Analysis: Remarks of policymaker reduce chance of rates above 13.25%

Bruno Serra — Foto: Carol Carquejeiro/Valor

Bruno Serra — Foto: Carol Carquejeiro/Valor

The speech of the Central Bank’s monetary policy director, Bruno Serra Fernandes, in an event held by Goldman Sachs on Monday morning greatly reduces the chances of Brazil’s benchmark interest rate Selic being raised beyond 13.25% per year.

He classified the extension of the cycle of interest rate hikes in the next meeting, in June, as likely, but not certain. He also acknowledged that he is considering two options to contain the inflation surge: raise interest rates further or postpone the Selic cuts planned for next year.

In another sign of little willingness to go beyond 13.25% a year, he said that the Central Bank considers the sacrifice ratio, or the price paid in terms of economic activity to disinflate the economy faster – although he highlighted that the fight against inflation weighs more.

Finally, he defended the inflation projection for 2023, the main guide for the size of the monetary tightening cycle, which stands at 3.4% and is well below the estimates of 4.1% by private-sector analysts at this month’s meeting of the Central Bank’s Monetary Policy Committee (Copom).

Financial market analysts are divided about the signals given by the Copom in the last meeting. Some believe that the Central Bank signaled that it will raise interest rates to 13.25% per year from 12.75% and stop the cycle at that level. Others think that policymakers did not commit to anything and that it will continue to raise interest rates.

Apparently, the signaling is at the halfway point. The economic backdrop of the meeting in May supports a likely extension of the rate hike cycle beyond the previous final rate of 12.75% in June. But, as always, the signals are conditional and will depend on the evolution of the economy by the meeting in June.

Mr. Serra’s speech on Monday, however, brings more elements about the Central Bank’s own signaling and about how high the requirements for a possible extension of the cycle are.

A key point is that Mr. Serra made a point of highlighting that the Central Bank has signaled a probable extension of the cycle. This is what the Copom wrote in its statement and in the minutes of the last meeting, but some analysts understood that the monetary authority was probably not referring to the extension of the cycle, but to a minor raise.

In other words, what the Copom has signaled, without confirming, is the possibility of an extension of the cycle. Mr. Serra emphasized, in the event, all the uncertainties surrounding the inflation projections and also the cautious tone adopted by the Central Bank.

Surely the most important part of Mr. Serra’s speech was the indication that the Copom is evaluating two alternatives to reach the inflation target: raise interest rates to a higher peak, or postpone the downward cycle expected for next year.

In other words, even if, due to the circumstances of the scenario, the Central Bank concludes that it will have to increase interest rates even higher, it is not certain that the alternative will be to keep on increasing them. The additional tightening may come through a postponement of the interest rate cut.

When answering one question, Mr. Serra got mixed up and mentioned that the Central Bank could potentially postpone the meeting of the inflation target after 2023. He corrected himself soon after. He was actually referring to a postponement of the cycle of cuts.

Strictly speaking, there was no mistake: if the option is to postpone the interest rate cut scheduled for 2023, instead of raising it now, in fact, the Central Bank will be displacing its target to 2024, given how long it takes for monetary policy to reach price indexes.

Mr. Serra had said in a live-streamed speech earlier this year that there was little room to fight inflation in 2023 by postponing interest rate cuts. Today, this space is much smaller.

Mr. Serra also discussed the sacrifice ratio of monetary policy. This is a topic slightly different from the concern with activity cited in the balance of risks of the last meeting of the Copom. On that occasion, he referred to the downside risk to inflation of an eventual negative surprise in economic activity. This time, he spoke directly about the price in terms of activity paid to disinflate the economy.

In his considerations, Mr. Serra said that the choice of the Central Bank today should lean more towards inflation because society demands this at the present moment around the world. But the director also put on the agenda the concern with the activity, which emerges as a secondary objective in the monetary authority’s mandate.

Finally, Mr. Serra defended, in a way, Central Bank’s inflation projections. This had already been done in the Copom minutes released last week. He cited several factors that explain why Copom’s projections are below market projections.

This is important because, if the Central Bank was revising its methodology to get closer to the market consensus, it would find a higher inflation projection. Again, this would require a higher interest rate dose. It must be remembered that the Copom has taken the upside asymmetry out of its inflation projections, within its balance of risks.

Overall, Mr. Serra’s remarks were in the direction of not raising interest rates beyond 13.25%, although he didn’t close the door on it, citing the conditional nature of the monetary policy signals.

Mr. Serra is seen as part of the “dovish” wing of the Copom, formed by directors less inclined to raise interest rates. It’s necessary to follow what other members of the Copom will say from now on to gauge the direction of monetary policy.

Source: Valor International

https://valorinternational.globo.com

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Acquisition of LafargeHolcim by CSN may face questions

The acquisition made by CSN Cimentos of the assets of LafargeHolcim in Brazil for more than $1 billion may face questioning in the analysis of the operation by the antitrust regulator CADE, not scheduled yet. It may be postponed to the second half, according to sources consulted by Valor, and may be subject to some remedies, such as giving up assets, to be approved by the watchdog.

The delay was not foreseen by CSN, which was expecting an outcome in April. Now, the company has already acknowledged that it may come out at the end of June.

Announced at the beginning of September, the approval of the operation — without any restriction by the antitrust body at the beginning of April — was questioned by competitor Cimento Tupi. The order favorable to the deal was issued by the acting superintendent, Diogo Thomson de Andrade, on March 31.

Tupi argued — in manifestations and appeals submitted to the CADE (seen by Valor) — that the deal generates high concentration power. The company points out up to 50% in some markets of the Southeast region, especially Minas Gerais and Rio de Janeiro.

This fact, it argues in the documents, was ignored by CADE’s acting general superintendent. The company’s appeal, dated April 19, was accepted by the rapporteur Luis Henrique Bertolini Braido on May 2. The case had already been analyzed by the member Lenisa Rodrigues Prado, also in April, who favored a deeper investigation by the antitrust body.

Tupi – which is under protection from creditors – operates in Minas Gerais, Rio de Janeiro and São Paulo, with production units in Carandaí (Minas Gerais) and Mogi das Cruzes (São Paulo). The installed capacity totaled 3.4 million tonnes per year. In 2015, it had to close its mill in Volta Redonda after the end of the supply of basic slag by CSN’s steel unit that is located in the city. The case generated a dispute between the companies that lasted several years and was even analyzed by the CADE. At the beginning of the battle, in 2004, CSN was not yet active in cement.

With the acquisition of LafargeHolcim’s assets, CSN jumps from three production units to nine units in the Southeast — four in Minas Gerais, three in Rio de Janeiro, one in São Paulo and one in Espírito Santo. The acquisition also adds to the cement company a plant in Paraíba and another one in Goiás.

A source who knows well the industry and the behavior of CADE in cases of market concentration told Valor that from the point of view of the volume involved in the merger of the operations in the Southeast region, the unrestricted approval of the acting superintendent-general goes against the decision of the body itself, in 2014, when it analyzed the merger of Lafarge and Holcim in the country. The source says that at the time, the operation involved 12.9 million tonnes of combined capacity. “Now it is 13.9 million tonnes. What has changed?”. At that time, the CADE forced the two companies to sell assets totaling 3.7 million tonnes.

Besides this issue, another point raised by Tupi is the transportation logistics, via MRS railroad, in which CSN is one of the controlling companies. Both Tupi (for transportation of inputs and final products) and LafargeHolcim are major users of the railroad.

Tupi also questions the supply of basic slag, a byproduct of steel production which is a relevant input in the manufacture of some types of cement, such as CP-III, added to the clinker in the grinding unit. It alleges that CSN would be left with more than 50% of this input available in the Southeast region. Tupi produces CP-II-E, which contains 34% slag.

The major suppliers of slag besides CSN are Ternium Brasil (formerly CSA), ArcelorMittal Tubarão, Usiminas, Aperam and Gerdau, but all already have long-term contracts committed to other cement companies, including Lafarge Holcim. CSN supplies its own grinding mill located in Volta Redonda, Rio de Janeiro.

Tupi’s lawyers also point to the coordinated power of the deal, saying it could prevent small producers from having access to raw materials and logistics infrastructure.

According to their information, in the markets served by the Barroso and Rio de Janeiro plants, the participation of CSN+Lafarge is between 40% and 50%. In the case of Pedro Leopoldo+Cantagalo the percentage ranges from 30% to 40% and this was not allowed.

By the CADE’s criteria, the market is analyzed within a radius of up to 300 km and between 300 and 500 km, counting from the plants’ units. Even admitting that there is concentration higher than 20% — a reason for deeper analysis — Mr. Andrade said in his order that “after an individual analysis of each cement market affected by the operation, it was found that the levels of rivalry existing in each one are sufficient to make unlikely the exercise of market power by the applicants (CSN and LafargeHolcim).”

According to Tupi, among such rivals mentioned by CSN in the case are not very significant companies, such as UAU (250,000 tonnes) and Hypermix.

Ms. Prado, in her order, pointed out several concerns in the operation, which “should be further investigated by the court.” She also said that the sheer existence of rivalry would not be enough to justify approval without restrictions.

Meetings may take place soon between Mr. Braido (rapporteur), the third interested party (Tupi) and CSN before the case is sent to the court for a final decision.

In a note, CSN said that it “continues to cooperate with the instruction made by the rapporteur in the process of acquisition of the assets of LafargeHolcim Brasil.” Tupi said its allegations are in the documents sent to the CADE.

(Beatriz Olivon contributed to this story from Brasília.)

Source: Valor International

https://valorinternational.globo.com

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Biogas gains ground in Brazil’s power generation mix

The 25 new plants already announced have investments of around R$60 billion by 2030 — Foto: Barbosa Neto
The 25 new plants already announced have investments of around R$60 billion by 2030 — Foto: Barbosa Neto

Viewed in the past as a niche source, biogas is already starting to find a relevant space in the power mix, either as generation or fuel. A significant step was taken this month with the partnership formed between the Brazilian Association of Piped Gas Distributors (Abegás) and the Brazilian Biogas Association (ABiogás).

The two associations have formed a working group to develop actions to boost the injection of biomethane (highly pure biogas) in the distributors’ network, at a time when many companies are seeking to reduce greenhouse gas emissions.

According to ABiogás’s executive manager, Tamar Roitman, 25 new plants already announced have investments of around R$60 billion by 2030 to offer 30 million cubic meters a day – out of a potential that would surpass 120 million cubic meters a day.

“We want to transform this potential into reality,” said Marcelo Mendonça, Abegás’s head of strategy and market.

Data by CIBiogas, a reference center for the biofuel, show exponential growth of the source in the last five years, rising to 755 plants in 2021 from 271 plants in 2017. They produced 2.3 billion cubic meters of biogas, and supply is expected to increase by 22% as 56 plants under construction or renovation go online.

“The 4% of plants under construction account for 15% of the volume of biogas, which signals that the new plants will play a larger role,” said Karina Navarro, a member of the technical team of CIBiogás, in a study called “Panorama do Biogás no Brasil em 2021” (“Panorama of Biogas in Brazil in 2021”).

Changes in regulation have the effect of forming markets, and it couldn’t be different in the segment of biogas or biomethane. One example is the regulatory framework for distributed generation in small and very small grids, in force since 2012 and updated last year, which made it possible the emergence of biogas generation companies, which receive credits when they inject electricity into the distributors’ grid.

Another example was the legal framework for basic sanitation, which sets a deadline for the end of dumps, forcing the destination of solid waste to landfills, with some kind of treatment – laying the foundation for biogas. Financial incentives have also been helping biogas to make room: at the end of March, the federal government launched the Methane Zero program, which aims at encouraging production through the creation of lines of credit for new projects.

There are three main sources of biogas production: residues and waste from agriculture, from industry (producer of organic waste) and from basic sanitation – landfills and sewage system.

Of these three, agriculture accounts for most of the supply, but the vinasse resulting from the ethanol production process has been growing strongly. Raízen, for example, recently announced the construction of its second biogas plant – the first one focused on biomethane – from vinasse and filter cake, two residues from ethanol production.

The plant located in Piracicaba will have the capacity to produce 26 million cubic meters per year, enough to supply 200,000 households. The output has already been sold to Yara Brasil Fertilizantes and Volkswagen, in both cases through long-term contracts. Raízen CEO Ricardo Mussa said that the new unit represents the materialization of the company’s plan to expand business in renewable energy.

Although incipient, there are already investments in basic sanitation. Urca Energia started this week the commercial operation of its third biogas-fired power plant, in Mauá, São Paulo. The 5-MW plant accounts for 27% of the company’s capacity.

Two other plants totaling 9 MW are in operation: Seropédica (Rio de Janeiro) and Ipiranga do Norte (Mato Grosso). A fourth, 5-MV plant is expected to start operating in the second half of this year in São Gonçalo (Rio de Janeiro). Therefore, there will be 19 MW in distributed generation, totaling R$82 million in investments.

In addition to Eva Energia, the group acquired biomethane producer Gás Verde at the beginning of the year, in a R$1.2 billion deal. Among Gás Verde’s assets is a plant, also in Seropédica, with a production capacity of 120,000 cubic meters per day, with an expansion plan for 200,000 cubic meters per day.

“We have noticed a great interest on the part of companies in adopting biomethane in their production and, thus, enabling an effective change in their operations to a cleaner mix,” said Marcel Jorand, Urca Energia’s executive director.

In this sense, according to Ms. Roitman, with Abiogás, and Mr. Mendonça, with Abegás, the injection of biomethane into the network also aims to draw another segment – heavy transportation, currently impacted by the volatility of diesel oil prices. The volume of diesel imported today would correspond to the 30 million cubic meters a day offered by the next projects, the Abegás executive said.

“With more infrastructure for distribution, the interest will certainly increase; there is growing expectation from both sides [producer and distributor],” Ms. Roitman added.

Source: Valor International

https://valorinternational.globo.com

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Falling stocks lead IPO companies to seek M&A

Companies that went public last year started talks with financial advisors to seek capital injections or even merge with rivals, sources say. Of the 45 companies that went public in 2021, only nine are traded above the IPO price – the remainder saw stocks fall, and most of it perform well below Brazil’s benchmark stock index Ibovespa, a survey of Valor Data shows.

“There was a very strong correction [of stock prices]. When this happens, you bring to some companies a renewed focus on value creation through M&A [merger and acquisition],” a source in the financial market said. “Secondary offerings end up leaving the conversation because the market is closed to them, and especially because it punishes controlling shareholders due to the dilution.”

Given this scenario, the natural way is to talk to rival companies, see potential synergies and try and explore this route, the source said. At least 14 of the 45 companies that went public last year are in talks to find an investor, get a convertible loan or merge their businesses.

However, even for the companies that are willing to negotiate the entry of a partner, contribution and even merger, the equation is not simple. Talks have stalled on the pricing of assets, sources say.

Technology and education companies are among those moving in this direction, people familiar with the matter said.

Furniture and decoration e-commerce companies Mobly and Westwing are among groups that have already tried to get closer. However, the talks have not progressed, two sources familiar with the matter said. One source said that Mobly is open to investors and may negotiate a controlling stake. Mobly dropped 86.5% since the IPO, while Westwing is down 82%. In a note, Mobly CEO and founder Victor Noda said he does not comment on market rumors, but affirmed that the company is well capitalized and following the investment plans aligned with investors.

Companies in this industry are going through restructuring. Etna, owned by the Kaufman family (which also controls Vivara), announced it is gradually closing stores – the company unsuccessfully tried to find an investor in the last years. Competitor Tok&Stok is also looking for an investor for the business and has been talking to competitors, sources say. At the beginning of last year, it gave up going public due to market uncertainties.

In the education industry, rivals are also in talks. After raising R$1.2 billion on the stock exchange in February 2021, higher education company Cruzeiro do Sul began talks with Ribeirão Preto-based Moura Lacerda to take over the operation. The talks, however, fell apart – the company announced in a notice of material fact in March that it had given up on the deal.

The education company is down 72.7% since the IPO. The group is in talks with competitors like Ânima Educação, which is also publicly traded, sources say. Ânima wants to focus on medical courses, which have a higher ticket, and is not interested in merging with Cruzeiro do Sul, a source familiar with the matter says.

As a result, the company, owner of Positivo and Braz Cubas colleges, seeks synergies with other groups focused on distance education, and Yduqs is cited as a potential target to a merger. “In this industry, everybody is talking to everybody,” said a financial advisor who asked not to be named.

The consolidation movement involving companies that went public in 2021 began last year. In October, BTG Pactual’s Pan bank bought technology company Mosaico, owner of Bondfaro, Buscapé and Zoom brands. Two months later, it was Eneva’s turn to acquire Focus Energia. The power company shares ceased to be traded in March, a little more than a year after it debuted on the stock exchange. In January, XP bought Banco Modal – the deal involved an exchange of shares. At the time of the IPO, in April 2021, the share had been priced at R$20. On the day of the announcement of the acquisition, January 7, the share had reached its historical minimum: R$8.35.

Technology-related companies are among the most affected in the local stock market and abroad. Loyalty program company Dotz, which went public almost a year ago, saw stocks drop 80%. The company is open to merging with a competitor, a source said. CEO Roberto Chade denies. “We are always looking at opportunities, but no conversation has reached page 2.”

According to Mr. Chade, Dotz recently bought credit fintech Noverde and is likely to close the acquisition of another “tech company” complementary to the business “soon.” Since last year, Chinese giant Ant, the financial arm of Alibaba, has been a minority shareholder in Dotz.

As for GetNinjas, a digital platform that connects professionals from several fields to customers, market capitalization of R$185 million is lower than what the company holds in cash (about R$290 million). Sources say that the company does not rule out conversations with competitors, but is struggling. A source close to the company says that talks with rivals for partnerships are a natural move, but there is no negotiation in this direction.

A few weeks ago, Infracommerce, an e-commerce services company, knocked on the door of large private-equity firms seeking funds to finance its cash flow, Valor reported in April. The company, whose shares have dropped 73.25% since the IPO, may also raise funds through bonds, then convert them into stocks in the future.

In the healthcare industry, consolidation also continues steadily, but this movement has been even more intense in recent years. And despite having falling 45.75% since the IPO, Minas Gerais-based Mater Dei’s expansion plan is moving forward – the company has made six acquisitions since the IPO, including hospitals and an information technology company.

Oncoclínicas, which has Goldman Sachs as its main shareholder, had plans to use the proceeds from last year’s IPO for expansion. According to a financial advisor, however, this healthcare business is very specialized, so it makes sense, as stocks have plummeted, to be part of a larger group.

When they went public last year, companies did not expect such high interest rates – which resulted in increased financial expenses. The high inflation environment and economic policy uncertainties also contribute to the higher volatility of the stock market.

Daniel Wainstein — Foto: Carol Carquejeiro/Valor
Daniel Wainstein — Foto: Carol Carquejeiro/Valor

Daniel Wainstein, a partner and CEO of Seneca Evercore, sees many similarities between the IPO drive of 2021 and the 2006-2007 boom, when real estate developers and medium-sized banks went public.

“There is a widespread belief that the public stock market is the most favorable environment for companies to raise capital,” he said. Mr. Wainstein recalled, however, that many companies that went public did not have a distinguished history or sufficient size to trade on the stock market.

Of the 19 real estate companies that went public between 2006 and 2007, the vast majority are valued below their net worth. Of the 10 IPOs of medium-sized banks, six went private, three remain listed and one went through liquidation, according to a survey by Seneca Evercore based on public data on the stock exchange.

With the shares of most companies devalued, it is very difficult to price assets for a private transaction, according to the banker.

“Pricing assets becomes more difficult in an environment where the exchange rate ranges between R$4.6 and R$5.7, the Selic [Brazil’s benchmark interest rate] goes to 12.75% from 2% in a matter of months and stock prices vary 10% or 15% in a single day,” said Fábio Medeiros, head of investment bank at Morgan Stanley in Brazil.

For him, this macro volatility, driven by the Russia-Ukraine war, also disturbs those in the micro level. “It brings insecurity to businesses when making decisions,” he said.

“Nobody likes to price a transaction at a time of great uncertainty,” said Ricardo Lacerda, a partner and CEO of BR Partners. The investment bank also listed on the stock exchange last year and its units are down 1.75% since then.

Mr. Lacerda notes that the window for offering shares remains closed. “Larger companies have found some windows [for secondary offerings], but it will depend on how far interest rate hikes go.”

M&A also slowed this year through May 10. Dealogic’s data show that total transactions in value totaled $20.7 billion, down 43% year over year.

Ânima, Cruzeiro do Sul, Goldman Sachs, Oncoclínicas, Yduqs and Westwing declined to comment. Etna’s spokesperson could not be reached for comment. Infracommerce did not immediately reply to a request for comment.

In a statement, Tok&Stok said it does not comment on market rumors regarding the consolidation move. “The company confirms that it has continued its expansion and development plans, independently of the IPO process it had been conducting.”

In a statement, Mater Dei said it has been following the thesis presented since the IPO – of regional hub definitions in key areas, through organic and inorganic growth. Regarding the performance of the shares, the company understands that “it is much more a matter of conjuncture reflexes and that its plan is medium and long term, (…) and has delivered with efficient and self-sustained growth to generate value to its entire ecosystem”.

Source: Valor International

https://valorinternational.globo.com

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Alcoa is back to aluminum mining, production in Brazil

Otavio Carvalheira — Foto: Silvia Zamboni/Valor
Otavio Carvalheira — Foto: Silvia Zamboni/Valor

U.S.-based multinational Alcoa, which has been operating in the Brazilian aluminum industry for almost six decades, is once again positioning itself in the country, with production ranging from bauxite mining to alumina and raw metal. Globally, aluminum has gained new market dynamics, with applications in the electrification of vehicles and other fields, such as electricity and recyclable packaging.

The company operates three sites in the country – in Juruti (state of Pará) it extracts and processes bauxite mineral; in São Luís (Maranhão), in the Alumar consortium, it has an alumina and primary aluminum plant; the Poços de Caldas unit (Minas Gerais) is focused on the integrated production of special alumina and has an aluminum scrap recycling unit. The company also holds stakes in four hydroelectric plants.

“It is a 57-year history that is gaining new momentum with the changing landscape for aluminum worldwide, new applications and the use of renewable energy, which will set the tone for the industry in the future,” Otávio Carvalheira, Alcoa president in Brazil, told Valor.

The executive knows the company and the industry well after working for 34 years in several functions in Brazil and abroad, including China. “I spent three years in Shanghai working in the aluminum rolling field.”

He returned in 2008 and took the helm of the Brazilian subsidiary in 2016, when Alcoa decided to split the operations that transform metal into finished products, creating Arconic.

A year and a half before, the company had decided to temporarily halt – almost seven years later – the production of aluminum in Brazil due to the lack of competitiveness in power prices. The input is the item of the greatest weight in the metallurgy of the metal. In the country, it has even exceeded 50%.

Under the new conditions of aluminum demand, high prices and the use of competitively priced renewable power – in long-term contracts – the company decided this year to restart its smelter at the Alumar consortium, in which it has a 60% stake and is the operator. The partner is Australia’s South32, with 40%, which made the same decision.

Together, the two companies are investing R$957 million ($186 million). Alcoa will inject R$520 million, the executive said.

In 2023, Alcoa already foresees placing 268,000 tonnes of primary metal on the market, relative to its stake in Alumar [the foundry’s total capacity is 447,000 tonnes]. The metal will be mainly destined for the Brazilian demand, which grew 11% in 2021. Local manufacturers have had to import a substantial amount of raw aluminum.

From 2010 to 2015, the production was halted in six foundries in the country, according to trade group Abal – only Alcoa and South32 are being resumed. The all-time high of 1.66 million tonnes was reached in 2008. It gradually fell back to 685,000 tonnes in 2020.

“Now, with the restart of Alumar, the country is again self-sufficient in primary metal,” Mr. Carvalheira said. This year, Alumar – which is 25 kilometers from the capital city of Maranhão and started operating in 1984 – expects to produce 120,000 to 130,000 tonnes with the gradual restart of furnaces.

The restart, Mr. Carvalheira said, led to the rehiring of 416 employees for the foundry. In all, including the alumina division, the consortium now has 1,250 employees.

“Alcoa has closed the cycle again and this is the result of a combination of factors: long-term vision, local and global demand, metal supply, environmental issues, use of competitive renewable power (wind and solar), a metal associated with electrification solutions,” the executive said. The scenarios, he said, show a consistent global demand for aluminum throughout the cycle – and, of course, the metal is at a favorable price in relation to the cost base.

Another investment front is the Poços de Caldas unit, where the company started in Brazil and operated through 2015. The facility was also closed for good due to the high cost of production, especially power, compared with the international market. Aluminum is priced in dollars on the London Metal Exchange.

Currently, the operations encompass mining, refinery, chemicals, remelting, and aluminum powder plant – one of the products generated are specialty aluminas, which are used in water treatment (aluminum sulfate), and in the refractory and abrasives industries, among other applications. The output reaches 180,000 tonnes per year.

At the moment, the executive said, the company is investing more than R$300 million to install a new technology for the unit’s waste treatment system – classified as industrial. In the filter press, which starts operating in June, the refuse originated in the refinery is transformed into a dry cake that will be placed in a proper area by the dry stacking method.

On the same site, Alcoa has a recycling facility, aimed at producing aluminum from scrap that is recovered through blending with primary metal. The result is ingots, billets and a product considered noble – aluminum powder. The volume ranges between 45,000 and 50,000 tonnes a year and goes to the domestic and foreign markets.

Source: Valor International

https://valorinternational.globo.com

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Free market to invest R$152bn in power generation

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Valor International

https://valorinternational.globo.com

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Fintechs make number of financial institutions grow

Financial Institutions Instruments | ManagEnergy

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

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

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

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

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

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

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

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

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

Source: Valor International

https://valorinternational.globo.com

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Winter corn drives record grain harvest

The Risks of Leaving Corn Standing in Fields Through Winter

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Valor International

https://valorinternational.globo.com

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Enel Green Power to build new wind farm

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

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

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

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

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

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

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

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

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

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

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

Source: Valor International

https://valorinternational.globo.com

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Schwab mulls buying Itaú’s stake in XP

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

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

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

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

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

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

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

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

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

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

Source: Valor International

https://valorinternational.globo.com

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