Pressure on production chains make companies change strategy

Andre Clark — Foto: Julio Bittencourt/Valor
Andre Clark — Foto: Julio Bittencourt/Valor

The disarticulation of the productive chains is imposing new challenges to companies, which are already looking for alternatives and changing strategies to maintain the production rhythm without compromising profit margins.

The strong global demand for components, the war between Russia and Ukraine, the escalating international freight prices, the volatility of the exchange rate and commodities, and the lockdown in China have created a nebulous scenario of uncertainties.

Companies already weigh down on stocks, bet on the regionalization of value chains, on the expansion of the number of partners and on increasingly verticalized production. André Clark, senior vice president for the Siemens Energy hub in Latin America and general manager of Siemens Energy Brazil, says that there is no visibility as to when exactly this will settle down to a new level.

“Currently, international global supply chains are facing profound setbacks. This system, which was designed for decades to be ultra-efficient and integrated, is having to adapt to abrupt plant closures due to Covid, logistical challenges due to war, and many other problems,” he says.

Within this scenario, and especially when it comes to energy assets, Mr. Clark points to a trend of investment in the concept of nearshoring, that is, a regionalization of value chains.

“It’s a change in value chain strategy to reduce volatility, both in value chains and also in currencies, because when you create costs in the same currency in that you serve the market, your risks are lower. At Siemens Energy that is what we are doing, trying to bring supplies closer together and decreasing dependence on large transports, such as container transports,” he says.

The company used to import from Germany all the insulating materials for equipment aimed at the power transmission market. Now, in addition to this alternative, the manufacturer is developing partnerships with domestic companies to supply the demand. The same happens with cooling systems, for which Siemens Energy is buying locally.

Leandro Barreto, partner at Solve Shipping, speaks about the impact of congestion in Asian ports and the difficulty to move products on the Brazil-Asia route. The cost of freight is around $2,600 a container, impacting the viability of the shipment of commodities and contributing to the rise of global inflation.

“As the world has not managed to put an end to the queues and congestion in the yards of the main ports of the world, we are entering the peak cargo season with a good part of the world’s supply capacity stuck. And this should remain throughout 2022,” says Mr. Barreto.

In these situations, Ricardo Lee, modernization sales head at Voith Hydro Latin America, says the company uses the strategy of looking for goods and services in other countries that have more competitive conditions.

“We use the global sourcing strategy, relying on the team work of the Voith Group. Our intercompany planning has increased internal production between plants around the world. This way, we are able to secure deliveries to customers.

In 2021, Vestas installed about 2 gigawatts of capacity in Brazil and to maintain this pace, the wind turbine manufacturer seeks close partners. The Danish company has a manufacturing unit in the Northeast region of Brazil and has a network of direct local suppliers, integrated to the global structure.

Eduardo Ricotte, Vestas CEO in Latin America, says the company is working to duplicate suppliers in more sensitive areas, with long-term contracts and fixed capacity to prevent delays from reoccurring.

“We have inputs imported from Denmark, we have a local supply chain with more than 80 suppliers that we developed over the years, and we do all the assembly in Ceará, which is closer to the wind farms,” he says. Vestas also has a plant in Mexico for its regionalization strategy.

WEG, based in Santa Catarina, reinforced strategic stocks of raw materials and sought suppliers in several geographies since the first signs of disruption in the development chain. The verticalization of the production process also brought relief.

“In the short term, we have no concerns. We reinforced our strategic inventories throughout 2021. Obviously, this had a price, which was to put working capital into the inventory line beyond our needs, but it gives us a certain comfort at this time of uncertainty. WEG is supplied at this moment for deliveries, but if this lasts, it may cause concern down the road,” says CFO André Rodrigues.

Another point of attention for the executive is the lockdown in China, since the Asian country is one of WEG’s main markets. “And while there is this policy of zero Covid in China, the world’s global supply chain will be under pressure. On the other hand, our verticalized production model is a competitive advantage,” evaluates Mr. Rodrigues.

There is still a large imbalance in the price of commodities, which make up a significant part of the cost structure of companies, says PSR consulting company CEO Luiz Barroso.

“For the industry, there are still three complicated factors. One is the balance between supply and demand for energy, which impacts the price of commodities, and is exacerbated by the war in Ukraine. Second is that prices of raw materials and inputs for the production chain have also increased. And, in Brazil, we have all this under the impact of an exchange rate that is very volatile. This has halted some operations and brought new elements of uncertainty to the table”.

Source: Valor International

https://valorinternational.globo.com

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Passarelli aims basic sanitation works to grow

Paulo Bittar — Foto: Silvia Zamboni/Valor
Paulo Bittar — Foto: Silvia Zamboni/Valor

The engineering company Passarelli reached at the beginning of this year a backlog of R$4 billion, seven times more than 10 years ago, at the peak of the construction industry in Brazil. “Our goal is to consolidate ourselves as a strong contractor,” CEO Paulo Bittar said.

The basic sanitation market, which accounts for 70% of the company’s operations, will remain the focus of the expansion plan. For now, there is no plan to compete for water and sewage concessions, as other engineering companies have been studying to do. But the idea is on the radar, the executive said.

“In the future, there will be more room for us to compete for concessions, especially in smaller cities. We believe that opportunities will open up for a new wave of auctions when this whole process of proving the economic and financial capacity of sanitation contracts is over. We will analyze, but we are not considering the projects for real now. Our focus is on engineering,” he said.

The construction company has already worked with concessions, including those of Centrovias (operator of São Paulo highways) and PEC Energia, in partnership with Engeform – which bought Passarelli’s stake in the joint venture later.

Besides basic sanitation, the airport market has been an important source of work, especially those under concession agreements.

The company is now prospecting opportunities in new segments, Mr. Bittar said. “Looking at the long term, we will no longer have large airport projects, for example, but we will have basic sanitation [works]. We will have to study other markets to continue expanding,” he said. One target is the oil and gas industry. “With privatizations, we seek to resume engineering contracts in the industry.”

In 2021, Passarelli grossed R$530.2 million, up 61% year over year, according to the company, which does not report earnings. In 2022, revenues are expected to reach R$1 billion, considering new contracts.

The company has substantially increased the share of the private sector in its portfolio, reaching 65% of the total. In 2012, the public sector represented 90%.

The family business founded 90 years ago already sees itself as a major construction company, considering the current market size. “We were one of the [medium-sized] companies that occupied part of the void left by Operation Car Wash,” Mr. Bittar said, citing the anti-corruption task force that uncovered wrongdoings involving construction companies before falling into disrepute.

For comparison purposes, at the end of 2021, OEC (Odebrecht) boasted a backlog of $3 billion, while Queiroz Galvão had R$3 billion. In the middle of last year, Andrade Gutierrez’s backlog totaled R$9 billion.

Source: Valor International

https://valorinternational.globo.com

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Benchmark interest rate expected to increase to 12.75%

There is unanimous expectation that this week the Central Bank’s Monetary Policy Committee (Copom) will raise the Selic, Brazil’s benchmark interest rate, by 100 basis points, to 12.75%. However, if the decision itself gives signs of predictability, the communication to be adopted by the monetary authority has been widely discussed among market agents, as well as Copom’s next steps, considering that interest rates are already at high levels, but also that current inflation remain relentless and that medium term inflationary expectations continue to move away from the targets.

A survey carried out by Valor between April 27 and 29 shows that, of the 99 institutions surveyed, all of them project that the Selic rate will be raised to 12.75% next Wednesday. The unanimity seen in the expectations for May, however, opens space for division in the market as to the end of the cycle. Of the total, 25 institutions believe that the cycle will already come to an end this week, while 74 see further action ahead, with the basic interest rate entering the 13% range. As for the end of the year, the median of the projections indicates the Selic at 13.25%, but 23 institutions project a higher rate.

To most of the market, a residual adjustment of 50 basis points in the Selic in June is necessary, as the de-anchoring in the medium-term inflation expectations has become more accentuated. If, before the March meeting, the survey carried out by Valor indicated inflation at 6.5% this year and 3.8% in 2023, now the scenario is even more challenging. The midpoint of the expectations collected last week, after the release of the April reading of mid-month reading for inflation index IPCA-15, shows inflation at 7.72% at the end of the year and 4% at the end of 2023.

Thus, the communication from the monetary authority about the way ahead is key for market participants at this moment. Since the beginning of the cycle of Selic hikes in March 2021, Copom has opted to give guidance to market participants on what it foresees for the next meeting. In the last meeting, in March, and in subsequent events, the committee reinforced that it saw the Selic at 12.75% as adequate at the end of the cycle. However, the market has moved to higher numbers as inflationary pressures have continued to escalate.

Thus, in this meeting, a good part of the market believes the Copom is expected to change its communication strategy and leave its next steps open, without committing to a decision in June. “This is a Central Bank that traditionally opts for greater assertiveness in its communication, but considering the stage of the cycle, we think that this statement can be less emphatic in relation to future steps, leaving open the possibility of an additional hike in June, even if of a smaller magnitude,” says Roberto Secemski, CFO for Brazil at Barclays.

Elisa Machado — Foto: Leo Pinheiro/Valor
Elisa Machado — Foto: Leo Pinheiro/Valor

A similar scenario is defended by ARX Investimentos CFO, Elisa Machado, when reminding that the inflationary process shows contamination of the entire dynamic part of inflation, especially the nuclei linked to services, which continue to grow. It is worth pointing out that the IPCA-15 of April had a diffusion growth to 78.7%, which scared market participants, even with the indicator below the consensus expectations of players.

“We have a war going on, which can still have an impact on commodity prices; an inflationary process that still shows contamination; besides the whole issue of bottlenecks and the ‘zero Covid’ policy in China, which does not contribute to diminish this situation,” emphasizes Ms. Machado, whose baseline scenario points to Brazil´s benchmark inflation index IPCA at 4.5% in 2023. So, although she emphasizes that the interest rate hike was “significant”, since the Selic went to 11.75% from 2%, the economist points out that the monetary authority needs to gain degrees of freedom in its communication.

“Given all this degree of uncertainty, the choice is likely to be for flexibility. This is not the time to lose degrees of freedom, but rather to gain it. It would be the most appropriate”, she argues. Ms. Machado also notes that the external scenario requires concern, since, even with the monetary tightening cycles announced in developed markets, the projected real interest rates are still negative or close to zero, which would require attention to possible adjustments ahead. On Friday, the 10-year U.S. real interest rate closed the trading session at just 0.01%.

“At this moment, facing so much uncertainty regarding the inflationary process abroad and in Brazil, doubts about the geopolitical impact, Fed raising interest rates and the Covid outbreak in China, it makes sense for the Central Bank to keep at least a gap open [for additional adjustments in the Selic],” argues the superintendent of macroeconomic research at Santander, Maurício Oreng. “The door is closing, but I believe they will keep a gap open for some eventuality.”

Mr. Oreng believes that Copom should use the statement to reinforce the idea that the cycle is nearing its end. Thus, for him, it is possible that the committee will indicate what it foresees for the June meeting. “Historically, the pattern of the Central Bank has been to give more signals about the next decision. I tend to think that they are going to signal a 50 bp hike and say that [the cycle] is nearing the end, perhaps placing more emphasis, but I don´t expect they will set in stone the last hike will be in June,” he says.

With the increase in inflation expectations since the March meeting, to 4% from 3.7%, Mr. Oreng says that by incorporating this movement in the preliminary calculations made by Santander, even with a slightly more appreciated exchange rate, the tendency is to have an increase in the Central Bank’s projection for the IPCA in 2023, given the important weight of expectations in the authority’s model.

“With that, the trend is not to follow the plan of stopping interest rate hikes now. We are expecting the Central Bank to adjust this plan for the June meeting,” says Mr. Oreng, “And if we are correct in our estimate, it might signal something like a 50 bp hike in June.”

Vinland Capital CFO Aurélio Bicalho follows the same line, also expecting Copom to signal a rise in interest rates in June. “Being coherent with the conditions that the Central Bank itself has set, my understanding is that it should come with a communication that there will be an additional gradual or smaller adjustment,” he points out.

In trying to summarize the evolution of the macroeconomic scenario since March, Mr. Bicalho notes that expectations have risen; current inflation has evolved in a worse way; the international scenario has demanded caution in the face of Fed tightening; and the fiscal side, although with no major news, continues to present risks.

He also believes that Copom’s inflation projections will rise, in a scenario of a still asymmetric balance of risks. “And in paragraph 18 of the minutes [of the March meeting], the Copom says that if the scenario was closer to 3.4% inflation in 2023, the assessment was that the cycle should be even more contractionary,” he says.

The economist emphasizes that the evolution of inflation expectations is an even more important factor than if there were a worsening in the Central Bank’s projection due to oil prices. “It is a warning sign that inflation may become more persistent and more detached from the target,” he argues. And it is based on this scenario that Mr. Bicalho evaluates that Copom will signal an interest rate hike in June.

At GAP Asset, the fact that the Central Bank has had a posture of giving guidance on the next steps gives support to the possibility of maintaining this strategy in this week’s meeting. “I think the Central Bank is expected to signal something and the most likely is to actually stop the cycle or give another 50 bp hike. I think delivering another 50 bp increase is the most likely scenario,” says Anna Reis, partner and economist at GAP Asset.

(Gabriel Roca contributed to this story)

Source: Valor International

https://valorinternational.globo.com

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Suzano buys forestry assets in four states

Suzano vai montar megafábrica no MS

Pulp and paper manufacturer Suzano announced Thursday the purchase of a package of forestry assets with a total area of 206,000 hectares, in four Brazilian states, for $667 million. Those assets originally belonged to Fibria, a merger between Aracruz and Votorantim, which was incorporated by Suzano in 2019.

The operation is strategic and ensures the world’s largest producer of eucalyptus pulp access to wood at lower costs, in addition to ownership of land in São Paulo, Mato Grosso do Sul, Bahia and Espírito Santo states, that could be of interest of other pulp producers or investors — and will serve the company’s own projects in the long term.

Almost all of the operations purchased had already been exploited since 2003, through forest partnership contracts signed by the former Fibria. That year, pressured by high indebtedness, Fibria sold 210,000 hectares of land and forests to Parkia Participações and secured wood purchasing contracts, inherited by Suzano.

In the evaluation of analyst Daniel Sasson, with Itaú BBA, the financial statement position of Suzano is comfortable and the company’s debt cost is lower than Fibria’s 7.5%, which was paying around $50 million per year to purchase wood.

In addition, Mr. Sasson says, Suzano has interest in the regions where these areas are and there is a defensive aspect to the operation: “206,000 hectares are enough for a competitor to install a new pulp mill in the country with a capacity of more than 2 million tonnes per year,” he wrote.

In a statement, Suzano said the operation aims to expand operational efficiency, “as well as improve the use and cost of forest base in strategic regions to its operations in the long term.”

“Suzano currently has a very competitive cost of debt and cash availability to acquire these assets and thus ensure greater operational efficiency and less dependence on third-party wood in the long term,” said the CEO Walter Schalka, in a statement.

The forestry assets were sold to Suzano by the investment fund Investimentos Florestais (FIP) and Arapar Participações. The payment will be made in two installments, the first paid in the closing of the operation and the second 12 months after the closing. The deal still depends on approval by the Cade, the antitrust regulator.

Source: Valor International

https://valorinternational.globo.com

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PetroRio agrees to buy Albacora Leste field from Petrobras

PetroRio (PRIO3) faz "compra transformacional" e ação fecha em alta, enquanto analistas esperam por próxima aquisição - InfoMoney

PetroRio agreed to buy a 90% stake in the Albacora Leste field, in the Campos Basin (Rio de Janeiro), from Petrobras. The company will dirburse $1.91 billion, of which $293 million have been already paid upon signing, and up to $250 million more depending on Brent prices in 2023 and 2024.

The company estimates a proven economically recoverable reserve close to 280 million barrels for the field, with a net reserve of over 240 million barrels, expected to be abandoned after 2050.

In the first 18 months of operation, PetroRio plans to invest about $150 million to increase the operational efficiency of the FPSO P-50 rig, and reap $90 million a year in synergies.

Subsequently, the field redevelopment will begin, involving the drilling or connection of 17 producing wells and five injection wells over five years, with estimated investments from $70 million to $75 million per year.

The development will be carried out in two stages. The first is the connection of three producing wells already drilled, eight new producing wells, and one injection well, increasing the field’s production to above 50,000 barrels per day.

After that, six new producing wells and four injection wells will be drilled. The company is also expected to carry out the anticipated decommissioning, until 2027, of five producing wells and one injector, with an investment of $15 million per well.

Besides the Albacoa Leste field, PetroRio is still in negotiations with Petrobras for the purchase of the Albacora field, also in the Campos Basin.

PetroRio CEO Roberto Monteiro said the sale is taking longer because of the discovery of the Forno reservoir, located in the pre-salt within the field. The area is currently undergoing a long-term test for estimates of production potential, which showed better-than-expected results, according to the executive.

“We still have a while to reach an agreement, especially regarding the amount. It is taking a little more time because this reservoir is larger than expected,” he said.

The sale of the asset is part of Petrobras’s divestment plan and began in September 2020. According to Mr. Monteiro, a binding proposal was delivered around September 2021, but in November Petrobras asked the bidders to revisit the estimates for the size of the reservoir. In addition to PetroRio, there are other companies competing for the area.

Source: Valor International

https://valorinternational.globo.com

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Mercado Pago, Órama team up in investment platform

Mercado Pago e Órama vão criar plataforma de investimentos em parceria | Serviços Financeiros | Valor Investe

Mercado Pago — the digital wallet that was born in Mercado Libre and is now a big provider of several types of financial services — has teamed up with investment manager Órama to create an investment platform. The commercial agreement — there is no equity participation involved — has a minimum term of five years and provides for exclusivity. The offering will start for a small slice of the 34.5 million user base next week, but the idea is to scale up quickly, replicating the success that Mercado Pago had when it offered the option to buy cryptocurrencies late last year.

Known for working with classes C, D and E, Mercado Pago says there was demand from its customers for investment products. The offer will start with simpler options, and then will be expanded. The debut product is a certificate of bank deposit (CDB) from the group’s financial institution, with investments starting at R$1, which delivers yields of 150% of the CDI (the interbank short-term rate), in a promotional yield valid for those who make the investment in May and limited to R$5,000. The strategy is very similar to what other investment platforms are doing, such as XP, Toro and Genial, which advertise on social networks CDBs with eye-popping returns.

“Even today we still have almost R$1 trillion invested in savings, with a very low yield, and that from all social classes. We already have the cryptocurrency offer and the interest-bearing account, but our users were asking for more investment options, with better returns and even longer terms,” says Túlio Oliveira, vice president and country manager of Mercado Pago in Brazil. “We seek to promote real democratization, with accessible investment, without fine print. It will be a simple and safe experience,” he says.

Habib Nascif, CEO of Órama, says the partnership marks the beginning of a complete and integrated investment platform. “We specialize in creating solutions so that more people have access to quality investments. But besides offering good products, we also have to democratize the distribution channels. With this in mind, the Mercado Pago marketplace puts the financial market in people’s day-to-day lives,” he says.

He says that the management company was one of the first financial institutions to be born totally in the internet cloud and that it is fully prepared, from an operational and technological point of view, to serve Mercado Pago users. “We were the first to offer zero fees, investments with no minimum values, and to adopt a less formal language in marketing campaigns. The democratization of investments, including financial education, is very important to us, and that’s why we had such a good connection with Mercado Pago,” he says. Today, the management company has more than 3,000 partners in its “white label” platform and 370,000 accounts.

Later this quarter, Mercado Pago will offer a solution to help users with financial planning. “With our investment marketplace, we will have options so that Brazilians can concentrate their lives in one place, as well as organize their finances, keep emergency reserves or have a savings account with defined life goals,” says Mr. Oliveira. For Mr. Nascif, Mercado Pago’s user base has a huge potential for investments and, with financial education and the possibility of designing specific products for them, the expectations are very positive. “They need to start investing, get into the habit. It is a short, medium and long term construction.”

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SEC says Vale misled investors over safety before dam collapse

Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil
Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil

Vale is in the crosshairs of the task force set up by the U.S. Securities and Exchange Commission to identify flaws or distortions in information provided by companies regarding ESG. In a document released Thursday, the regulator accuses the mining company of misleading investors about safety issues before the Brumadinho dam collapse in 2019, which killed 270 people and caused environmental damage.

According to SEC’s view, Vale manipulated safety audits and obtained fraudulent stability certificates since 2016. The regulator claims that Vale knew for years that the Brumadinho dam did not meet internationally recognized safety standards, but still ensured its stability certification in its sustainability reports.

The SEC’s complaint, filed in court in the Eastern District of New York, accuses Vale of violating antifraud and reporting provisions of the U.S. federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, associate director of SEC’s Division of Enforcement. “Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”

Vale denies the allegations, including the claim that its disclosures violated the U.S. law, and said in a statement to the market that it will vigorously defend itself. “The company reiterates the commitment it made right after the rupture of the dam, and which has guided it ever since, to the remediation and compensation of the damage caused by the event.”

It is the second accusation by the SEC involving a Brazilian company in 10 days. Last week, the regulator and the U.S. Department of Justice filed suit against the former CFO of IRB, Fernando Passos. IRB is listed in Brazil, but did a road show in the United States with false information about Warren Buffett’s investment in its stocks.

The ESG task force was created by the SEC in March. In the document, the SEC thanks the collaboration of the Brazilian Federal Prosecution Service, the Prosecution Service of Minas Gerais, and the Securities and Exchange Commission of Brazil (CVM).

The accusation did not affect Vale’s stocks, as investors seem to be more interested in the large buyback program launched by the company. Vale announced a buyback of up to 500 million shares, which corresponds to 10% of the shares with the public – a program that could cost it more than R$40 billion.

The company shares are still discounted compared with international peers precisely because of the negative history in ESG – the Brumadinho disaster was preceded by the one in Mariana, also in Minas Gerais – and its consequences in financial and regulatory terms.

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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Risk assets see good streak end in April

Stock index Ibovespa and the real lost steam as the flow of foreign capital slowed dow — Foto: Pixabay
Stock index Ibovespa and the real lost steam as the flow of foreign capital slowed dow — Foto: Pixabay

The appreciation of Brazilian risk assets this year was interrupted in April. As the U.S. Federal Reserve signals interest rate hikes amid the perception of unchecked inflation in Brazil, the local benchmark stock index Ibovespa and the real lost steam as the flow of foreign capital slowed down.

The Ibovespa is down 8.4% this month to the 28th, and the consumer goods index declined 11.6%. The foreign exchange rate, which put the dollar at the bottom of the ranking of investments until March, was up 3.8% in the month. Among the fixed-income indexes, the IMA-B 5, which represents a basket of government bonds pegged to inflation with maturity under five years, outperformed its peers and is up 1.5%. On the other hand, the IRF-M, of fixed-rate bonds, lost 0.18%.

Persistent inflation and rising interest rates make fixed income prevail as a safe haven for investors. As a result, this option has received most funds with products ranging from the simplest ones – certificates of bank deposit (CDBs), financial bills and DI funds – to corporate bonds, said Luciane Effting, executive head of investments at Santander. The recommendation is not to concentrate risk, especially when allocating in debt securities – agribusiness and real estate receivables certificate (CRA and CRI) – or debentures, a group of assets in which the individual has the benefit of income tax exemption.

As for variable income, a falling Ibovespa is seen as reflecting the lower confidence in the global economic growth and also in Brazil, the executive said. With the expected acceleration of monetary adjustments by the Federal Reserve, the interest rate differential in relation to Brazil will be lower and part of this translates into a slower flow of foreign capital. “But for any investor who accepts the volatility and is willing to keep the money there for longer, either in the local or international market, [stock] prices are discounted. They can reap good rewards in the long term despite short-term swings.”

Depending on the investor profile, Santander’s asset allocation model provides for a portion in the stock market, even for retail investors, Ms. Effting said. Santander Corretora, the Spanish bank’s broker in Brazil, estimates that the Ibovespa will end the year at 125,000 points, up 14% from the current level. Although inflation and rising interest rates are a concern for those who invest in stocks, some assets benefit from this environment.

Hedge funds, which are seen as having flexibility and agility to change their positions according to the scenario, are also a way to capture gains in moments of uncertainty, Ms. Effting said. After the strong migration to fixed-income alternatives from multimarket and equity funds, she said, investors are again interested in hedge funds after good results in the first months of the year.

Brazil went through a three-and-a-half-month lull, an environment that did not seem favorable to emerging markets given the potential for interest rate hikes in developed countries, said Marcio Schalck, a managing partner at Neo Investimentos. “The local stock market saw a large investment inflow that influenced the exchange rate as well, and assets appreciation. This was not foreseen as interest rates were expected to rise abroad. As time goes on, that impacts prices more,” he said. “Now we are back in the middle of the road, as Brazilian assets start to get a little cheaper.”

That doesn’t mean that prices will not fall further. Because of the external and local scenarios, there is room for additional worsening, Mr. Schalck said. Inflation is the main culprit of the season, with the Fed calibrating its hawkish communication. What is now priced in assets and derivatives linked to U.S. interest rates seems to be insufficient to control the rise in the cost of living. “The Fed may go further than the market anticipates.” The shutdown in China to contain new cases of Covid-19 could bring problems in production chains and keep inflation high.

The environment will be one of volatility, but also of opportunities. As central banks have a reduced capacity to intervene after the interruption of asset purchases and shrunk balance sheets, poorly valued assets will find their most appropriate prices, Mr. Schalck said. “There is no freedom in price when there is strong action by the monetary authority because it [the Central Bank] is the final buyer at any cost.”

As for Brazil, his perception is that the closer the beginning of the election campaign is, the more contaminated the domestic assets, because the candidates’ remarks will not be focused on fiscal austerity, one of the market’s main agendas.

Neo believes that the benchmark interest rate Selic, now at 11.75% per year, will remain high for the next 12 months. “The return has to be great to compensate being structurally long on something,” he said. The company holds very specific stocks, with potential to rise between 20% and 30%, in the financial industry, including insurer Porto Seguro. And it has been combining the sale of some securities from industries more sensitive to interest rates with positions in real rates, a bet that the inflation that is projected in the assets today will decrease to 5% from 7% in six months to a year.

For individuals who like to move on their own, Mr. Schalck thinks that long inflation-indexed Treasury bonds are an opportunity for those who want to build up capital. “You can have volatility in the short term, rates can go up, but looking at longer maturities, these ones have interest rates that you don’t see in the world. And no matter what happens, you have some protection.”

While the presidential election has yet to affect local prices, Brazil is influenced by the external scenario, a journey that includes tackling inflation with tighter monetary policies, the war in Eastern Europe, and the Chinese economy further shutting down to fully contain Covid-19, said Carlos Calabresi, chief investment officer at Garde Asset. The appreciation of commodities has driven the country, a raw materials exporter, but also brought adverse effects on inflation. “And raising interest rates to a restrictive level slows down economic growth.”

This adjustment is even more complex in a year of presidential election. “The economy is likely to be the main topic [of the campaign], and bringing down growth due to inflation is bad, but unchecked inflation is even worse,” Mr. Calabresi said.

He cites that the Central Bank began correcting the monetary excesses made during the pandemic slowly, first signaling a partial adjustment, but then “it had to accept reality and hasn’t stopped until now because inflation continues to surprise upward.” Meanwhile, the Fed and economic agents abroad are learning to deal with price pressures they haven’t experienced for a long time and are slow to understand that the tightening will be greater than anticipated, Mr. Calabresi added. The European Central Bank (ECB), for its part, “remains in denial.”

While the Fed assumes a hawkish stance, the Brazilian central bank signals that the adjustment cycle is near the end, and this sounds rushed, said Marcelo Ferman, CEO of Parcitas. “It should position itself more firmly because the fight against inflation seems to be not well resolved, especially when you look at the world. It is not a solved problem and Brazil is not an island of prosperity,” he said. “Without firm decisions, it ends up having to raise interest rate even more and failing to anchor inflation expectations as it would like.” Despite the fact that the Brazilian central bank has started adjustments early, the quality of Brazil’s official inflation index IPCA remains poor, with greater diffusion.

The asset manager has favored positions in the international market and likes stocks of large technology companies, including Alphabet, Amazon and Microsoft. In Brazil, it holds short positions on the dollar and also on Ibovespa.

Source: Valor International

https://valorinternational.globo.com

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Joint venture Raízen Geo Biogás bets on biomethane

Europeans confront biomethane cost reduction challenge – EURACTIV.com

Eight months after holding the largest domestic IPO in 2021, Raízen, the country’s fourth largest company by revenues, is once again presenting to the market the reason that led it to seek the good graces of investors. With the support of the funds raised in the market, Raízen and its partner Geo Biogás e Tech will start to build a new biomethane plant made of residues from ethanol production in Piracicaba, São Paulo.

This is the second industrial investment Raízen has unveiled since going public – the first was in a cellulosic ethanol plant in Guariba, São Paulo – and the first investment in biomethane since then.

The Raízen Geo Biogas joint venture plant has already left the engineers’ desks with guaranteed customers. The first is Norwegian company Yara, the world’s largest fertilizer producer, which will use biomethane to produce “green” hydrogen and ammonia, according to a contract signed in September 2021.

The second customer is Volkswagen, which will use the product in its plants in Brazil. Raízen had already announced a partnership with the German automaker in October, which also involved the delivery of electricity and the development of new ethanol formulas, but only recently closed the biomethane delivery contract. With the two clients, the Piracicaba plant’s entire production is already sold.

The unit will consist of two biomethane production “modules” and will have the capacity to produce 26 million cubic meters of the renewable gas per year. Yara will receive 20,000 cubic meters of biomethane per day, while Volkswagen will receive 50,000 cubic meters per day. In both cases, the product is one way the companies have found to reduce the greenhouse gas emissions footprint of their industries.

The stillage that will be used to produce biomethane is already used today as organic fertilizer in the sugarcane fields that serve Raízen’s Costa Pinto mill. The biomethane plant, however, does not change this story. The difference is that, before being distributed to the fields, the biodigestion of the stillage will reduce the amount of residual raw material, but the levels of potassium and nitrates that serve as fertilizer for the sugarcane fields will be preserved.

Raízen’s choice of Piracicaba for this project is symbolic – it is where Cosan started its history in the sugar-and-ethanol industry – but it is mainly of a practical nature. To guarantee delivery of biomethane to customers, it was necessary to build a plant close to the gas distribution network – in this case, Comgás’s network.

With the construction of yet another production unit in the Piracicaba hub, Raízen CEO Ricardo Mussa argues that the site is now a “bioenergy complex,” and no longer just a sugarcane mill. “It has cellulosic ethanol plant, it has cogeneration, it has biogas. It’s like a biorefinery.”

In the plan presented to investors before the IPO, Raízen promised 39 industrial biogas modules by 2030/31 – a deadline that Mr. Mussa promises to meet. The perspective is that the first units will be built near the gas distribution network, either from Comgás or GásBrasiliano.

In those plants more distant from the grid, the plan is to use renewable gas to replace diesel in their own fleets of agricultural machinery. “There is no bottleneck. The future demand for biomethane has low risk.”

There is also the possibility of producing only biogas for electricity generation, offering a third market alternative. In the unit that will be built in Piracicaba, part of the biogas will be used for this purpose, with a capacity of 5 megawatt-hours.

“This production flexibility is interesting. We are delivering what we promised, and with greater profitability than we imagined,” Mr. Mussa said.

The executive also expressed optimism with the plans for new cellulosic ethanol units, although so far only one new plant out of the 26 promised to investors has been announced. According to Mr. Mussa, the qualification of suppliers – an essential step to ensure the protection of industrial patents held by the company – is advancing “with good surprises.” “We are racing to surprise the market,” he said.

Source: Valor International

https://valorinternational.globo.com

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Developers report positive quarter in some segments, face higher costs

Commercial segment in São Paulo saw positive net absorption in first quarter — Foto: Edilson Dantas/Agência O Globo
Commercial segment in São Paulo saw positive net absorption in first quarter — Foto: Edilson Dantas/Agência O Globo

The cost to build remains high and continues to be the sector’s biggest concern in the quarter, pointed out the Construction Industry Survey held by the National Confederation of Industry (CNI). It was the seventh consecutive semester in which this concern was the most cited by businesspeople.

High interest rates are the second-biggest concern, and they directly affect the sale of medium-and high-end properties, since affordable units included in Green Yellow House, a revamped My House My Life program, follow their own financing line with funds from the Workers’ Severance Fund (FGTS).

The public in the range immediately above the one benefiting from the housing program is very much targeted by the developers who work with low income. Since Green Yellow House has a ceiling on the value of homes sold, serving those outside the program allows them to reach a higher sales value.

It is the strategy adopted by Cury, which has 30% of the units outside the program, sold at up to R$500,000. The company’s quarterly performance was considered “impressive” by BTG analysts.

A giant in the low-end segment, MRV also had positive, but timid results, in the quarter, with the growth of 7.6% in net sales and 1.4% in launches, driven mainly by the good performance of its U.S. subsidiary.

The developer has been able to pass on part of the increase in construction costs to the consumer, something also done by Cury, which increased the average price of units launched by 20.7% year over year.

Other players in this field reported positive results in their operating previews as well, such as Plano&Plano, with a 10.8% increase in net sales and 161% increase in launches, and Direcional (21% increase in net sales and 4% more launches), compared to the same period in 2021.

The negative highlight was Tenda, which again saw launches and net sales drop 23.5% and 17.8%, respectively.

The commercial segment in São Paulo saw positive net absorption in the first quarter of the year, according to consultancies JLL and Newmark, good news for an industry that suffered from the pandemic and the adoption of working-from-home policies. The first quarter is usually more challenging for the segment.

The vacancy rate is still high in the city, at 24.6% on average, said JLL, but varies substantially according to the region. While in Faria Lima Avenue, a prime area for offices, it is at 8%, it is 30.7% in Alphaville, an affluent neighborhood in Greater São Paulo.

By 2022, the delivery of new stock is expected to be below the city’s annual average, according to Newmark, which may help the occupancy of existing spaces recover.

In the logistics centers segment, absorbing stock is not a problem. The vacancy rate in the country fell to 11.4% in the first three months of this year from 13.6% in the first quarter of 2021, despite an average annual growth of 1.5 million square meters of leasable area.

The growth of e-commerce, something that is not likely to slow down as the pandemic situation improves, because it has become part of consumer culture, drives the segment.

According to Newmark CEO Marina Cury, the eyes are currently focused on opportunities for “last-mile” developments, within a radius of 15 kilometers from the so-called expanded center of São Paulo, which enable deliveries in a matter of hours.

This type of development is starting to be delivered now, and the demand is great, which is expected to encourage new deals.

Source: Valor International

https://valorinternational.globo.com

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