparable to the impact of the two-year COVID-19 pandemic on insurers. For Mr. Vasconcelos, this highlights the immense destructive power of climate-related phenomena. “An isolated two-month event is nearing the scale of the largest disaster ever covered by the sector,” he noted.
Insurance companies in Brazil have paid out around R$7 billion in compensation related to COVID-19, with BrasilSeg alone disbursing around R$2 billion. In response to the floods in Rio Grande do Sul, the insurance market has paid out R$5.6 billion in claims as of the end of July, with estimates from the National Confederation of Insurers (CNSeg) suggesting that total compensation could reach between R$6 and R$8 billion.
This evolving climate landscape demands that the industry rethink how it assesses catastrophic risk. “We continue to rely on historical data models for risk assessment, but with the climate crisis, it’s clear that we’ve experienced a break in those historical patterns,” said Dyogo Oliveira, president of CNSeg. “This industry has an unmatched ability to manage risk, but we must make a significant effort to prepare the market for this increasing and inevitable challenge.”
Climate scientist Carlos Nobre underscored the urgency of the situation. “Current climate change is widespread, accelerating, and growing more severe. We are seeing record droughts, heatwaves, and wildfires,” he stated.
Mr. Nobre, president of the Brazilian Panel on Climate Change, warned that global temperatures have already risen more than 1.5 degrees Celsius, threatening the long-term survival of the Amazon. He also highlighted the rapid melting of glaciers and rising sea levels, with some areas of the Pacific seeing an increase of 20 to 25 centimeters.
Paulo Miller, an advisor to the directorate of prudential regulation and economic studies at the Superintendence of Private Insurance (SUSEP), described the climate crisis as the “elephant in the room” for the insurance industry. He emphasized that the sector must not approach this with an “extractive mentality”—seeking to exploit the market until it becomes uninsurable—but rather focus on keeping risks insurable by promoting sound risk management practices. “Beyond pricing and selling protection, insurance has a critical regulatory role in fostering good risk management among policyholders,” Mr. Miller explained.
One strategy proposed by insurers to address these challenges is to strengthen collaboration with academia, which generates scientific knowledge, and public authorities, while also promoting a broader insurance culture in the country. “The low penetration of insurance and the insufficient growth rate in Brazil, which falls short of what’s needed to protect our population, businesses, and assets, is a serious concern,” said Mr. Vasconcelos of BrasilSeg. He noted that in Rio Grande do Sul, estimated insurance payouts represented less than 10% of the R$97 billion in economic losses calculated from the recent floods.
In rural areas, losses from climate-related events over the past decade have totaled R$287 billion, with only a fraction, R$56 billion, covered by agricultural insurance or government reimbursements through the Agricultural Activity Guarantee Program (PROAGRO), a 50-year-old agricultural insurance program designed to protect farmers against uncontrollable natural losses. The rest of the losses were absorbed by producers, many of whom were driven to bankruptcy. “Ultimately, the burden falls on civil society. When climate risks intensify, and the insurance culture remains well below the global average, the entire society is affected,” Mr. Vasconcelos emphasized.
A relação direta entre a fome e as mudanças climáticas foi debatida por pesquisadores que se reuniram na Universidade do Estado do Rio de Janeiro (Uerj) nesta semana, no 6º Encontro Nacional de Pesquisa em Soberania e Segurança Alimentar e Nutricional, que termina nesta sexta-feira (13). Coordenadora do evento e professora do Instituto de Nutrição Josué de Castro, da UERJ, Rosana Salles da Costa explica que a insegurança hídrica, por exemplo, pode ser uma consequência das mudanças climáticas que também reduz o acesso à alimentação saudável.
“A segurança alimentar se relaciona a diversas questões. Podemos colocar como uma delas as mudanças climáticas com, por exemplo, o prejuízo no acesso à água em quantidade e qualidade”, explicou à Agência Brasil. “Estamos debatendo no país a questão da segurança hídrica, que, com as mudanças climáticas e as queimadas que estão acontecendo, acaba prejudicando várias áreas de plantio de alimentos produzidos para o consumo nacional”.
A professora ressalta também ser importante observar o aumento do preço dos alimentos, resultado de uma sequência de acontecimentos que dificultam o acesso à alimentação. “Uma vez que você prejudica o plantio e o cultivo de alimentos destinados ao consumo da nossa população, infelizmente, o preço também é afetado. A partir daí, temos que pensar em políticas públicas e em como reverter os efeitos das mudanças climáticas, porque elas estão presentes e temos que pensar agora em como vamos enfrentar as dificuldades relacionadas à segurança alimentar, articulando com os Governos Federal, Estaduais e Municipais medidas de redução da fome e promoção da alimentação saudável.”
Realizado pela Rede Brasileira de Pesquisa em Soberania e Segurança Alimentar e Nutricional (Rede Penssan), o encontro trouxe como tema “Pesquisa e políticas públicas em soberania e segurança alimentar e nutricional no enfrentamento das desigualdades, da fome e das mudanças climáticas”, reunindo pesquisadores nacionais e internacionais, alunos de graduação e de pós-graduação para debaterem as influências das mudanças climáticas no acesso à alimentação adequada pela população.
Segurança alimentar
Rosana Salles da Costa esclarece que segurança alimentar se relaciona ao acesso à alimentação adequada para todas as pessoas de uma família, refletindo o direito humano à alimentação adequada. Por outro lado, a insegurança alimentar se faz presente quando uma das questões relacionadas à alimentação, seja em quantidade ou qualidade, não é garantida. No Brasil, a insegurança alimentar é avaliada a partir da Escala Brasileira de Insegurança Alimentar (EBIA). “Os níveis de insegurança alimentar são três: insegurança alimentar leve, moderada e grave. A insegurança alimentar grave reflete a fome na nossa população, ou seja, famílias que passam o dia todo sem comer ou que fazem uma única refeição ao dia”.
No país, conforme dados da Pesquisa Nacional por Amostra de Domicílios (Pnad) Contínua, referentes ao último trimestre de 2023, 10,8% dos lares comandados por mulheres convivem com a insegurança alimentar moderada ou grave. Considerando os lares chefiados por homens, essa porcentagem passa para 7,8%, revelando uma diferença de três pontos percentuais. Com relação à cor ou raça, 74,6% dos domicílios que enfrentam a insegurança alimentar grave são chefiados por pessoas pretas e pardas.
“Infelizmente, temos o grupo classicamente mais afetado que são os lares chefiados por mulheres, especialmente as mulheres negras”, analisa a professora. “Esse também é um tema de debate de alguns dos painéis e de vários trabalhos do 6º EPISSAN. O encontro não debate apenas resultados, mas também é muito propositivo. Os pesquisadores presentes analisam e fazem propostas de políticas que, principalmente para os lares chefiadas por mulheres negras, são urgentes”, complementa.
Encontro
Além dos debates realizados, foram apresentados durante o evento dados preliminares sobre pesquisas conduzidas no país pela Rede Penssan e com apoio do App VIGISAN, aplicativo desenvolvido pela própria instituição para auxiliar na abordagem aos pesquisados que compõem, muitas vezes, grupos sociais vulnerabilizados. No encontro, também foi apresentada a plataforma FomeS, elaborada com financiamento do Ministério da Saúde (MS) e do Conselho Nacional de Desenvolvimento Científico e Tecnológico (CNPq). A ferramenta agrega dados nacionais sobre mudança climática, insegurança alimentar, insegurança hídrica, saúde e estado nutricional de crianças.
O encontro contou com patrocínio do Ministério da Saúde (MS), do Ministério da Ciência, Tecnologia e Inovação (MCTI), do Ministério do Desenvolvimento e Assistência Social, Família e Combate à Fome (MDS) e da Coordenação de Aperfeiçoamento de Pessoal de Nível Superior (CAPES).
Despite two tax hikes, Chinese brands have yet to increase prices
09/12/2024
BYD operation at Suape Port in Pernambuco — Foto: Maira Erlich/Bloomberg
Since the government announced the gradual reinstatement of the Import Tax on electric and hybrid cars, the tax has been increased twice, in January and July. However, Chinese brands, which are the main importers of these vehicles, have not yet raised their prices. To avoid immediate price hikes, these companies prepared in advance by importing large volumes of vehicles, resulting in sufficient stock to maintain current prices for the time being.
ANFAVEA, the association representing manufacturers in Brazil, has expressed concerns over this situation. Last week, the association’s president, Márcio de Lima Leite, said that the inventory of Chinese electric and hybrid vehicles reached over 86,000 units in June, just before the second phase of the tax increase. According to him, this stockpile was enough to cover nine months of sales. By the end of August, the inventory was still over 81,000 units, Mr. Leite reported.
Since 2016, fully electric cars have been exempt from the Import Tax, and hybrids have been subject to a reduced rate. At the end of 2023, the government announced a phased reintroduction of these taxes. The first two stages of the increase occurred in January and July, bringing the rates to 18% for fully electric vehicles, 25% for hybrids, and 20% for plug-in hybrids. This gradual increase is scheduled to continue until it reaches the maximum rate of 35%, as permitted by the World Trade Organization (WTO), by July 2026.
Noting the strong competition from Chinese brands, ANFAVEA drew parallels with decisions made by other countries, such as the United States, which increased the Import Tax on Chinese goods from 25% to 100%. Consequently, ANFAVEA decided to petition the Ministry of Finance to immediately raise the Import Tax on electric vehicles to the maximum rate of 35%.
So far, the government has not commented on this request. Last week, Vice President Geraldo Alckmin sidestepped questions on the issue during an interview hosted by ANFAVEA.
The interview continued after the minister had left ANFAVEA’s headquarters in Brasília. The same reporter who had questioned him about the tax then posed a similar question to the association’s president. Mr. Leite said that the request to increase the tax to the maximum rate would now be directed to the Foreign Trade Chamber (CAMEX).
This situation has intensified the competition in the Brazilian market between domestic automakers and Chinese brands, which also plan to establish production facilities in Brazil but currently rely on imports. While ANFAVEA represents the domestic side, the Chinese brands are associated with the Brazilian Electric Vehicle Association (ABVE).
On the inventory data presented by ANFAVEA, ABVE President Ricardo Bastos said that the association did not have the exact numbers because its members “have more important things to do than count cars.”
However, Mr. Bastos did not dispute the information, estimating that the figures were likely accurate and considered it “natural” for companies to stockpile in anticipation of a tax increase.
The market for electric and hybrid vehicles continues to grow. With 14,600 units sold in August, including locally manufactured models like those from Toyota, sales volume represented a 57% increase compared to the same month last year.
Although the market share for hybrids and electric vehicles remains small compared to the overall market, it accounted for 6.6% last month. The growth rate remains robust.
The substantial inventories help these brands gain recognition in Brazil as they prepare to start local production. BYD plans to begin assembling vehicles later this year using imported parts in a factory being built in Camaçari, Bahia, at the former Ford site. Great Wall Motors (GWM) is preparing the facility it acquired from Mercedes-Benz in Iracemápolis, São Paulo, to commence operations in the first half of 2025.
Competition in the Brazilian vehicle market is expected to remain fierce, especially with increased credit availability driving demand.
In August, the daily average of new registrations reached 10,800 units, the highest of the year and a 19.5% increase over August 2023, according to ANFAVEA. Domestic sales totaled 237,400 units, including cars, light commercial vehicles, trucks, and buses, marking a 14.3% increase compared to the same month last year.
From January to August, the total market grew by 13.3%, totaling 1.62 million units. In the same period, sales of hybrids and electric vehicles reached 109,200 units, a 123% increase compared to the same period in 2023.
Bill that makes it possible to continue exempting 17 labor-intensive sectors and municipalities from paying taxes is now on its way to presidential assent
09/12/2024
The Lower House passed the bill with the support of 253 legislators, while 67 voted against — Foto: Brenno Carvalho/Agência O Globo
Despite passing the main text and rejecting amendments, the Lower House adjourned early Thursday without fully approving a bill that ensures the continuation of payroll tax exemptions for 17 labor-intensive sectors and municipalities while establishing compensation mechanisms for the measure. The proposal also includes a gradual reintroduction of taxes for these sectors and municipalities starting in 2025. The low quorum was a key factor in the session’s adjournment.
A new session has been scheduled for this Thursday to consider an agreed-upon amendment to address the Central Bank’s concerns and finalize the text. The bill will be sent to President Lula for approval after these steps.
The main text was passed late Wednesday with the support of 253 legislators, while 67 voted against and there were four abstentions.
The review of the text began on Wednesday night, which was the deadline set by the Supreme Court for the government and Congress to formalize an agreement to maintain the payroll tax-cut program.
Negotiations
Hours before the vote, a meeting between Finance Minister Fernando Haddad, House Speaker Arthur Lira, and party leaders sealed the agreement that allowed for the bill’s consideration.
It was decided that forgotten funds in financial institutions—approximately R$8.6 billion—would have only an accounting effect and would not be included in the calculation of the primary result.
This agreement was made to address the Central Bank’s concerns, which had sent a note to lawmakers the day before expressing worries about incorporating these funds as part of the compensation for the federal revenue loss. According to the Central Bank, such incorporation would not align with its statistical methodology and would contradict guidelines from the public spending watchdog TCU and recent Supreme Court rulings.
The opposition attempted to obstruct the session, but motions to delay the vote were rejected by the majority of lawmakers.
Before the vote, Vivien Suruagy, president of the National Federation of Call Centers, Installation and Maintenance of Telecommunications Network Infrastructure (FENINFRA), expressed concern that the issue might not be resolved within the Suprem Court’s deadline.
“Congress needs to put an end to the legal uncertainty we’ve been dealing with since the government vetoed the tax cut,” she said in a statement.
In a last-minute change, congressman Any Ortiz relinquished her role as rapporteur, which was then assigned to the government’s leader in the House, José Guimarães.
“For about a month, I’ve been urging for this matter to be brought to a vote. Everyone knows the content of this matter. It came to the House days ago and only today was the rapporteur appointed. I warned that the deadline was approaching,” Mr. Guimarães said.
In April, Justice Cristiano Zanin initially suspended the tax exemption, which would have immediately reinstated the tax on the affected sectors. However, a few days later, he issued a new ruling granting 60 days to find compensation sources for the measure—a decision confirmed by the full court. The deadline was later extended until Wednesday.
As the vote extended into early Thursday, the Federal Attorney General’s Office (AGU) requested that the Supreme Court grant an additional three business days for President Lula to sign the bill. “As today is the deadline for the decision’s prospective effect granted by this Supreme Court, it is necessary to grant an exceptional extension of three business days solely to complete the legislative process in its final stage of presidential approval or veto. Therefore, we respectfully request an extension of the suspension period and the prospective effects of the decision for an additional exceptional three business days, solely to finalize the legislative process as regulated by Article 66 of the Constitution (approval/veto),” the request said.
Current Situation
Currently, the payroll tax-cut model allows for the payment of rates ranging from 1% to 4.5% on gross revenue. This tax substitution model is more suitable for labor-intensive sectors. Together, the 17 exempted economic sectors generate around 9 million jobs.
Under the bill proposed by the economic team after an agreement with the National Congress, the payroll tax will gradually return starting next year. It will be 5% in 2025, 10% in 2026, 15% in 2027, and 20% in 2028.
The payroll-tax cut model for economic sectors was introduced in 2011 to stimulate job creation. Since then, it has been extended several times. Last year, Congress extended the measure until the end of 2027. Additionally, it allowed municipalities with populations under 156,000 to reduce their social security contributions to 8% from 20%.
The text was vetoed by President Lula, but Congress overrode the veto, leading to the series of events that reached the Supreme Court.
*Por Marcelo Ribeiro, Raphael Di Cunto, Valor — Brasília
Brasol, a renewable energy company primarily funded by BlackRock and Siemens, has announced its first issuance of simple debentures, amounting to R$400 million, to finance its growth plan through the construction or acquisition of new solar plants in the distributed generation segment.
CEO Ty Eldridge told Valor the focus is on infrastructure projects up to R$25 million targeting larger consumers such as industrial clients, telecommunications, and sanitation services. Bradesco BBI advised Brasol on the operation.
“The funds will be crucial for the development of strategic assets and new projects. This is also the reason for diversifying our solutions, as solar energy alone will not meet all of our clients’ needs. Hence, we are exploring battery storage solutions,” Mr. Eldridge added.
Despite the presence of numerous companies in Brazil’s distributed generation sector, the market is consolidating around a few key players acquiring projects, such as Brookfield, Origo, Matrix, and Patria.
At the end of 2023, BlackRock acquired a 45% stake in Brasol. With this investment, the plan is to allocate a significant portion of the capital for acquisitions, aiming for approximately R$1 billion in investments in the company. Brasol’s chief investment officer, Carlos Eduardo de Lima Bacha, noted that with BlackRock’s capital and other partners, along with the debenture issuance, the company now has the necessary funds to pursue these projects.
“We went to the market with a public operation and raised funds for Brasol, giving us discretion in allocating the money for future projects,” Mr. Bacha said. “Part of the funds will be used for purchasing equipment and constructing plants, as well as for consolidation through M&As [mergers and acquisitions],” he added.
The company currently has around 150 megawatt-peak (MWp) distributed across 22 states and aims to reach approximately 500 MWp of installed capacity by the end of 2025. The strategy involves utilizing Brasol’s equity, shareholder contributions, and other financial structures. The first R$200 million has already been withdrawn and is available for upcoming opportunities.
Recently, the company finalized an agreement to acquire solar farms from energy trader BC Energia. Initially, this partnership will involve controlling 13 projects with a generation capacity of 60 MW, requiring investments of R$250 million. The plan is to acquire 35 solar plants, demanding investments of R$800 million, as reported by Pipeline, Valor’s business news website.
This financial arrangement is not unprecedented. Raízen sold 31 solar projects to Élis Energia, a company controlled by Pátria Investimentos. Brookfield injected R$1.2 billion to establish a 300 MWp generation park through its subsidiary IVI Energia, with an undisclosed amount, and continues with the construction of future plants. Additionally, Origo Energia, backed by I Squared, raised R$600 million to finance the construction of around 150 small solar plants in 11 states.
Camila Ramos, CEO of Clean Energy Latin America (CELA), a consultancy specializing in the renewable energy sector, noted that remote generation projects have been using several financial instruments, including equity from investors, commercial and development bank financing, as well as capital market instruments such as Real Estate Receivable Certificates (CRIs) and credit rights investment funds (FIDC), simple debentures, and more recently, incentivized debentures.
“According to Cela’s annual survey of financing volumes for distributed generation in Brazil, this volume fell for the first time in 2023. However, in 2024, the financing market rebounded and is expected to show higher volumes than the previous year,” Mr. Ramos said.
Planning has improved, but freight costs have tripled and product shortages remain a concern
09/11/2024
If drought in the Amazon region worsens and freight costs continue to rise, consumers may see higher prices in stores — Foto: Ricardo Stuckert/PR/Divulgação
Improved planning by the industry and retail sectors for this year’s dry season in Manaus, compared to last year, may initially reduce the risk of shortages in manufacturing inputs and consumer products.
However, if the drought worsens and freight costs remain high, consumers could face higher prices in stores and an increased likelihood of product shortages during the holiday season.
During the 2023 dry season, the Amazon region’s four largest maritime and river cargo transport operators charged between $900 and $2,000 per container, depending on the company and volume. This so-called “dry season surcharge” is an established practice in the sector, negotiated annually when drought conditions hit. As of August 1, Valor has learned that the rates have jumped to between $3,000 and $5,900, effectively tripling within a year.
Industry associations, business leaders, and unions report that the warning of a more severe drought this year prompted manufacturers, especially of motorcycles, TVs, and air conditioners, to secure advance sale contracts with retailers. This move came despite higher distribution costs in the third quarter.
However, this strategy has its financial and structural limitations, which could create bottlenecks for consumers. Valor has learned that major retailers Magazine Luiza and Casas Bahia have expedited the delivery of televisions from the Manaus Free Trade Zone to ensure supply.
“We don’t foresee major complications for Black Friday sales since part of the deliveries has been advanced, and we have better distribution alternatives compared to a year ago. For Christmas, however, the situation is uncertain, and there could be impacts on both prices and supply,” said José Jorge do Nascimento Júnior, president of Eletros, an association of durable goods manufacturers. Black Friday falls on November 29.
“It all depends on the severity and duration of the drought, which started earlier this year than in 2023, potentially affecting distribution despite having more port options in the region,” he added.
The main alternative involves two temporary floating ports in Itacoatiara, located 170 kilometers from Manaus on the Amazon River, which received approval from the Federal Revenue Service to operate as of August. These private piers, operated by the Chibatão Group and Super Terminais, can accommodate large vessels comfortably.
Earlier this week, the first test at the Chibatão pier was expected. Products are unloaded from ships onto barges that can navigate the drier sections of the region’s rivers. Companies can lease pier areas for receiving inputs and dispatching orders from the Free Trade Zone.
Luis Fernando Resano, executive director of the Brazilian Association of Shipowners and Short-Sea Shipping (ABAC), said another option is to traverse the region between Pará and Manaus. However, completing the route on barges from Vila do Conde (Pará) to Manaus (Amazonas) could add up to 10 days to transit times due to the drought.
The issue is that freight costs in Manaus have skyrocketed. Augusto César Rocha, logistics coordinator at the Amazonas Industry Center (CIEAM), note that almost all year-end production is practically sold but not fully delivered.
“According to the rate schedules I accessed, the average freight cost per container has risen to $3,100 from $900,” he said. Leading operators in the sector include MSC and Maersk.
“We had better planning, especially from the private sector, as government actions have been limited since the 2023 drought. Last year, we managed through improvisation. This year, the industry has built up stock and partially passed it on to retail. But the dry season surcharge has risen sharply,” said Mr. Rocha.
He expects these costs to be gradually absorbed throughout the year by both industries and retailers but said that short-term profitability could be affected if costs are not passed on.
Despite the current surge in demand for TVs and air conditioners from the Manaus Free Trade Zone, Eletros does not believe this can be fully absorbed due to compressed profit margins since the pandemic and the lingering effects of high interest rates post-2021.
“We’re experiencing a very strong summer, with white goods sales up 18% in the semester and water cooler sales soaring 120%, along with significant increases in filters and beer coolers. However, we’ve faced currency pressures and interest rates are expected to rise again,” said Mr. Nascimento of Eletros.
Advance delivery agreements between Free Trade Zone industrial companies and retailers in the Southeast and South have involved lead times of a few weeks, sources say. Electronic manufacturers expedited imports of inputs and production schedules by three to four weeks this year, according to an early-week survey by ABINEE, the electrical industry association.
“This year we saw distributors [of components] bringing forward their purchases by several weeks, moving them to August and September,” said Rogério Nunes, head of the Brazilian Semiconductor Industry Association (ABISEMI).
Air transport, though more expensive than river transport, is another alternative adopted by the sector and is already a common part of logistics for electronic components manufacturers. “Given that these products take up little space and are extremely sensitive, air transport is typically used in this sector,” Mr. Nunes said.
To ensure advance deliveries to retail without disrupting the financial cycle of the chains, which would lead to premature cash outflows, a prior agreement was reached between parties. Otherwise, if a company advances purchases and pays for them well before the sales period, it increases inventory and raises its working capital needs amid a costly market environment.
“There has been a significant advance in TV deliveries by Asian brands because it’s a product with strong demand today. So, suppliers have built up advance stocks with us but without invoicing in advance to avoid immediate cash outflows,” said the general director of a major electronics retailer.
Valor has learned that one of Brazil’s largest electronics chains decided to import air conditioner batches from China to avoid missing summer sales.
In late August, Sergei Epof, Panasonic’s vice president in Brazil, said the group preemptively moved products before river water levels dropped in the North. “This way, we aim to avoid last year’s problem, when we were caught off guard,” he said.
Even with the anticipated impacts of the drought, not all effects can be mitigated, and there are risks to the supply, said Alexandre Ostrowiecki, CEO of the Multi Group.
According to him, although Multi has implemented preventive measures, this situation will inevitably lead to increased logistics costs “and could result in product shortages in the market throughout the second half of 2024,” he told Valor.
“We are working hard to minimize impacts, but the reality is that this is an unprecedented challenge for the entire supply chain,” he added.
Despite deflation, consumer price index also delivered some bad news for the country’s monetary policy
09/11/2024
Central Bank’s building in Brasília — Foto: Cristiano Mariz/Agência O Globo
In August, inflation posted its first decline of the year, moving away from the upper end of Brazil’s Central Bank target and potentially easing some pressure on the upcoming Selic policy rate hikes that the Monetary Policy Committee (COPOM) is expected to implement next week. Nevertheless, the outlook for guiding the Central Bank’s policy rate remains challenging.
According to the Brazilian Institute of Geography and Statistics (IBGE), Brazil’s official inflation rate (Broad Consumer Price Index, or IPCA) fell by 0.02% in August. This marks the first decline in nearly two years and came in below both market expectations (a 0.01% increase, according to Valor Data) and the Central Bank’s forecast (a 0.07% gain, as per the latest Inflation Report). More significantly, the 12-month rate dropped from 4.5%—at the upper limit of the target—to 4.24% between August and September. Following the release, future interest rates fell, with traders now expecting a lower chance of a 50-basis-point increase and a higher probability of a 25-basis-point hike in the Selic rate next week.
One bright spot was the slight decrease in the average of the five core inflation indicators tracked by the Central Bank, which fell from 3.83% to 3.8%, according to MCM Consultores. Core measures exclude more volatile items and thus offer a clearer picture of inflation trends relevant to monetary policy and economic activity.
There also appears to be reduced pressure on underlying service prices, which are closely tied to monetary policy. Itaú Unibanco’s economic team estimates that the seasonally adjusted and annualized three-month moving average declined from 6.2% to 5.6%.
However, the IPCA also revealed some less favorable news. The diffusion index, which measures the percentage of items with rising prices, jumped from 46.9% to 56%. Excluding food items, which are more volatile, the indicator rose from 53.1% to 61.7%.
Itaú highlights that, while service prices showed some improvement in August, they are expected to face “some pressure” in the coming months, potentially ending the year with an increase “close to 5.5%.”
The IBGE said that strong labor market performance and overall economic activity may influence trends in service prices.
Recent data includes the IBGE’s report that GDP grew by 1.4% in the second quarter compared to the previous three months, surpassing the median projection of 0.9% from economists at financial institutions, asset managers, and consultancies surveyed by Valor Data.
The pre-COPOM survey released last week indicates that the Central Bank is focusing on economic slack, which is directly influenced by GDP and the labor market, and its impact on inflation. The survey now asks private sector economists about their projections for the output gap, a question not included in June’s survey.
Banco ABC Brasil also notes that, over the longer term, core inflation measures generally “support the outlook of a slowing domestic disinflation.” Banco Bradesco’s estimates show that “core inflation is running close to 4.5% on an annualized three-month basis,” about “1 percentage point higher than in the second quarter of the year.” There are also concerns about how the drought might affect food prices in Brazil.
To manage the Selic rate, currently at 10.5% per year, the COPOM is targeting the first quarter of 2024, forecasting inflation of 3.4% in a reference outlook and 3.2% in an alternative one. In both cases, according to the Central Bank’s own terms, the rate is “above” the 3% target.
Since at least the first quarter of last year, the COPOM has been warning, both in official communications and in statements from its members, about the challenges of the “second stage” of post-pandemic efforts to bring inflation to target. On Monday, the median market projection for the Selic rate, according to the Focus Bulletin, increased from 10.5% to 11.25% by December and from 10% to 10.25% by the end of next year.
The committee will once again meet under challenging conditions next Tuesday and Wednesday to decide on the base interest rate. This stands in contrast to the upcoming Federal Reserve meeting, where the Fed is expected to start an easing cycle, having kept its policy rate between 5.25% and 5.5%—the highest level in over two decades—for just over a year.
Lack of rain delays planting of beans, soybeans; concerns increase export premiums at the port of Paranaguá
09/11/2024
Coffee crops damaged by drought in Bom Jesus — Foto: Alexandre Maroti/Arquivo pessoal
The recent fires in agricultural production areas in different parts of Brazil prompted a warning on the population but the dry weather is currently the major concern in Brazilian agribusiness. The lack of rain is delaying planting of important crops, such as soybeans and beans. The impact of the drought on the prices of food and other agricultural products has been limited so far. However, that does not downplay the issue as meteorology indicates that the dry weather is expected to continue in the foreseeable future.
In the case of soybeans, Brazilian agriculture’s main export item, the drought has demanded changes to the planting schedule for the 2024/25 season. According to the official calendar, in important producing states, such as Mato Grosso, sowing for the new season should start on the first weekend of September.
The delay in planting is accelerating sales on the spot market. Researchers from the Center of Advanced Studies on Applied Economics (CEPEA) say this movement fuels competition between domestic and international buyers for soybeans.
That is reflected in soybean premiums, a bonus paid on the price of the grain at origin. On Monday (9), premiums for soybeans delivered to the port of Paranaguá (Paraná) were $1.18 per bushel, and, for October, $1.20 per bushel. The CEPEA indicator based on the Paranaguá port has risen 1.35% this month so far, to R$140 per bag.
The drought has also hampered the planting of beans in the country. The sowing of the first of the three national crops began in August, mainly in Paraná, but the dry soil has made the work difficult. According to a survey by the Department of Rural Economy (DERAL), by the Secretariat of Agriculture and Supply, as of September 5th, planting had occurred in only 3% of the area planned for the 2024/25 summer season. In the same phase of the previous cycle, work had reached 10% of the area.
DERAL estimates that farmers in Paraná will plant 131,000 hectares of beans between August and December, an area 22% larger than that of 2022/23. “With the price of soybeans down [compared to previous years], farmers have turned to beans,” said Marcelo Lüders, president of the Brazilian Institute of Beans and Pulses (IBRAFE). If projections are confirmed, production should grow 57% in the state, to 251,000 tonnes.
At the moment, there is a stock of beans on the national market as the third yearly crop has ended—the harvesting was 812,500 tonnes. “In some areas of the Cerrado region, high temperatures increased the incidence of whiteflies, reducing productivity,” Mr. Lüders said.
Farmers have been receiving R$260 per bag of “carioca” beans [pinto beans], or R$50 more than the average for the same period in 2023. “If the weather doesn’t help, we won’t have beans between late October and the beginning of the next harvest,” Mr. Lüders says. “In that case, prices are expected to soar.”
The fires that occurred between late August and early September in São Paulo hit 80,000 hectares of sugarcane in the state. Due to the dry weather in the center south, the mills brought forward the end of crushing for the 2024/25 season, which could increase sugar prices in the first quarter of next year.
“The off-season will start earlier. As the drought damaged the sugarcane fields, there will be few sugarcane, and crushing will end earlier,” said Maurício Muruci, an analyst at Safras & Mercado. In São Paulo, the price of crystal sugar rose 2.5% in August, to R$24.50 per bag.
The analyst believes that the increase in crystal sugar prices on the domestic market could impact the entire food industry that uses sugar as an ingredient, as well as food staples. He said that could reflect on the Extended Consumer Price Index (IPCA) from October onwards. On Tuesday (10), despite the worrying situation regarding Brazilian crops, the most liquid sugar contracts on the New York Futures Exchange, a reference for global negotiations, closed down 1.9%, at 18.47 cents per pound.
Climate issues in Brazil and other important producing countries have fueled rising coffee prices on the international market. On Monday (9), the most traded contracts on the New York Futures Exchange rose almost 4%. On Tuesday (10), they rose another 0.73%, to $ 2.4720 per pound.
“The crops [for the 2025/26 season] are very weak, with high defoliation and drying flower buds. I see only bad consequences of this drought,” said Alexandre Maroti, the owner of 15 hectares of coffee in the city of Bom Jesus, Minas Gerais.
He says he used to produce, on average, 80 to 90 bags of coffee per hectare. At the moment, due to the drought and high temperatures, the yield is no more than 40 bags per hectare. Mr. Maroti foresees a 20% drop in the 2025/26 cycle.
The situation is a little better for larger farmers, who boast irrigation systems. Still, many Brazilian coffee farmers are wary and estimate a drop in harvesting volume until next year. In some states, such as Minas Gerais, it hasn’t rained for four months.
“Coffee prices have soared due to adverse weather events around the world, which could reduce production,” said Rich Asplund, coffee analyst at Barchart. Mr. Asplund points out that Robusta prices also rose—in this case, the increase was due to Typhoon Yagi’s passage through Vietnam, a country that had been hit by severe drought last year. Vietnamese production in 2023/24 was only 26 million bags, while the country’s annual capacity is 31 million per year.
Vicente Zotti, managing partner at Pine Agronegócios, points out that, in the case of arabica, it is necessary to analyze the climate of each coffee region in Brazil to estimate the consequences for the 2025/26 cycle. The extent of the drought varies in each of these areas.
The hot and dry weather led the Citrus Defense Fund (Fundecitrus) to reduce its estimate for the orange harvest in the citrus belt of São Paulo and the Triângulo Mineiro region. A 7.1% reduction was announced on Tuesday (10), to 215.78 million boxes of 40.8 kilograms, or 16.60 million boxes less than the previous projection, in May.
According to Climatempo, since May, the volume of rain was 31% below the forecast. In any case, drought is not the only major issue in orange crops, which are experiencing an increased incidence of greening, a disease that reduces the orchards’ productivity.
The severe drought damages some crops but the dry weather has not caused losses to all of them. “The drought has two sides. It favors some crops, such as carrots and tomatoes, as [low humidity] advances maturation and harvesting,” said João Paulo Deleo, a vegetable analyst at CEPEA.
In the case of potatoes, the harvest window starts in July and runs until early October. However, “when it starts to get too hot in September, harvesting is accelerated so as not to lose quality,” Mr. Deleo says.
The heat and dry climate also accelerate the ripening of some fruits, making them taste sweeter. The analyst points out, however, that most of these crops are irrigated and production costs increase in times like these, which could compromise supply in the longer term.
“Extremely dry periods could affect crops in other ways. Furthermore, it will be necessary to monitor the supply of water for irrigation,” he emphasizes.
(Camila Souza Ramos contributed reporting.)
*Por Fernanda Pressinott, Isadora Camargo, Cleyton Vilarino, Gabriella Weiss, Globo Rural — São Paulo
While talks of further Selic rate hikes remain in focus, the stock market has surged 10.2% since early July
09/06/2024
Aline Cardoso — Foto: Carol Carquejeiro/Valor
As the U.S. monetary easing cycle approaches, market participants are increasingly anticipating this month’s interest rate decision, expecting it could fuel further gains for the benchmark stock index Ibovespa. According to Santander’s analysis, U.S. Federal Reserve rate cuts tend to benefit the Brazilian stock market, provided they occur within the context of a soft landing for the U.S. economy. It’s no coincidence that, despite recent speculation about additional Selic rate hikes—Brazil’s policy interest rate—the Ibovespa has already surged by 10.2% in the second half of the year.
“This is an unprecedented cycle,” said Aline Cardoso, Santander’s head of research and equity strategy, emphasizing that if U.S. and Brazilian monetary policies diverge as expected, it would mark the first time since the Real Plan that Brazilian interest rates increase without the U.S. economy being in a deep recession.
Santander’s study recalls that in 1995, following a U.S. interest rate cut, the Brazilian stock market rose 20.1% in the quarter leading up to the decision, 15.8% in the three months after, and 22.6% over the subsequent six months. Similarly, in 2019, the Ibovespa gained 5.6% in the three months before the U.S. Federal Reserve initiated rate cuts, 5.6% in the following quarter, and 13.5% over the next six months.
“If U.S. interest rate cuts are implemented in a more stable economic environment, aimed at gently stimulating growth, they typically have a positive impact on both stocks and bonds,” notes Santander in a report authored by Ms. Cardoso and analysts Guilherme Bellizzi Motta and Luane Fontes, “as they signal confidence in the economy while offering support to financial markets.”
In contrast, during a U.S. recession, Ms. Cardoso points out that it has been rare for the U.S. Federal Reserve to cut interest rates while the Brazilian Central Bank was compelled to raise the Selic rate. “This has only occurred twice, during two extreme crises — in 2001, after the burst of the dot-com bubble, and in 2007, to stabilize the banking system,” she notes.
On the latter occasion, the recession was so severe that it led to heightened risk aversion, strengthening the dollar and weakening emerging market currencies, including the real. Faced with this shock, the Central Bank had to raise interest rates to curb inflationary pressures.
This time, however, Ms. Cardoso believes that any potential Selic rate hike could be driven by the need to restore the Central Bank’s credibility with economic and market agents. “The rise in interest rates would reflect the risk premium associated with changes in the Central Bank’s leadership next year, with the president and three directors stepping down. The market is concerned about how the monetary authority will navigate this transition,” she explains, noting that such uncertainty contributes to higher risk premiums on assets.
The Brazilian stock market has historically suffered during periods when U.S. monetary easing coincided with a “hard landing.” According to Santander, three months after a U.S. rate cut in such conditions, the Ibovespa declined by 5.5%, with a 5.8% drop six months later.
“Our analysis concludes that stock performance has been asymmetrical over time,” says Ms. Cardoso. “During mild economic downturns, both the Ibovespa and the S&P 500 tend to exhibit significant gains, with the upside often outweighing losses during more severe slowdowns,” she explains.
During periods of “extraordinary” interest rate cuts—often implemented in response to sudden shocks, such as in 1987 and 1998—the trend generally favors equities, provided the underlying credit or liquidity event does not severely impact the broader economy.
However, some market participants remain cautious about the potential impact of an additional tightening of the Selic rate on the stock market. In a note to clients, J.P. Morgan’s Latin America equities strategy team, led by Emy Shayo Cherman, highlights that equities have delivered negative returns during all rate hike cycles since 2008.
“What could be different this time? First, this tightening cycle is much shorter compared to previous ones. Second, there’s an expectation that all rate hikes will eventually be reversed, and even future easing could follow. Some may view this as a reasonable cost to bring interest rates down to single digits while simultaneously bolstering the Central Bank’s credibility,” the J.P. Morgan strategists explain.
Bank of America (BofA) professionals share a similar view, noting that if the Fed cuts interest rates amid a “soft landing,” the outlook could be positive for Latin American stocks, though local factors will also play a key role. “In Brazil, markets have already priced in Selic rate increases, and we continue to monitor concerns surrounding fiscal policy,” BofA’s strategists note.
BofA maintains its “overweight” recommendation (exposure above the market average) for Brazilian equities, emphasizing the country’s potential for corporate profit growth this year. Despite the Ibovespa’s recent rally, valuations remain “relatively attractive.”
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