Brazil’s Central Bank speeds up tightening, raising rates by 100bp

Citing an adverse scenario, the Monetary Policy Committee unanimously raised the Selic policy rate to 12.25%

12/12/2024

The Monetary Policy Committee (COPOM) accelerated its tightening pace, raising the benchmark Selic rate from 11.25% to 12.25%. Citing a more adverse and less uncertain scenario, the committee also signaled two additional hikes of 100 basis points each for the upcoming meetings, “contingent on the expected scenario being confirmed.”

With this guidance, the newly configured COPOM in 2025, chaired by Gabriel Galípolo and with seven of its nine seats occupied by appointees of the current government, could raise the Selic rate to 14.25% by March. This level would be the highest since August 2016. Wednesday’s decision was unanimous.

The COPOM said the total magnitude of the tightening cycle will depend on its “firm commitment” to anchoring inflation to the target and “will depend on the evolution of inflation dynamics.” The continuous inflation target from 2025 onwards is 3% per year, with a tolerance band of 150 basis points in either direction.

The committee cited factors influencing the cycle’s magnitude, including the evolution of inflation components most sensitive to economic activity and monetary policy. Additionally, the statement highlighted inflation projections, inflation expectations, economic slack (the output gap), and the balance of risks—factors that could lead inflation to deviate from the Central Bank’s forecasts.

On economic activity, the COPOM noted the ongoing “dynamism” in the labor market. It pointed out that the 0.9% GDP growth in the third quarter indicated a further narrowing of the output gap. A positive output gap, already a factor in previous meetings, suggests that economic activity is above potential, potentially fueling inflation.

The committee also emphasized that there has been additional de-anchoring of inflation expectations and upward revisions to its projections. The COPOM now forecasts the IPCA inflation index at 4.9% in 2024, 4.5% in 2025, and 4% in the second quarter of 2026. Meanwhile, the Central Bank’s Focus survey, which aggregates market expectations, shows a median inflation forecast of 4.84% for this year, 4.59% for 2025, and 4% for 2026. The second quarter of 2026 is currently the relevant horizon for monetary policy.

The combination of de-anchored expectations, stronger-than-expected activity, and a wider output gap requires “an even more contractionary monetary policy,” according to the COPOM. Regarding the balance of risks, the committee noted that risks have materialized, and the scenario is now “less uncertain and more adverse” than in the previous meeting in November. It also highlighted a persistent upward bias in the balance of risks.

The Central Bank assessed that market reactions to the government’s fiscal measures significantly impacted asset prices and expectations, particularly regarding risk premiums, inflation expectations, and the exchange rate. These factors, the committee argued, contribute to “a more adverse inflationary dynamic.”

In late November, the government announced fiscal adjustment measures expected to have a R$70 billion impact over the next two years. After the measures were disclosed, the exchange rate per U.S. dollar breached the R$6 level. On Monday, however, the U.S. currency closed at R$5.9682.

LCA Consultores noted that the tone of the COPOM statement was the most conservative since 2016, according to an index developed by the firm. “It was the most ‘hawkish’ statement since communications reached a minimum number of sentences for analysis,” said economist Bruno Imaizumi from LCA. “This is consistent with the surprising 300 basis points already in the pipeline. It aims to fully dispel the doubts that the COPOM itself created in May.”

Mr. Imaizumi referred to the May decision, when the committee was split. Four members appointed by the current government voted for a sharper rate cut, while the other five, already on the Central Bank’s board, favored a smaller 25-basis-point cut.

When asked about the COPOM’s decision, Finance Minister Fernando Haddad said it was surprising on one hand but “had already been priced in” on the other. He added that he would review the statement and consult with others after the quiet period.

(Victor Rezende contributed reporting.)

*By Gabriel Sinohara e Alex Ribeiro

Source: Valor International

https://valorinternational.globo.com/
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Brazil’s financial conditions worsen after government package

November saw an accelerated decline, with impacts visible in key indicators, currency shifts, and long-term interest rates, heightening economic concerns

12/10/2024

The government’s fiscal adjustment package and the proposed income tax exemption for individuals earning up to R$5,000 per month have worsened Brazil’s financial conditions, a composite measure of variables such as interest rates and exchange rates. This deterioration is expected to affect economic activity negatively. Economists consulted by Valor noted that the outlook for these conditions and their impact on the economy depends primarily on fiscal expectations for the federal government.

Financial condition indices aim to measure the effect of variables such as exchange rates, interest rates, and risk indicators on economic activity, often with a lag. Long-term interest rates, for instance, influence credit costs but can also serve as a forward-looking indicator of economic confidence, affecting investment decisions. Similarly, exchange rate fluctuations can impact corporate foreign debt, as seen with airline companies.

November, the month when the adjustment measures and tax exemptions were announced, saw a marked worsening in financial conditions. Compared to October, Brazil’s Ibovespa stock index fell by 3.11%, while the exchange rate per U.S. dollar rose 3.79%, surpassing R$6 for the first time. Last week, the FX rate increased again, this time by 1.18%, while the Ibovespa showed a slight rise of 0.22%.

According to the Brazilian Institute of Economics at Getulio Vargas Foundation (FGV Ibre), financial conditions have been in contractionary territory since April, driven by uncertainties about the sustainability of federal accounts. November saw a further deterioration, with the indicator dropping from 0.11 in March to -0.62 in early December. Values below zero indicate contractionary conditions.

“The pricing dynamics in Brazil are almost entirely dependent on fiscal policy, which has disappointed since the beginning of the year,” said Caio Dianin, a researcher in applied economics at FGV Ibre. The institute’s financial conditions index replicates a similar measure calculated by Brazil’s Central Bank.

“We cannot disregard the worsening external scenario, but it’s not the key driver,” Mr. Dianin added. FGV Ibre projects GDP growth of 2% for 2025, below the 3.1% annualized increase reported up to September by the IBGE, the national statistics agency.

The adjustment measures introduced in November are expected to reduce primary spending growth, excluding federal public debt expenses, by R$70 billion over the next two years. Among the proposals is a cap limiting the real increase in the minimum wage to 2.5% per year. The package has drawn criticism from fiscal experts and market participants, who argue that the measures do little to curb the pace of public debt expansion. The gross general government debt (DBGG), the key indicator of federal indebtedness, reached 78.6% of GDP in October, up roughly seven percentage points since December 2022, just before the current administration took office.

The proposed income tax exemption for individuals earning up to R$5,000 per month also faced criticism. Concerns included the lack of necessary fiscal compensation, the measure’s regressive impact favoring the middle class over poorer populations, and its potential to stimulate economic activity at a time when the economy is already operating beyond its potential. Both the fiscal package and tax changes require congressional approval.

According to MCM Consultores, after two years of expansionary conditions, financial conditions shifted to neutral in September this year and have since turned contractionary. Between July last year and November this year, the index fell from 1.2 to -0.3.

Fábio Ramos, an economist at UBS BB, said, “Without a doubt, financial conditions have worsened” since the announcement of the adjustment measures and the tax exemption. He added that they are likely to become “even more contractionary” in the future due to the Central Bank’s expected hike in the Selic policy rate. On Monday (9), the Central Bank’s Focus survey revealed that market projections for the overnight interest rate at the end of 2025 had risen to 13.5% per year from 12.63%. Currently, the Selic rate stands at 11.25% per year. Today, the Monetary Policy Committee (COPOM) begins its final meeting of the year.

With higher interest rate expectations, UBS BB officially projects GDP growth of 1.25% next year, potentially reaching 1.5%—still below 2024 levels.

At an event organized by XP Investimentos early last week, the Central Bank’s monetary policy director and incoming chair, Gabriel Galípolo, also highlighted the new financial conditions. Mr. Galípolo said that current levels of exchange rates, interest rates, and especially long-term rates are starting “to show some impact on financial conditions.” He said this is already sparking “some discussions about how [the shift] will affect investment and other decisions” in the economy.

Three weeks before the fiscal adjustment measures were unveiled, the COPOM noted in the minutes of its most recent meeting that “a reduction in expenditure growth, particularly in a more structural manner, could even boost economic growth in the medium term through its impact on financial conditions, risk premiums, and better resource allocation.”

  • By Estevão Taiar – Brasília
  • Source: Valor International
  • https://valorinternational.globo.com/
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Novo Nordisk to expand enzyme production in Brazil

Expansion aims to boost production of enzymes essential for manufacturing Ozempic and Wegovy, medications used to treat diabetes and obesity

12/10/2024

Novo Nordisk’s plant in Montes Claros: company’s investment in Brazil over two years will reach R$1.3bn — Foto: Divulgação
Novo Nordisk’s plant in Montes Claros: company’s investment in Brazil over two years will reach R$1.3bn — Photo: Divulgação

Danish pharmaceutical company Novo Nordisk announced on Monday (9) an additional investment of R$500 million in Brazil. The funds will be used to construct a new annex at the company’s plant in Montes Claros, Minas Gerais. The expansion aims to boost the production of enzymes essential for manufacturing Ozempic and Wegovy, medications used to treat diabetes and obesity.

With this investment, the total amount to be invested by the company in Brazil over the next two years will reach R$1.3 billion.

In October, Novo Nordisk disclosed an investment of R$864.2 million for insulin production at the same Montes Claros facility. The plant produces approximately 12% of global insulin consumption and is the sole producer of enzymes for the Danish pharmaceutical company.

  • While the company did not disclose current production numbers, it expects to triple enzyme production. The investment is funded with the company’s own capital.

Construction is slated to begin in January 2025, with sanitary adjustments expected to start a year later, in January 2026. Novo Nordisk anticipates the new annex will be operational by January 2027.

Reinaldo Costa, corporate vice president of the Novo Nordisk plant, stated that the satisfactory performance indicators of the Montes Claros facility justify the investments in Brazil.

“This investment is crucial as it will allow us to triple our production capacity for enzymes enteropeptidase and ALP. All semaglutide production requires enzymes supplied by the country, and the plant is the sole enzyme supplier to Novo,” he stated.

The chemical input removes disposable parts from semaglutide, the active ingredient in Ozempic, thereby increasing the efficiency of the active pharmaceutical ingredient (API).

In 2026, the patent for Ozempic is set to expire. The company claims it is unaware of how other pharmaceutical firms will produce potential generic medications, and for this reason, there are no expectations of selling the enzymes to competitors.

“The expertise we already have here in enzyme production enabled us to attract this investment, with a very good capacity that meets Novo’s market needs. Efficiency, high productivity, and competitive costs are why this investment is being made in Brazil. We are part of a global production strategy, and the Montes Claros site is highly strategic,” Mr. Costa said.

The Montes Claros complex, inaugurated in 2007, employs 1,800 workers and generates approximately 30,000 indirect jobs throughout the production chain, according to the company. The construction of the annex is expected to create 40 direct jobs and 400 indirect jobs.

*By Matheus Oliveira

Source: Valor International

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Lula stable, communicating, with no brain impairment, doctors say

President underwent emergency surgery Monday night; he is in the ICU at Hospital Sírio-Libanês in São Paulo

12/10/2024

President Lula is stable, speaking normally, and has not suffered any brain impairment after an emergency surgery on Monday night, said Roberto Kalil Filho, the head of the medical team that operated on him. This was announced during a press conference on Tuesday morning (10). “Lula will return to normal life,” Mr. Kalil said. “He [Lula] did not suffer brain injury, there is no cerebral compromise. The risk of injury is zero.”

Mr. Kalil mentioned that the president is expected to remain under observation in the ICU at Hospital Sírio-Libanês in São Paulo for 48 hours and will stay hospitalized until next Monday (16). He is accompanied by First Lady Rosângela Silva at the hospital.

The doctor also noted that President Lula will not be allowed to receive visits from politicians for the time being. He is expected to return to Brasília soon and will have no restrictions on air travel.

President Lula was urgently transferred from Brasília to São Paulo after experiencing headaches. Late on Monday night (9), he underwent surgery to drain a hematoma, a condition resulting from a fall in October at the Palácio da Alvorada, where he hit his head.

He had been experiencing headaches on Monday afternoon and left a meeting with Lower House Speaker Artur Lira and Senate President Rodrigo Pacheco early.

Mr. Kalil recounted that President Lula was conscious when he was picked up at the airport. The president’s doctor, Ana Helena Germoglio, who also took part in the press conference, said that throughout the journey from Brasília to São Paulo, “the president was lucid, oriented, and communicating.”

According to Mr. Kalil, the president experienced headaches, malaise, and was advised to undergo routine exams, which had already been scheduled. A CT scan revealed new bleeding. The hematoma, according to the doctor, measured three centimeters. President Lula then underwent a procedure to drain it.

In addition to Roberto Kalil Filho, the press conference included doctors Ana Helena Germoglio, Rogério Tuma, Marcos Stavale, and Mauro Suzuki.

Mr. Tuma explained during the conference that the hematoma was located between the skull and the president’s brain. “The important thing is that Lula did not have a hematoma in the brain. It was external,” he stated. “The brain is free from any compression.”

Also during the conference, Mr. Stavale stated that “the surgery was not very long.” “The brain was decompressed and remains neurologically intact,” he affirmed, reassuring that President Lula will not suffer any lasting effects.

* By Cristiane Agostine e Fabio Murakawa

Source: Valor International

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Yara begins ammonia production with biomethane

According to the company, shift reduces the carbon footprint by 75%

12/09/2024

Norwegian agricultural giant Yara has started using biomethane as a substitute for natural gas in its production of sustainable ammonia. According to the company, this shift reduces the carbon footprint by 75% compared to traditional ammonia derived from fossil fuels. Yara aims to produce 6,000 to 7,000 tonnes of sustainable ammonia annually, generating approximately 15,000 tonnes of fertilizer per year.

Ammonia, a key component in nitrogen-based fertilizers, is also used in industrial solutions. The biomethane utilized in the process is derived from ethanol and sugar production waste, such as vinasse and filter cake. This renewable feedstock is produced by Raízen in Piracicaba, São Paulo, and supplied to Yara’s Cubatão Industrial Complex.

Daniel Hubner, Yara’s vice president of industrial solutions, emphasized the renewable nature of filter cake as raw material and noted Brazil’s significant potential to leverage this resource. He explained that the conversion of the plant to biomethane required minimal investment in infrastructure or internal processes. “The main change was replacing a fossil, finite molecule with a renewable, infinite one,” Mr. Hubner said, without disclosing the investment amount.

Despite this progress, low-carbon ammonia represents only a small fraction of the company’s overall production. “To decarbonize the entire plant, we would need ten more projects like this one,” Mr. Hubner said. While Raízen’s biomethane facility can process 60,000 cubic meters of methane daily, Yara’s full plant requires 700,000 cubic meters per day.

Mr. Hubner also highlighted the challenges posed by fluctuating natural gas prices in Brazil, which significantly impact ammonia production costs. “The cost of natural gas is fundamental for ammonia production and much of the chemical industry,” he stated, urging the government to implement more effective energy transition policies to enhance the sector’s competitiveness. “Natural gas prices in Brazil are unsustainable. While we talk about energy transition, it’s vital for the company to remain viable. Government plans must move from paper to action to make this competitiveness a reality for consumers.”

Market and partnerships

Guilherme Schmitz, Yara’s vice president of marketing and agronomy, stressed the importance of building market demand before expanding low-carbon ammonia production. “We need to create a market of consumers willing to pay for this,” he said, pointing to partnerships with agricultural and food companies as critical steps.

Yara expects a 40% reduction in the carbon footprint of coffee production within its supply chain starting next harvest, thanks to a partnership with the Cooxupé cooperative. The company is also negotiating additional partnerships with companies and cooperatives in coffee, citrus, and other crops to further its sustainability initiatives.

*By Gabriella Weiss, Globo Rural — Cubatão

Source: Valor International

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New players intensify competition in Brazil’s fuel distribution sector

Petronas enters the market and Texaco makes a return, while Larco, Ale, and SIM vie for top rankings

12/09/2024

The entry of new brands into Brazil’s fuel distribution market, such as Petronas and Texaco—making a comeback after 16 years—along with the accelerated growth of medium-sized distributors, has shifted the balance of power in the sector in 2024.

While BR (Vibra), Shell (Raízen), and Ipiranga (Ultrapar) collectively hold over 50% of the market share, maintaining their positions in the rankings, the battle for the fourth spot has become more intense. Bahia’s Larco has overtaken Minas Gerais-based Ale (Glencore) in fuel volume sales after months of fierce competition, as Rio Grande do Sul-based SIM (part of the Argenta group) has closed in boosted by the acquisition of TotalEnergies’s distribution operations in Brazil.

As of October, and according to data from the National Petroleum Agency (ANP), Vibra Energia, formerly known as BR Distribuidora, leads with a market share of 21.7% in gasoline, diesel, and ethanol sales. Following are Shell/Raízen, with 18.6%, and Ipiranga, which signed a licensing agreement with Chevron to use the Texaco brand as well, with 17.2%.

In fourth place, significantly behind the top three, is Larco, with a 2.5% market share as of October, taking the spot that Ale Combustíveis held in recent years. The Glencore distributor, a giant in international commodities trading, accounted for 2.1% of the market during the same period, threatened by SIM, which licenses the Petronas brand in the country.

Growth strategies vary and target both individual consumers and large corporations, as well as TRR operations—Transporter-Reseller-Retailer, companies authorized by the ANP to purchase fuel in bulk and sell it retail.

Larco is advancing more rapidly in selling to unbranded gas stations (those without brand loyalty agreements), while SIM is investing in expanding its branded network and making acquisitions. Meanwhile, Ale aims to convert more unbranded stations to its brand and grow in the large consumer segment.

“Naturally, we will be the fourth largest. But our focus is not on volume; it is to offer a new proposal for branded stations, with an international brand, focusing on quality and good practices,” said Neco Argenta, CEO of the group that owns distributors SIM, Charrua, Querodiesel, and more recently, TotalEnergies.

Within the group’s ecosystem, there are about 1,000 branded stations, including Shell, Ipiranga, and Vibra, making it the largest network of fuel stations in the country. With the acquisition of TotalEnergies, SIM is accelerating its expansion into other regions, planning to convert the 240 stations acquired into the Petronas brand over the next two years.

Mr. Argenta states that in five years, the goal is to have 1,000 Petronas stations in the country, through conversions from TotalEnergies and new partner contracts, with an estimated investment of R$50 million. The first three Petronas stations in the country are in São Paulo, and the Malaysian group recently approved plans to speed up the network’s expansion.

With projected revenues of R$18.5 billion for the group in 2024, the fuel volume is expected to reach 3.5 billion liters.

Founded in 2000 by businessman Paulo Roberto Evangelista, who was already active in the transportation sector, Larco accelerated its growth from 2016 onwards, with the inauguration of its first fuel storage base in Candeias, Bahia. Today, it operates in 16 states and leads sales to unbranded stations, boasting over 4,000 registered clients.

CEO Alberto Costa Neto said Larco’s strategy is to grow both in distribution to unbranded stations and expand its network, aiming to end the year with 250 branded stations. “Larco grows by expanding its network, diversifying the market, and in B2B [business-to-business], especially where agribusiness is stronger,” he said.

In October, Larco set a sales record, reaching 357 million liters, but the goal is to reach 400 million liters per month by 2024. With revenues of R$11 billion in 2023 and 2.3 billion liters sold, the company projects R$17.5 billion in revenues this year, with 3.5 billion liters. “We don’t typically grow through acquisitions. Our focus is organic expansion, reinvesting in building new bases and ground logistics,” the executive said.

Ale Combustíveis, which has a larger station network than Larco, aims for R$15 billion in revenues in 2024. The strategy focuses on two pillars: converting stations to its brand and expanding the corporate consumer base through exclusive contracts.

The company plans to gain 360 new clients throughout the year, having already secured 165 in the first half, including 77 new Ale-branded stations and 88 major corporate clients (B2B). Additionally, the company anticipates a 200 million-liter increase in distribution volume, reaching 3.2 billion liters in 2024.

Last week, Rafael Grisolia was announced as the new CEO. He will need to seek greater efficiency in storage and distribution and better exploit certain logistical axes. In a segment with tight margins, below 4%, capturing new clients also involves retail operations and services, such as convenience stores.

“We have a strong brand in states like Minas Gerais, Rio Grande do Norte, Santa Catarina, Espírito Santo, and Maranhão, and our dealers deliver this brand value with a range of premium products, additives, and convenience stores […]. The B2B market is another opportunity to leverage the Ale brand’s strength. This combination of strategies will be essential to boost both volume and business profitability,” says Mr. Grisolia.

The sector has also seen new business models, such as the return of the Texaco brand through a licensing agreement with Ipiranga, an Ultra group distributor, with a portfolio focusing on fuel technology and appealing to car enthusiasts.

The first Texaco station operates in Palhoça, Santa Catarina, and plans to expand to Rio de Janeiro and São Paulo markets. Bárbara Miranda, vice president of marketing and business development at Ipiranga, explains that the return is linked to studies indicating the brand’s strong presence in consumer memory.

In this business model, the authorized entrepreneur sets up the point of sale, while marketing and expansion strategies are conducted jointly. The goal is for Texaco and Ipiranga to occupy distinct market niches to prevent brand market cannibalization.

“In the Texaco model, there is regional exclusivity, and the regional station investment is made by the authorized representative. From there, Ipiranga and the authorized representative, Rede Galo, work together on the network’s development plans,” she states. “Ipiranga will have two brands to cater to two micro-market profiles, which has more to do with which consumer segment is valued than social class,” she adds.

With nationwide reach and serving multiple audiences, Ipiranga’s outlook remains optimistic, as Brazil’s fuel business continues to grow, with an expected increase of over 5% in 2024. The Ultrapar fuel distributor aims to capture around R$400 million in logistics and distribution efficiencies over the next three years, including faster loading, fewer accidents, improved fleet productivity, and reduction of truck detention time.

Raízen, which licenses the Shell brand in Brazil, remains focused on customer service and expanding its branded network, ensuring “market share” and brand image. The company has been increasing both the number and duration of its contracts. Raízen declined to comment on the matter.

*By Stella Fontes  e Robson Rodrigues

Source: Valor International

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Oil drives Brazil’s exports, impacting trade balance in November

Trade surplus hits $7bn, down 20% year-on-year, as imports outpace exports

12/06/2024

Oil has set a new record in export value for the year through November, becoming Brazil’s top exported product for the first time since the country began tracking trade balance data in 1997. The export of the commodity totaled $42.76 billion over the first 11 months of 2024, marking a 9.5% increase compared to the same period last year.

Brazil’s overall trade balance recorded a surplus of $7.03 billion in November, a result 20% lower than the same month last year. Exports reached $28.02 billion, a growth of 0.5%, while imports hit $20.99 billion, an increase of 9.9%. For the year to date, the surplus stood at $69.86 billion, reflecting a 22% drop compared to the same period in 2023. Exports totaled $312.27 billion, a rise of 0.4%, whereas imports amounted to $242.41 billion, up 9.5%. The Secretariat of Foreign Trade (SECEX) projects a trade surplus of $70.4 billion for the year.

Herlon Brandão, director of statistics and foreign trade studies at the Ministry of Development, Industry, Trade and Services (MDIC), stated on Thursday (5) that the export of goods in November and year-to-date set records for both periods. He emphasized that the increase was driven by volume rather than price hikes.

SECEX data indicates that the volume shipped from January to November rose by 4.2%, with a 3.6% decrease in average prices compared to the same period in 2023. In terms of imports, the volume grew more rapidly, but the decline in average prices lessened the impact on the trade balance. Over the same 11-month span, the volume of imports increased by 18.1%, while average prices fell by 7.4%.

Soybeans, which led Brazilian exports in 2023, fell to second place. The export of this grain totaled $42.08 billion through November, a 17.9% decline from the same months in 2023. Iron ore ranked third, totaling $27.64 billion with a 2% increase over the same timeframe, according to data released on Thursday by SECEX/MDIC.

Oil is expected to end 2024 as Brazil’s leading export, as the shipment of soybeans is winding down due to seasonal harvest factors. According to SECEX data, the daily average export of soybeans in November was $58.56 million, while oil averaged $238.22 million.

This performance increased oil’s share of Brazil’s total exports from 12.6% in 2023 to 13.7% in 2024, while soybeans’ share dropped from 16.5% to 13.5%, from January to November. The two commodities exhibited varying trends in export volumes and sales prices. Oil experienced a 4.3% drop in average prices in 2024, but the 14.4% increase in export volume offset the price decline. Soybeans, on the other hand, saw a larger decrease in average price, falling 16.9%, and the volume shipped also decreased by 1.3%.

The lower volume of soybean exports is attributed to a reduced harvest. According to the latest data from the National Supply Company (CONAB), there was a 7.23 million-tonne decrease in the total soybean harvest for the 2023/2024 season compared to the previous period. Brazilian oil production also hit a record in 2023. As of October 2024, production is 0.3% higher than during the same period last year, according to the latest data from the National Petroleum Agency (ANP).

José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB), suggests that soybeans may reclaim their top export status in 2025, as initial sector estimates for next year’s harvest indicate the potential for a new record in production. However, he cautions that projections can change and there are concerns about possible climate impacts.

Welber Barral, partner at BMJ and former secretary of foreign trade, notes that the decline in prices is heavily influenced by China, which, along with Hong Kong and Macau, accounted for 24.5% of Brazil’s imports from January to November. Mr. Barral explains that China has been lowering prices to offload products in various markets, including Brazil, amid an oversupply and facing protectionist measures.

Mr. Barral adds that the depreciation of the Brazilian real against the dollar in recent times is unlikely to proportionally reduce Brazilian imports. This is due, he points out, to the necessity of importing certain industrial inputs regardless of the exchange rate. “Moreover, the depreciated exchange rate sometimes leads to price negotiations between importers and suppliers.”

Mr. Barral highlights other factors that could affect prices starting in 2025, including the election of Donald Trump as president of the United States. Protectionist measures from the U.S. government could slow down global trade, potentially contributing to a reduction in international average prices. Depending on the sectors impacted by potential protectionist measures, there could also be shifts in export flows, altering global trade dynamics.

  • By Estevão Taiar  e Marta Watanabe
  • Source: Valor Inaternational
  • https://valorinternational.globo.com/
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Chinese automaker GAC enters Brazil partnering with universities

China’s fifth-largest automaker plans R$5.8bn investment to start production in Brazil

12/06/2024

Automakers setting up operations in Brazil typically begin by establishing dealerships, factory infrastructure, and staff training. GAC, the fifth-largest carmaker in China, is taking a different approach. As it enters the Brazilian market, its first move was to ink partnerships with local universities to research and develop ethanol-powered vehicles.

The new Chinese player aiming to invest in Brazil is leveraging its strategy to align with Brazil’s strengths in the global decarbonization of transportation—namely, the use of biofuels. It has chosen Brazilian researchers to assist in developing vehicles powered by this type of renewable energy.

GAC confirmed during an event in São Paulo on Thursday (5) an investment of R$5.8 billion in Brazil over the next five years. Out of this total, R$120 million was set aside for agreements signed the same day with the Federal University of Santa Catarina, the Federal University of Santa Maria, and the State University of Campinas.The universities will lead education and research projects in the fields of vehicles, engines, and auto parts. According to the company, these partnerships will include internships for students and professionals in both China and Brazil, as well as joint training programs. The cooperation agreements are set to last five years, with the possibility of renewal.

The presidents of the three universities attended the event, where they signed memorandums of the technical cooperation agreements alongside Wei Haigang, CEO of GAC International, and Alex Zhou, who will serve as GAC’s CEO in Brazil.

In a prior speech, Mr. Haigang stated that the company’s goal, established in 1997 but with origins dating back to a manufacturer from 1955, is to “revolutionize the Brazilian automotive industry.” “We will not only produce automobiles but also help define the future direction of the Brazilian industry,” he emphasized.

Mr. Haigang’s role gains greater significance through the Brazilian operations. Outside of China, GAC has only small operations in Malaysia and Thailand. With production in Brazil, the company plans to export to the Latin American region, he said.

Mr. Zhou was selected to lead the Brazilian operations due to his experience in the Americas, having previously worked in the United States.

The executives have not revealed where the brand’s vehicles might be produced. They did not confirm any connection between the partnerships with the universities based in the South region and a potential intention to establish a factory in the same region.

Nor did they confirm the idea of possibly acquiring plants from Honda or Toyota—both Japanese companies are GAC’s partners in China, where their vehicles are produced by GAC. Toyota is in the process of downsizing a plant in Indaiatuba to focus its production in Sorocaba—both cities in the São Paulo state. Honda has also ceased car production in Sumaré and relocated operations to Itirapina, in São Paulo.

According to Mr. Haigang, the company is still evaluating the best location for production, considering the possibility of acquiring an existing factory. The plan is to begin production in 2025.

On the other hand, the first models to be marketed will be imported in early 2025 and have already been defined. The compact electric Aion and a line of sport utility vehicles are included in the company’s program.

Mr. Haigang said the plan is to have 30 dealerships in the first phase and quickly expand to 50. According to him, the aim is to produce both electric and ethanol-powered hybrid vehicles as well as combustion-engine vehicles. “We will research what consumers want,” he said.

The intentions for strong plans in Brazil are evident in the choice of local executives. One of the first hires, for the marketing department, was Marcello Braga, who brings extensive experience from the Brazilian group CAOA.

Guangzhou-based GAC is listed on the Hong Kong and Shanghai stock exchanges. In 2023, it produced 2.53 million vehicles in China alone, exceeding the entire Brazilian market.

The interest in Brazilian research is part of GAC’s core. In China, the automaker has one of the most comprehensive research and development centers, which the company claims has consumed an investment equivalent to $25 billion. The center employs over 5,000 people.

In November, GAC and Huawei announced the creation of a new brand of smart energy vehicles.

“The partnerships with Brazilian universities will strengthen our international research and development network,” Mr. Haigang highlighted. According to the executive, Brazil needs to increase its competitiveness. “Brazil is an important country, it has a large market and uses ethanol,” Mr. Haigang said. “We want to set a new standard for the industry,” he added.

On Wednesday (4), GAC marked its arrival in Brazil by setting up its office in São Paulo. If its plans succeed, the brand could become another player in the strong wave of new Chinese competition.

*By Marli Olmos

Source: Valor International

https://valorinternational.globo.com/
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Vale CEO studies Bamin project in Bahia

At Vale Day, company emphasizes iron ore production flexibility amid challenging scenario

12/06/2024

Vale CEO Gustavo Pimenta said the company is studying the Bahia Mineração (Bamin) project but no investment decision has been made. He commented on the topic on Tuesday (3), during Vale Day, a company meeting with investors, at the New York Stock Exchange. It was the first time the mining company spoke about considering the project.

“Bamin is one of many projects we evaluate, but there’s no approval yet. It’s simply due diligence that our team must conduct,” Mr. Pimenta told journalists in an interview following the event.

Bamin is a mining company operating the Pedra de Ferro mine in Caetité, Bahia, owned by Kazakhstan’s Eurasian Resources Group. The project also includes a segment of the West-East Railway (Fiol) and a port terminal in Ilhéus (Bahia) for iron ore shipment. Behind the scenes, there are rumors that the federal government is interested in Vale acquiring the asset, which is expected to require around R$30 billion in investments. This information was reported by columnist Lauro Jardim of “O Globo.”

During Tuesday’s (3) presentation at Vale Day, Mr. Pimenta emphasized that the company’s projects must align with its Vision 2030 framework: a superior product portfolio, customer proximity, and a results-oriented focus.

This vision is intended to help the company navigate a more challenging global landscape in the iron ore market in the coming years. Executives highlighted uncertainties ahead, such as the anticipated slowdown of China’s economy, potential increased protectionism in the U.S. steel market, and possibly weaker demand for iron ore.

Despite these challenges, the tone of the presentations suggested that Vale has enough flexibility to deliver strong results in iron ore over the coming years, based on the three pillars of its Vision 2030.

Mr. Pimenta, who took on the CEO role in October and attended his first Vale Day as the head of the company—previously serving as the CFO—stressed that the company considers $50 per tonne as the breakeven price for iron ore, the level at which it can sell without incurring losses. The commodity currently hovers around $110 per tonne, with market speculation of a potential drop to $90 per tonne next year.

To prepare for the anticipated market conditions in the coming years, Vale is banking on the strength of its production, product quality, and cost structure. On Tuesday (3), the company updated its iron ore production forecast, projecting about 328 million tonnes by the end of 2024, increasing to between 325 million and 335 million tonnes next year; between 340 million and 360 million tonnes in 2026; and stabilizing around 360 million tonnes by 2030.

By the end of this period, the production of agglomerates, which are higher-quality inputs aiding steel clients in decarbonization, is expected to reach between 60 million and 70 million tonnes. By 2030, the company’s average portfolio is projected to have an iron content of 63% to 64%, considered high by industry standards.

Among the projects expected to significantly increase the company’s capacity is Capanema in Minas Gerais, adding 15 million tonnes to production with tests commencing earlier than planned. Vargem Grande 1, also in Minas Gerais, is set to add another 15 million tonnes, and the S11D+20 project in Pará is anticipated to contribute an additional 20 million tonnes of iron ore with 65% iron content.

In the base metals sector, copper was a highlight at Vale Day, with current production of around 350,000 tonnes annually. The start-up of the Bacaba and Alemão projects by 2030 is expected to ensure production between 420,000 and 500,000 tonnes, with projections of approximately 700,000 tonnes between 2030 and 2035.

*By Francisco Góes, Kariny Leal e Rafael Rosas

Source: Valor International

https://valorinternational.globo.com/
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