ISA Cteep to build Brazil’s first large energy storage project

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ISA Cteep, a private-sector power transmission company, agreed to build the first large-scale energy storage project linked to Brazil’s National Interconnected System (SIN). The company signed a contract with a consortium that includes You.On Energia, a company specialized in energy storage systems, and TS Infraestrutura, which gathers engineering assets spun off from Toshiba.

The companies have not revealed the value of the agreement. The 30-megawatt project was approved by the electric sector regulator Aneel last year to expand the power grid in the coastal cities of São Paulo, Brazil’s most populous state. The R$146 million project is expected to start operating by the end of the year in Registro.

The location was chosen due to the high demand for electric power during the summer when tourists flock to coastal towns, said Rui Chammas, CEO of ISA Cteep. “In this region, we typically put in place special operations to ensure the quality of supply. We realized that it would be important to find a way to meet peak demand,” the executive said.

Aneel allowed ISA Cteep to have yearly revenue of R$27 million with the project. Batteries are being imported from China by You.On Energia.

China has the largest companies in terms of scale production of lithium-ion batteries, which means good quality and price, said Giorgio Seigne, CEO of You.On Energia. “There are American and European providers, but they are not competitive in terms of prices and delivery times. We hope that the local industry can provide batteries of the necessary size for a large-scale project in the coming years,” he said.

The batteries are being manufactured and are expected to arrive here by August. The earthmoving works are expected to end by April, and the companies expect to start laying cables by May. Companies have already contracted all the equipment, said Helder Torres, the chief commercial officer of TS Infraestrutura. “We are talking about a very fast deployment project, in a pandemic and war scenario, so we have to be very efficient,” Mr. Torres said.

TS Infraestrutura will make the project’s protection and control panels in its factory in Curitiba, Paraná. “We will be responsible for integrating and controlling the batteries to take information to the substation. This is the first integration in Brazil of a protection and control system between the substation and the storage system,” Mr. Torres said.

The executives believe that new storage projects will emerge in the country from this first effort. According to them, the growth of renewable power sources, with the energy transition, will require such solutions. This happens because renewable sources like solar and wind depend on weather conditions to generate energy, so batteries are a way to store the power generated to be released when the weather is unfavorable.

“One way to expand the share of renewable sources in Brazil’s power generation mix is by giving them greater predictability. A non-dispatchable, non-predictable renewable source, when combined with a storage system, becomes dispatchable, that is, more widely used by the national system operator. So there is a quality improvement in what is delivered by a renewable source,” Mr. Seigne, with You.On, said.

Energy storage can also be a less polluting solution for supplying electricity in systems not connected to the Brazilian grid, he said. Such systems, located mainly in the North region, are mostly supplied by diesel generators, which are more expensive and polluting.

ISA Cteep may seek opportunities to develop new battery projects, the company’s chief executive said. “This first work will be a barometer for future projects, because it will bring knowledge and experience. With the growth of renewable energies, we will need solutions that ensure reliability, regularity and quality in the power supplied. This undoubtedly includes the capacity of the system to store energy,” Mr. Chammas said.

Source: Valor International

https://valorinternational.globo.com

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High interest rates lead market to expect a more appreciated real

Fernando Rocha — Foto: Leo Pinheiro/Valor
Fernando Rocha — Foto: Leo Pinheiro/Valor

The 14.86% drop of the dollar against the real this year leaves no doubt that the market has been putting in prices the expressive interest differential between Brazil and the United States, which is expected to remain at high levels.

Although the Federal Reserve (Fed) has started a process of monetary tightening and now indicates a possible acceleration of the pace of interest rate increase, the Selic policy interest rate in double digits and still on an upward trajectory guarantees the exchange rate the possibility of the real to remain at more appreciated levels in the short term — although risks to this scenario remain on the radar.

In just one year, the Selic abandoned the historic low of 2% and is now at 11.75%. At the same time, in the United States, interest rates are in the range between 0.25% and 0.5%. And even in the real interest rate universe, the difference between the two countries’ monetary policy is quite high. While the real interest rate expected for one year in the U.S. is negative around 4%, the Brazilian real rate has levels around 7%.

And it is based on this context that the real appreciates against the dollar. Higher interest rates in Brazil have favored strategies in which investors raise funds abroad at lower rates and invest money in the country, known as carry trade. Last week alone, the dollar dropped 5.37% against the real and ended Friday’s trading session at R$4.7466, the lowest level since March 11, 2020.

“I can’t say I’m surprised. I’ve been waiting for this movement since the end of last year,” says Gustavo Menezes, macro manager at AZ Quest with a focus on foreign exchange. He notes that, with the Selic at 2% in mid-2020, the interest rate differential was “completely displaced”. “As we carried out the normalization of interest rates, there was no immediate effect because inflation rose very strongly and, thus, we were not able to practice a positive real interest rate. Now, the adjustment is being made and, looking ahead, we have a very positive real interest rate.”

Mr. Menezes notes that, even if the inflationary scenario remains challenging, the real interest rate should remain at high levels in Brazil, which maintains the perspective that the exchange rate appreciation may have even more space ahead. “At the same time, our pair, the dollar, has a very negative real interest rate, despite the pricing of interest rate hikes on the American curve. It’s as if they had to control inflation in the circumstances that we lived through last year,” he says.

The intensity of appreciation of the real against the dollar has been surprising. In the highs of the year, the dollar reached R$ 5.7245. “It’s an expressive movement, which seemed dammed up. The exchange rate has come a long way and there is still room to appreciate, but perhaps not to the same magnitude. For now, we don’t see room for [appreciation of the real] to stop,” he says.

From an “ugly duckling”, the real showed a stronger performance than most other emerging market currencies. Year-to-date, the dollar accumulates a drop of 2.26% against the Mexican peso; of 7.64% in relation to the Colombian peso; 8.53% against the Chilean peso; and 8.75% compared to the South African rand.

“The stars have aligned and fundamentals are justifying the lower price. It’s a pretty big move and all factors are in its favour”, says Daniel Tatsumi, currency manager at ACE Capital. In addition to the interest rate differential, commodity prices, whose rise proved to be quite expressive, especially after the start of the war in Ukraine, have also been influencing the real appreciation against the dollar.

In addition to commodities and interest in favor of a more appreciated exchange rate, the growth differential is starting to show more positive signs, which provides additional support for the appreciation of the real. “We expected a contraction of about 0.5% in GDP, but we revised it and now we see a number closer to [growth of] 1%. And, with the interest rate differential, the exchange rate movement has more to go,” says Mr. Tatsumi.

ACE’s view is even translated into long positions in reais, that is, bets that the Brazilian currency will further appreciate. “When we looked at what would make the currency better, we checked everything. Terms of trade, growth, interest differential and even the taxes, with a super positive collection.”

When looking at slightly longer terms, market economists opt for a slightly more cautious tone regarding the future behavior of the exchange rate. However, in recent days, in the wake of the more positive view of market agents with the real, exchange rate estimates have also been revised.

Itaú Unibanco, for example, cut its average exchange rate forecast to R$5.25 per dollar from R$5.54 per dollar, as it expects the real appreciation window to last longer than previously expected. In relation to the end of the year, the bank kept the dollar forecast unchanged at R$ 5.50.

“The main driver is the Selic, which has been rising throughout last year and before most other emerging markets. This, of course, helps the currency to attract capital flows to Brazil. And the flow of dollars to Brazil has been stronger,” observes economist Julia Gottlieb, with Itaú.

Data released on Friday by the Central Bank show that, from the beginning of the year to March 18, the foreign exchange flow had a net inflow of $9.446 billion. The result already exceeds the positive balance for the entire year of 2021 ($6.134 billion).

Bank of America’s strategists Claudio Irigoyen and Christian Gonzalez Rojas maintain an “optimistic” bias with the real, although they emphasize that political discussions can affect the behavior of the exchange rate as the elections approach. Strategists expect the dollar to end the first half at R$4.90 and to close the year at R$5.25. Before, BofA’s expectation was that the American currency could end 2022 at R$5.30.

In addition to factors such as the interest rate differential and the terms of trade, JGP’s chief economist Fernando Rocha, draws attention to the fact that the universe of emerging markets is relatively small and has been reduced even further. “Markets with depth are few.”

Mr. Rocha recalls that the conflict hit Eastern Europe and Russia hard and points out that Turkey has faced a difficult environment, with capital control measures. “Brazil is physically far from the conflict, it is a producer of food, iron ore and has high interest rates. When it all comes together, we are attractive,” he says.

For him, the flow is what may determine the direction of the exchange rate. “The interest rate will remain high at least throughout the year and Brazil is a commodity producer. It could be that the flow continues and the exchange rate gets even lower,” he says. For him, the dollar may fall to levels between R$4.20 and R$4.30 depending on the flow. “Remuneration is so good that we are starting to move in that direction [of appreciation of the real].”

Mr. Rocha believes that the intensity of the Fed’s monetary tightening process may also interfere with the exchange rate dynamics ahead. In addition, he cites an internal JGP study that, in general, the dollar weakens when the Fed starts to raise rates and only begins to strengthen at the end of the cycle, and then U.S. fixed income serves as a factor of capital attraction. “If the Fed starts to make a very strong pace, it can change the balance a little bit. But, so far, the interest rate differential remains very favorable to Brazil,” says the economist.

Source: Valor International

https://valorinternational.globo.com

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War boosts commodities, trade balance may have record

Lia Valls — Foto: Leo Pinheiro/Valor
Lia Valls — Foto: Leo Pinheiro/Valor

The effects of the Russian invasion of Ukraine on commodity prices have prompted a wave of upward revisions in bank and consultancy forecasts for this year’s trade surplus. The new estimates in many cases show the prospect of a new record balance in 2022, with projections reaching more than $80 billion. An expected slowdown in the global economy, the greater appreciation of the real against the dollar and the fall in the terms of trade, however, differentiate this year’s scenario from that of 2021, highlight experts, which maintain some projections with a surplus still below $50 billion in the year, although they also followed the upward trend of revisions after the war started.

In a scenario released this month, already considering the effects of the war, Itaú Unibanco updated its trade surplus projection in 2022 to $74 billion from $67 billion. With a similar estimate, Bradesco projects $75 billion, compared to an estimate of $61 billion published in February. If the banks’ projections materialize, the trade balance will have a new historic milestone this year. Last year, with export values driven mainly by the rise in iron ore, it reached a record $61.4 billion, according to the Secretariat of Foreign Trade (Secex).

AC Pastore has estimates that indicate even larger surpluses in two scenarios. A more optimistic one, with a surplus of $95 billion for the year, for a scenario in which the war would affect world growth, but the volume of global trade would not be so impacted and would grow 6% in 2022, as estimated by the International Monetary Fund, at the beginning of the year, explains Paula Magalhães, chief economist at the consultancy. In an “alternative” scenario in which the impact of the war on trade is greater, the estimated surplus for the Brazilian trade balance drops to $85 billion. Both scenarios consider calculations based on Secex criteria.

The projections, says Ms. Magalhães, consider favorable effects on the balance of the high prices of commodities exported by Brazil, mainly foodstuffs. The various factors that influence the estimates, such as new supply shocks, whether due to the war or due to new waves of Covid in China, she says, are being monitored and the estimates are expected to be readjusted as the conflict evolves and its effects.

Bradesco’s new estimate also considers the effects of commodity prices. In a release by the bank, economists Rafael Martins Murrer and Fabiana D’Atri point out that until the third week of March, the balance accumulated a surplus of $10.1 billion, a result about $3 billion above the same period in 2021. The war in Ukraine, which began on February 24, they say, intensified the upward movement of commodities such as oil, natural gas, wheat, nickel, soybeans, corn and iron ore.

The bank points out that Brazilian trade is likely to be impacted by the Russia-Ukraine conflict, but direct exposure to these countries is low. The biggest exposure to Russia, ponder the bank’s economists, is in fertilizers, since we import about 85% of all fertilizers consumed domestically and 25% of this total is of Russian origin, used mainly for soy planting. This, however, would be a risk for the next season, since the current one has already been planted, even though there is a stock of the product that was not used in the current season.

Some experts in foreign trade, however, signal caution in relation to the effects of rising commodity prices. For Silvio Campos Neto, with Tendências, there is expectation of a more dynamic performance of exports, although imports are likely to feel part of the global inflation. Tendências highlights the high uncertainty regarding the duration of the conflict and its consequences. For now, the surplus expected for this year, he says, is $61.8 billion, in an estimate already revised against the $58.5 billion projected until the beginning of March.

The scenario for this year has important differences compared to last year, when iron ore prices reached the historic peak and ensured a record trade surplus, says economist Livio Ribeiro, partner at the BRCG consultancy.

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), highlights that one of the differences this year is in import prices, which began to grow more rapidly in the last months of 2021 and maintain a strong pace at the beginning of 2022, which should pressure imports upwards and the balance downwards. For him, the effects of commodity prices on exports can also be restricted, in part because higher base 2021 iron ore prices limit average price growth this year and could see export volume affected by China’s slowdown. Soybean prices have increased, but we will have limited shipments due to the crop failure, he says. “And we also don’t know if oil will have the breath to continue rising or stay at current prices.” New preliminary estimates by the AEB point to a surplus of $49 billion for the year. The initial projection was $34.5 billion.

Lia Valls, a research associate at the Brazilian Institute of Economics of Fundação Getulio Vargas (Ibre-FGV), highlights the declining trend in terms of trade, more recently accentuated by the faster rise in prices for imports than for exports. The terms of trade in the first two months of the year, she points out, were 13.5% below the same period last year, according to data from the Indicator of Foreign Trade (Icomex) released by Ibre.

Average import prices in January and February of this year grew 33.9%, twice the rate of 15.9% in which average export prices fluctuated. “And the rise in import prices is not restricted to commodities, but also affects non-commodity items,” she points out. According to Icomex data, average commodity prices of imports, in the same period, increased 51.8% while non-commodities grew 32.2%.

These high import prices also in non-commodity goods make the debate more complicated and require more care, points out Mr. Ribeiro. “The memory of this import acceleration tends to be longer as it reflects the pass-through of costs in industrial goods.”

When this is added to the appreciation of the real against the dollar and a deceleration of the world economy expected as a result of the war, although the impact is still uncertain, says Mr. Ribeiro, it is not very obvious that this set of vectors is positive for the balance. More contained than the market average, BRCG projects a surplus of $45 billion in revision in the last week, compared to $38 billion in the previous estimate.

The more recent global prices rise, as in wheat and oil, says Ms. Valls, adds to ongoing pressures since 2021 and represents new cost shocks to inflation in Brazil. At the same time, she says, there is a global trend towards protectionist measures to discourage exports and ensure food security, which could also lead to further supply shocks. She cites Argentina, which raised export taxes on soybean meal and oil, and Indonesia, with restrictions on the sale of palm oil.

Source: Valor International

https://valorinternational.globo.com

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Airfares rose 20% in Brazil in 2021

Travel Restrictions Easing | Flourish Australia

After a period of reduced prices as the pandemic took air tickets to the lowest level in 20 years in 2020, airfares surged again. The average price of air tickets sold in the local market in 2021 was R$494.01, up 19.28% compared with 2020 and 2% compared with 2019, data by the National Agency of Civil Aviation (Anac) show. Airline executives, however, unanimously say that prices are bound to rise even more as oil skyrocketed driven by the Ukraine-Russia war.

This was the highest percentage increase seen in a year since 2008, when there was an increase of 37.82%, ANAC said. The 94% jump in the average price of jet fuel last year compared with 2020 levels was one of the main factors for the rise in airfare, in addition to the growth in demand.

In the case of Anac data, which compiles all tickets sold, the advance of the average ticket compared with 2019 underlines a change in the profile of tickets (with longer routes) than of price normalization – which is still below before the pandemic.

When analyzing last year’s data, the yield (that is, the amount paid by the passenger to fly one kilometer) was R$0.372, up 17.7% compared with 2020. However, the value is still 10% below that of 2019.

Although on average the tickets have not recovered, the consumer’s feeling that prices are higher is a reality and can be seen in the numbers. Last year, yields of up to R$0.300 represented 48.5% of the total. In 2020, this percentage was 58.9%. Yields of up to R$0.500 represented 70.6% in 2021, compared with 77.8% in 2020.

Meanwhile, tickets with a yield above R$1 (the most expensive ones) represented 10.1% of what was sold in 2021, compared with 7.4% a year earlier. In other words, the data show that fewer people could buy cheaper tickets (below a yield of R$0.3 and R$0.5) while more people bought more expensive tickets in 2021 than in 2020.

Gol was the company with the highest percentage of increase in tickets sold, 25.9%, followed by Azul Linhas Aéreas, with a 17% rise, and Latam, with an increase of 12.4%. However, Azul was the company that presented the highest average value of the air ticket, of R$562.66. Gol and Latam followed, with an average of R$481.76 and R$444.90, respectively.

In the international market, the air fare charged on flights to Europe had a reduction of less than 0.1%, with an average value of $643.11. Flights to Asia had an average fare of $960.07, a 3.3% drop.

Despite the weak real against the dollar, the expectation is that the variation of oil prices will impact aviation fuel only in the coming weeks. There is an estimate of a rise between 25% and 30%, according to airline executives.

Even without this effect, company yields are already quite high. At Gol, for example, the indicator is currently about 30% above pre-pandemic levels.

Even without this effect yet at the pump, the yields of the companies are already quite high. At Gol, for example, the indicator is currently about 30% above pre-pandemic levels. The airline industry has achieved a victory with the exemption of social taxes PIS and Cofins on jet fuel. This is an important step, but would have little practical effect on costs since the biggest villain on the tax side is sales tax ICMS, according to the Brazilian Association of Airlines (Abear).

Source: Valor International

https://valorinternational.globo.com

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Unemployment to hit 11% by year-end

Desemprego elevado é um dos maiores desafios do Brasil após crise sanitária

Brazil will probably end 2022 with an unemployment rate of at least 11%, representing about 12 million people unemployed — and without recovering the real income from work, currently damaged by the growth of inflation. This is what specialists consulted by Valor predict.

Analysts with Tendências, XP, Ativa, LCA and Fundação Getulio Vargas (FGV) unanimously say that economic projections has deteriorated this year, and the same happened with the conditions necessary for a sustainable recovery of employment. On top of a more unfavorable macroeconomic environment, the activity is likely to suffer direct and indirect negative effects from an unexpected factor – the war between Russia and Ukraine –, such as higher inflation, economists note.

And they warn: the continued increase in the workforce and the need for families to raise income due to the loss of purchasing power with rising prices will stimulate even more people to look for a job, putting upward pressure on the unemployment rate this year.

At the beginning of 2022, the labor market gave a positive sign, with a decrease of 0.9 percentage points in the unemployment rate in the quarter to January, to 11.2%, according to the Brazilian Institute of Geography and Statistics (IBGE).

For Lucas Assis, an economist at Tendências Consultoria, this decline does not guarantee a continued improvement in employment by the end of the year. A concerning factor released by IBGE, he said, is the already significant number of people — 6.9 million —who want to work more hours to increase income but cannot. This is because the current pace of the economy does not encourage companies to increase hours worked.

Tendências projects zero economic growth in 2022. And he did not rule out still lower world growth and damage in global supply chains of inputs due to the conflict in Eastern Europe. “This [context] may restrain the intention of investments and the impetus of hiring in the country,” he said, suggesting programs to tackle unemployment, especially among young people.

Rodolfo Margato, an economist at XP, also sees zero GDP growth, and adds that any sustainable improvement of the Brazilian labor market is hindered by structural problems. “We have a high informality rate, above 40% [of the employed population], higher than the average of the emerging countries, and low average professional qualification,” he said. As a result, jobs with low qualifications pay less and, consequently, do not help to increase labor income continuously and sustainably.

“It is difficult to imagine a reversal of income trajectory in real terms [in 2022],” he added. This month, IBGE also unveiled that, even with lower unemployment, in the quarter ending in January the real usual income from work (discounting inflation) fell 1.1% compared to the previous quarter; and fell 9.7% compared to the same quarter of the previous year.

In Mr. Margato’s analysis, a solution to improve the labor market, in the long term, would be to combine continued investments in professional training within an environment with balanced macroeconomic indicators.

The importance of the economic scenario in the employment results was also mentioned by Étore Sanchez, the chief economist of Ativa Investimentos. For him, the effect of the weak economy on employment in 2022 may lead to an unemployment rate of 12.5% by the end of the year — that is, about 13 million unemployed. “The outlook is so bad for growth this year that the labor market will end up reflecting this,” he said, also projecting zero GDP this year.

In general, the labor market reacts with a lag in relation to economic activity, said Bruno Imaizumi, an economist at LCA. But he acknowledged that, today, the situation is different. “In 2022, the labor market is tied to the economic scenario, which is deteriorating.”

The analyst also does not see much room for recovery of jobs because, besides the weaker economy not favoring such action, this movement has already happened in 2021, after cuts in 2020 due to the pandemic. In February 2020, the employed population was 94.7 million, and in December 2021, 95 million, he said.

“We will continue with unemployment rate at this high level,” he said. Mr. Imaizumi also pondered that the picture could be less unfavorable with structural solutions, such as more programs focused on professional qualification.

Rodolpho Tobler, an economist at FGV, agrees. For him, “it is impossible to imagine an unemployment rate below double-digit levels” with structural problems in the labor market, such as high informality and low professional qualification. Like the other specialists, he pointed out that since 2016 the country has not seen an annual unemployment rate below 10%. This resulted in a high level of unemployed people for a long period of time without generating income from work and, thus, “curbing” robust growth in the economy.

“And the war [in Ukraine] can amplify these problems [in employment],” he said. He stressed that the conflict is a factor in raising prices, inhibiting consumption, and thus driving even weaker activity — which hinders job openings.

Source: Valor International

https://valorinternational.globo.com

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Citi plans to increase revenues in Brazil by 50% in 3 years

Marcelo Marangon and Fernando Iunes — Foto: Carol Carquejeiro/Valor
Marcelo Marangon and Fernando Iunes — Foto: Carol Carquejeiro/Valor

Citi is Brazil’s ninth-largest bank by assets and the second-largest foreign one, but has outlined a plan to speed up in the country. The bank led by Marcelo Marangon has set the goal of expanding revenue by 50% in three years. To do so, it will invest more than $50 million in technology and hire 300 people – the bank now employs 1,900 people here.

Citi has also hired Fernando Iunes, a former Itaú BBA executive, as vice-chair of its investment bank. Mr. Iunes will strengthen a business in which Citi plans to advance, and foresees a very positive performance this year despite the fewer IPOs expected. Last year, the U.S.-based bank institution ranked sixth in revenue of investment banks in Brazil, according to Dealogic.

“Brazil is Citi’s seventh-largest market in wholesale banking, and we have a footprint in 95 countries. We have a growth ambition like we have never had, even in a challenging scenario, with elections, war, the transformation of the financial market, several factors,” Mr. Marangon said.

In moments of global crisis, the value of the bank’s global presence becomes even clearer, he said.

The bank has not yet released its official results for 2021, but the CEO says – without elaborating – that the profit was the highest in 10 years. The assets reached R$130 billion, up almost 30% year over year. He recalled that after the sale of the retail operation to Itaú, unveiled in 2016, the bank increased threefold its assets in the country and improved profitability. “This shows that the focus on wholesale banking made perfect sense.”

Better known for serving multinationals and large groups, Citi has decided in recent years to advance in the corporate segment, which includes companies with revenues from R$250 million to R$5 billion. This base has 1,200 clients, and the goal is to attract 1,000 companies more.

The expansion, however, does not represent greater risk taking. “We are going to increase our share of wallet and bring in new clients within the target market that has already been defined. We will not add unnecessary risk to our portfolio.” The bank’s total portfolio exceeded R$36 billion in the middle of 2021.

According to the executive, the scope has not changed, but the bank wants to attract a larger portion of a group that it estimates to have between 3,500 and 5,000 companies. He said that credit provisions dropped substantially in 2021 and does not anticipate a significant increase this year. “We are not changing the established prerequisites. And this is key for achieving resilient results,” he said.

Of the $ 50 million in planned investments in technology, a good part will be destined to cash management and treasury to improve services. Later on, the bank does not rule out using this structure to prospect smaller companies as well.

The immediate scenario is not easy, with rising inflation and interest rates, a sluggish economy, and the volatility of an election year. However, the bank sees opportunities in the country. “Despite the pandemic, the difficulties we have seen in the global supply chain and now the war, we see a positive outlook for Brazilian companies,” Mr. Iunes said.

The executive’s mission will be to strengthen the relationship with companies to capture these opportunities. With a tougher market, Citi is betting on infrastructure projects, many of them linked to recent concessions and the sanitation sector. “There is still the migration to a new low-carbon economy and we need to continue supporting clients in this regard, regardless of the macro scenario,” Mr. Iunes said.

This year, Citi took part in key secondary offerings, such as those of meatpacker BRF, power company Equatorial, Havaianas flip-flop maker Alpargatas, and the block trade of NotreDame Intermédica. Last year was already a record year for the bank, with 26 equity operations, 15 mergers and acquisitions and 46 debt issues.

Mr. Marangon acknowledged that the number of share offerings in the market as a whole is likely to be lower this year, but says that Citi wants to continue gaining market share. In addition, the number of M&A deals is expected to rise. “Obviously, there will be some slowdown, but they will continue to happen. We have a very large pipeline of deals. The long-term trend remains very positive,” Mr. Iunes said.

At the same time, Citi also expects to increase twofold, in three years, the $10 billion under management in private banking.

The elections this year pose challenges. However, according to Mr. Marangon, more important than the candidate who leads the polls is the vision about fiscal responsibility. “If we have a campaign that focuses on Brazil’s strategic plan, on the fiscal situation, on investments, we see no reason for it to avoid, postpone any type of investment, under the microeconomic standpoint. The macro is more complex.”

On the other hand, the executives’ view is that the war in Ukraine may increase the relative importance of Latin America in the portfolios of global investors. Mr. Iunes says that, besides commodities, some countries in the region, such as Brazil, have better governance standards.

With this, Citi sees the flow of foreign capital coming into the Brazilian market as lasting. “We have 67% of foreign investor custody, so we have a privileged view of the flows. There was a very strong inflow into bonds and equities, and at the moment we continue to see a strong flow into Brazil. Even long-term direct investment is likely to see a substantial increase this year. We project around $50 billion,” Mr. Marangon said.

Source: Valor International

https://valorinternational.globo.com

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Brazil to join WTO’s aircraft agreement

WTO | Plurilateral agreement on trade in civil aircraft news archive

Brazil will join the World Trade Organization’s agreement on trade in civil aircraft. With this, it will cease to be the last relevant aircraft producer outside this understanding that eliminates import tariffs in the segment.

The decision to join was confirmed by Lucas Ferraz, foreign trade secretary of the Economy Ministry, who is in Geneva in meetings with partner countries. Now the mandate for the negotiation must be approved by the Commerce Strategy Council, in a cabinet meeting headed by President Jair Bolsonaro.

The agreement entered into force in 1980 and has 33 signatory countries. Most WTO agreements are multilateral, meaning that all 164 member countries participate. This understanding is part of plurilateral agreements, signed by a restricted number of countries.

It provides for the elimination of import tariffs levied on civil aircraft and products in the sector, such as aircraft engines, their parts and components, flight simulators, and so on.

Embraer always wanted Brazil’s participation in this agreement, the secretary said. In the aeronautical sector, there is a strong insertion of global value chains, as 90% of the value of an airplane is typically imported content.

Brazilian exports and imports in this sector total $40 billion, Mr. Ferraz said. The import duties involved are virtually zero in Mercosur.

“It is important for Brazil to participate because, besides having access to other markets with zero tariffs on exports, it gives legal security for the opening of its market,” Mr. Ferraz said.

On the other hand, the secretary confirmed that joining the Information Technology Agreement (ITA), which eliminates tariffs on covered products and can reduce prices for consumers, remains on the radar. Yet, this topic involves changes in Mercosur’s Common External Tariff (TEC). “The conditions are not yet given for joining, but it is in our plans,” he said.

Last year, Laos became the first least developed country to join this plurilateral agreement.

At the time, a representative of the European Union (EU), Hiddo Houben, highlighted that Laos made the right choice and used Brazil as an example in the other direction.

He cited “academic evidence that countries that join the ITA agreement increase their market share of Information Technology products.” And added: “Brazil, for example, has not joined the ITA and its share of the world market for IT products has declined since 1994, 1995. So joining the ITA is a good thing in order to become competitive in manufacturing the products that are covered by the agreement.”

Source: Valor International

https://valorinternational.globo.com

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Brazil to increase oil production to help stabilize energy markets

Bento Albuquerque — Foto: Divulgação/MME
Bento Albuquerque — Foto: Divulgação/MME

Brazil is expected to increase oil production this year by around 300,000 barrels a day, which will lead to a 10% increase in national production, Mines and Energy Minister Bento Albuquerque said on Wednesday at the opening of the International Energy Agency (IEA) ministerial meeting in Paris.

According to Mr. Albuquerque, the increase in crude oil production will be Brazil’s contribution to the “stabilization of global energy markets,” directly affected by the effects of the Russian invasion of Ukraine.

“This is the result of regulatory advances, modernization of the Brazilian energy market and consistent investments in the pre-salt layer,” the minister said, citing Brazil’s offshore reserves.

Two weeks ago, Valor reported that the Brazilian government had committed to the United States to expand oil and gas production as a way of helping to maintain regular supply in the world.

At Wednesday’s event, Mr. Albuquerque argued that “the energy transition must go hand in hand with energy security.” He said that Brazil has made a “significant leap” in clean and renewable sources, such as bioenergy, biofuels, solar and wind, in addition to energy efficiency.

The minister took the opportunity to talk about the launch of the Brazilian biomethane program earlier this week. According to him, the effort is in line with the commitment assumed by Brazil at COP-26, for being able to bring more energy security, reduction of CO2 emissions and replacement of fossil fuels.

“The consistency of our policies over time and stable and predictable regulatory frameworks have been crucial for the private sector to make the investment decisions necessary to increase the scale and speed of the energy transition in Brazil,” Mr. Albuquerque said.

The opening panel of the event was led by IEA’s executive director, Fatih Birol.

Source: Valor International

https://valorinternational.globo.com

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Agriculture, construction boost investments

Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor
Carlos Antonio Rocca — Foto: Silvia Zamboni/Valor

Agriculture and construction have driven the growth of investments between 2019 and 2021 in the country. An exclusive study by Fipe’s Center for Capital Market Studies (Cemec-Fipe), linked to the University of São Paulo, found that the two industries accounted for two-thirds of investments in machinery and equipment between 2019 and 2021. During the period, the country faced the first year of the pandemic, the recovery after the height of the crisis and the slowdown of this recovery over the past year.

The concentration helps explain the expansion of investments even in an unfavorable macroeconomic context, said Carlos Antonio Rocca, the coordinator of Cemec-Fipe, who led the study.

“Some key factors for investment decisions are not encouraging. The recovery of the economy has lost steam, the growth expectation for the next three years is the lowest since 2006, and we also have uncertainty. But we investigated who has driven the increase in investments and we found that this came mainly from agriculture, with the good performance of commodities, and from construction, with interest rates still relatively low,” he said.

The study was motivated by the assessment that the growth of investments in the period was “somewhat surprising” since the country has high levels of idle capacity, there is a continued reduction in growth expectations for the coming years and uncertainty remains high, Mr. Rocca said.

Statistics agency IBGE detected investment rates of 15.5% in 2019, 16.6% in 2020 and 19.2% in 2021. The study by Cemec-Fipe excludes 2020 to avoid specific effects of the first year of the pandemic and directly compares the variation between 2019 and 2021, which were more typical years.

To understand the origin of this investment expansion, however, Mr. Rocca takes into account work done by economist Gilberto Borça Jr. showing that the investment rate actually achieved 18.2% in 2021, compared with 16.2% in 2019.

This finding excludes two factors that affected investments in the period. The first is the change in relative prices between the capital goods that make up the gross fixed capital formation (GFCF) and the prices of service goods that make up the GDP, due to the increase in the exchange rate, which affects imported capital goods.

The second is the impact of the value of Petrobras’s rigs. A tax change – the end of Repetro, a special customs regime that eased imports of goods for oil exploration – caused investment to be driven by imports of capital goods recently.

“Even so, it was still a big growth in investments, of two percentage points. And when we look at GFCF data between 2019 and 2021, we see that the highlight is machinery and equipment and construction. From there, we looked at the production of machinery and equipment, and we saw this great weight of those linked to the agricultural sector and construction,” Mr. Rocca said.

Considering IBGE’s index of physical production of capital goods, the segments focused on agriculture grew above 40% in real terms (43.8% in agricultural and 47.8% in agricultural parts) between 2019 and 2021. Capital goods for construction, on the other hand, advanced 40.48%, considering the same base of comparison.

Thus, by the accounts of Cemec-Fipe, the production index of capital goods rose 14.8% between 2019 and 2021. Of this increase, 6.44 percentage points came from the agricultural segment and 0.91 percentage point from agricultural parts, totaling 7.35 percentage points, or almost half (49.7%) of the growth. Capital goods for construction, meanwhile, account for 2.47 percentage points, or 16.7% of the expansion. The weight is much higher than the industrial capital goods segments (only 1.01 percentage point), for instance.

“If you consider the agricultural segment and the agricultural parts segment, virtually 50% refers to machines for the agricultural sector. If you also consider construction, there are two thirds of the investments for these two segments,” Mr. Rocca said.

In addition to evaluating the impact of these segments in the growth of investment, the study also collects investment data from 472 public companies. According to the survey, agribusiness-related companies saw a 52% expansion of the GFCF indicator in the period (considering the evolution of the value of their assets), compared to a much lower rate (24%) for the average of public companies as a whole. The investment measure in this case considers the evolution of the value of assets in the financial statements, both fixed assets (such as real estate and machinery) and intangible assets (such as systems and software, for example), in nominal values.

“Agribusiness-related companies had much stronger growth in this measure of investments than the sample average. This reinforces the data we saw about the substantial growth of agricultural machinery. Public companies have a great weight in the economy, they account for a quarter of the added value, and show a general trend,” Mr. Rocca said.

Source: Valor International

https://valorinternational.globo.com

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Brazilian stock market still shows after-effects of pandemic

The volatility caused by the pandemic gave rise to several small cycles in the capital markets — Foto: Silvia Zamboni/Valor
The volatility caused by the pandemic gave rise to several small cycles in the capital markets — Foto: Silvia Zamboni/Valor

Wednesday’s trading session marked the second anniversary of when Brazil’s benchmark stock index Ibovespa reached its lowest point during the Covid-19 crash. Since then, the global economy and the capital market have gone through several cycles that helped to distorted the prices of several stocks in the Brazilian stock market.

A survey carried out by Valor Data found that, two years after Ibovespa reached its lowest level, of 63,569 points, and its strong recovery – it closed at 117,457 on Wednesday – some companies are still strongly depressed, in some cases with a market capitalization below the one seen on that low point.

This is the case of retailer Magazine Luiza, which on Wednesday had a nominal market cap R$8.6 billion lower than the one seen two years ago. Or developer Eztec, which shrunk by R$2.1 billion in the period. Construction company MRV, toll road operator EcoRodovias and BR Malls have recovered from losses recently and posted a positive balance of R$728 million, R$363 million and R$675 million, respectively.

Since the index almost doubled in score, there are also clearly positive highlights, mostly blue-chip companies. Among banks, Itaú grew R$51 billion, Bradesco advanced R$58.5 billion, Santander gained R$44.8 billion and Banco do Brasil is worth R$36.6 billion more now. Oil giant Petrobras and mining company Vale, which start from a higher base given their size, gained R$279 billion and R$302 billion in market cap in the period.

But despite the snapshot, the Ibovespa could not have been in a less static way in the last two years. The volatility caused by the pandemic gave rise to several small cycles in the capital markets, making stocks gain and lose attractiveness quickly.

Alexandre Sabanai, a manager at Perfin, recalled that in March 2020, while the stock markets crashed, the market spent a few days without a reference. At that point, six circuit breakers were triggered in eight days between March 9 and 18.

“Agents price risks and returns well, but they don’t know how to deal with uncertainty. We didn’t know how lethal the virus was, how long it would take for infections to stabilize, so the start was difficult. When the initial panic passed, investors started to evaluate the sectors that would suffer the most.”

So while part of the assets showed a first sign of recovery, mainly from essential sectors such as supermarkets, pharmacies, sanitation and energy, others had a harder time, such as shopping centers, airlines, highway concessions and street retail.

Phil Soares, head of equity analysis at Órama Investimentos, recalls that the race for technology assets emerged at that point, while there was talk of the “new normal.” In the international market, the big techs emerged as natural winners, while in Brazil, with no companies on the technological front, the beneficiaries were companies that already had or accelerated their digital presence. Via Varejo rose 200% between March and September and the newcomer Locaweb jumped 450% in the period.

The market experienced a more generalized rally in late 2020, reflecting some hope with the beginning of mass vaccination, until the second wave of Covid-19, and a second lockdown, generated again a few more months of volatility in early 2021.

However, with a new reopening of the economy in April and government stimuli taking effect, economists revised activity data upward and companies again delivered great results, taking advantage of the low base of comparison of the previous year amid a buyer appetite, said Fernando Bresciani, an investment analyst at Andbank. On June 7, 2021, the index closed at 130,776 points, reaching 131,190 during the session.

China, which stimulated its economy after the crisis, also stimulated the metallic commodities, making iron ore reach the $220 level. But it was short-lived. Inflationary pressures began to trigger interest rate hikes and, in addition, the country was still dealing with a water crisis and uncertainties linked to the fiscal situation and elections. Thus, the local market suffered in the second half of 2021.

At the beginning of 2022, amid higher oil prices and the recovery of minerals, local assets started to call the attention of international investors. By March 21, R$81 billion had been invested, with a focus on blue-chip companies.

Agents expected the flow to trickle down to assets linked to the local economy, but as the Russia-Ukraine war again affected inflation, there is no longer a consensus. For now, the Ibovespa is on the rise. On Wednesday, the index gained 0.16%, to 117,457 points, its sixth consecutive advance, with local shares testing the thesis that some companies are trading at a discount here.

“We still can’t see strong growth, since there are many uncertainties around interest rates and inflation. But volatility drives these movements,” Mr. Bresciani said.

Source: Valor International

https://valorinternational.globo.com

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