Brazil’s real weakens amid concerns over economic stimulus measures

Investors react to policy uncertainty and fiscal risks as exchange rate per U.S. dollar rises to R$5.80 and interest rates climb

02/27/2025

Domestic market stability, which had marked 2025 so far, was shaken by a wave of news from Brasília. Uncertainty over a cabinet reshuffle, strong labor market data, and indications that the government is gearing up to counter an economic slowdown pressured Brazil’s real, while the benchmark Ibovespa stock index fell and interest rates surged across the yield curve.

By the end of the trading day, the exchange rate per U.S. dollar rose 0.83%, closing at R$5.80 in the spot market. Near the close, the Brazilian real showed the worst performance among the 33 most traded currencies monitored by Valor. Meanwhile, the Ibovespa dropped 0.96%, ending at 124,769 points.

The session highlighted growing investor pessimism regarding the government’s economic policies. The market interpreted strong labor market data from CAGED as evidence of a resilient economy, even as the Central Bank works to cool activity and ease inflationary pressures. This task is becoming more challenging amid a wave of stimulus measures aimed at boosting consumption, including relaxed access to FGTS workers’ severance fund, increased payroll-deductible credit, and the proposed reinstatement of Income Tax exemptions planned for 2025.

If approved, these measures could undermine the effectiveness of monetary policy, potentially requiring the Central Bank to maintain higher interest rates to meet inflation targets. In this context, interest rate futures also faced significant negative performance, closing the day sharply higher.

The yield on the January 2027 Interbank Deposit (DI) contract jumped from 14.47% to 14.79%, while the January 2029 DI increased from 14.40% to 14.81%.

Political volatility

Luiz Eduardo Portella, partner and manager at Novus Capital, noted that renewed political activity in Brasília has contributed to increased market volatility, a trend that became more evident at the start of the week. He added that the robust labor market data suggests a slow economic slowdown and that the government’s recently announced measures are raising red flags for the markets.

In this context, Mr. Portella said Novus Capital is maintaining long positions in longer-term interest rate futures, given the view that the market is currently underpricing fiscal risks. “The market dreamed about the 2026 election [and a potential change in power], but that is still far off. We will see volatility until then,” he said.

Marcos Weigt, treasury director at Travelex Bank, noted that local conditions weighed on trading as the government appears to lack a clear strategic plan, instead pursuing piecemeal spending measures that stimulate the economy. “I don’t think the government will implement a large, one-off spending initiative. They are likely to adopt gradual stimulus measures, such as releasing FGTS funds and reinstating Income Tax exemptions. This raises concerns,” he said.

Regarding the Income Tax exemption proposal, Mr. Weigt said, “I believe the bill will pass smoothly in Congress, but the compensatory measures won’t. There will be a lot of debate, a lot of ‘let’s see,’ and pressure from interest groups. That’s the issue because, in the end, nothing will be fully offset, worsening the fiscal outlook even further.”

The real’s depreciation also received a boost from rumors that President Lula was advised to move Finance Minister Fernando Haddad to the Chief of Staff Office. On this, Mr. Weigt noted, “There could be political reasons to remove Haddad, but from a market perspective, his removal would worsen asset prices significantly. All the names currently being considered to replace him would be poorly received by the market.”

Corporate earnings

In the stock market, corporate earnings reports also influenced share prices. Shares of WEG, a Brazilian industrial equipment manufacturer, fell sharply by 8.68%, while Ambev, the largest brewer in Latin America, surprised investors with strong earnings, leading to a 5.5% rise in its stock.

Augusto Lange, partner and equity manager at Neo Investimentos, noted that the sharp volatility in some stocks following earnings reports has been striking. He explained that one reason for this market behavior is the high cost of holding stocks amid expectations of a 15% interest rate. “If the cost of holding is high, bad news hits harder because investors are less willing to hold on for long,” he said.

Mr. Lange observed that while earnings results have generally met expectations, forward guidance has disappointed investors by confirming an economic slowdown and growing challenges for companies in increasing revenue. “These factors have impacted post-earnings performance more than the numbers themselves,” he noted.

Mr. Lange, who co-manages Neo Investimentos’s multimarket fund, revealed that he had bought local stocks in December but decided to close his directional equity positions after the sharp rally in January, citing reduced return potential.

International markets also faced headwinds. U.S. President Donald Trump renewed threats to impose 25% tariffs on products from the Eurozone. However, the impact on financial markets was limited. On Wall Street, the Dow Jones fell 0.43%, the S&P 500 dipped 0.01%, and the Nasdaq edged up 0.26%. The yield on the 10-year U.S. Treasury note declined from 4.30% to 4.26%.

*By Gabriel Rocca, Bruna Furlani, Arthur Cagliari e Gabriel Caldeira — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Analysis: Exchange rate caught between external factors and fiscal risks

Brazilian currency started weakening against the dollar again, following wave of appreciation that took it to R$5.70 from R$6.18 in late 2024

02/25/2025

The dollar’s exchange rate to the real had seen a significant drop at the start of this year, averaging R$5.70 last week from R$6.18 at the end of 2024. Now it’s back up at R$5.80. What exactly weakened the greenback and why is it rising again?

The Central Bank’s analysis indicates the dollar’s exchange rate has been reacting mainly domestic fiscal news, American economic policy developments, and interest rate spreads, according to the minutes from the latest meeting of its Monetary Policy Committee (Copom).

It appears that the real’s straightening against the real until last week was linked to more favorable external conditions. The weakening yesterday and today coincides with news suggesting that the Lula administration may expand fiscal and credit policies to prevent a sharper economic downturn.

Estimates from economists reveal conflicting explanations for the dollar’s decline until last week. Bradesco released a study attributing the weakening dollar to a softening of risks connected to domestic factors in Brazil.

Meanwhile, economist Livio Ribeiro, a partner with consultancy BRCG and researcher at the Brazilian Institute of Economics at Fundação Getulio Vargas (FGV Ibre), ran his exchange model at the request of Valor and concluded that the dollar weakened against the real solely due to external factors.

The Central Bank believes the primary force behind the real’s appreciation originated from abroad. Monetary Policy Director Nilton David, himself a currency expert, stated at a Bradesco event on February 21 that understanding the exchange rate’s dynamics requires examining what is affecting the real, not just the dollar.

“In December, we witnessed a high level of uncertainty emerging from all sides, which caused significant currency fluctuations,” Mr. David said. “In fact, the dollar moved more than other currencies, and some currencies ended up having higher betas.”

As explained by the Central Bank director, beta measures how much an asset’s price–in this case, the dollar–moves when a benchmark price changes. For instance, when Brazilian stocks fall some may decline more due to greater sensitivity to overall market fluctuations.

According to him, as uncertainty decreased, prices adjusted accordingly. “This process wasn’t exclusive to Brazil,” he said at the Bradesco event. “In fact, I don’t believe it was Brazil. The real pivot was abroad. Of course, each country has its idiosyncrasies that might amplify it or not.”

Bradesco, in a study released last week, noted that up until February 17 of this year “slightly over 80% of the Brazilian currency’s appreciation was driven by domestic factors.”

To reach this conclusion, the study analyzes the evolution of various factors that can influence the exchange rate, such as the prices of exported and imported goods and the interest rate spread between the U.S. and Brazil.

However, defining what constitutes an internal factor versus external factors that affect the risk appetite for Brazil is an artform. It could be that the real benefited from a lower risk perception by foreign investors. Mr. David’s argument is that volatility has decreased since Donald Trump’s inauguration, and volatility is measure of. It could also be that the evolution of Brazilian domestic issues made the country less risky.

To differentiate between these, Bradesco’s economists examine the behavior of currencies from other emerging countries affected by foreign investor risk perception.

The choice of this group of countries is a crucial detail, as the selected group can influence the results. Bradesco used South Africa, Chile, Croatia, Hungary, Indonesia, Mexico, Peru, Poland, Thailand, and Turkey.

Mr. Ribeiro calculated for the period from December 30 to February 17. During this period, various factors acted to lower the dollar against the real. Terms of trade–that is, the prices of our exports–rose by 5.2%, an emerging market risk perception indicator fell by 0.28%, and the index measuring the dollar’s strength against the rest of the world decreased by 1.4%.

However, the indicator which experienced a steep drop of 14.4% to 273 basis points was Brazil’s risk as measured by the credit-default swaps (CDS). When distinguishing domestic from external factors, there is an important difference. According to Mr. Ribeiro’s calculations, of the 7.5% fall of the dollar against the real during the period, 8.39 percentage points were due to external factors.

Domestic factors actually hindered the real, exerting an upward pressure of 0.49 percentage points. During the period, the interest rate spread between the U.S. and Brazil decreased, creating an upward pressure of 0.37 percentage points.

Since Monday, February 24, the market appears to be driven by domestic factors. This morning, February 25, the real is the weakest currency among 33 emerging market countries. It will take a few more days for this to be confirmed by economic models, which require more data to for more precise answers.

*By Alex Ribeiro, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Anglo sells nickel operation in Brazil to MMG

Company announced in May of last year that it would simplify its activities and focus on copper, iron ore, and fertilizers

02/19/2025

The sale of Anglo American’s nickel operations in Brazil to China’s MMG, in a deal valued at up to $500 million, marks the British conglomerate’s exit from this market in the country. This move reflects a strategic shift by major mining companies in response to global market oversupply and China’s bet on the future of the metal.

The announcement, made on Tuesday (18th), involves two operational ferronickel assets in Goiás, Barro Alto and Codemin (Niquelândia), as well as two potential future development projects, Morro Sem Boné (Mato Grosso) and Jacaré (Pará).

Amid the challenging conditions for nickel, Anglo American disclosed in May last year that it would streamline its operations to focus on copper, iron ore, and fertilizers, aiming to unlock value from its businesses. This reorganization followed the company’s rejection of several acquisition offers from rival BHP.

In September, the company’s chief executive in Brazil, Ana Sanches, had already indicated that the assets would be presented to a range of companies globally. At the time, she also mentioned that the sales might include exploratory assets in other locations, depending on the progress of negotiations.

“With Anglo American’s global portfolio restructuring, the Minas-Rio System is becoming even more strategic,” Ms. Sanches said in a statement on Tuesday. “We will continue to focus on sustainable development in Brazil, with medium and long-term investments in our premium iron ore business, and the potential to significantly increase our production, especially following the agreement signed with Vale to incorporate the mineral resources of Serra da Serpentina.”

Nickel producers have faced challenges in maintaining profitability due to price volatility and increased competition from Indonesia’s oversupply, where Chinese miners operate at lower costs. Since 2022, the market has been disrupted by a steep drop in prices and the rapid expansion of miners in Indonesia, significantly reshaping the competitive landscape.

For Kwasi Ampofo, head of metals and mining at BloombergNEF, price is the primary determinant for capital investments in mining. According to him, divestment is likely to continue unless there is a price recovery, which would depend on significant production cuts.

Several companies are reevaluating their positions in the nickel market. Recently, Vale announced that its subsidiary Vale Base Metals has initiated a strategic review to “explore and evaluate a range of alternatives, including the potential sale, of its mining and exploration assets in Thompson, Manitoba,” in Canada.

Rafael Marchi, managing partner of A&M Infra de Mineração, points out that in recent years, the price of nickel has dropped by 30%, impacted by global oversupply and decreased demand. This scenario may influence strategic decisions by companies, such as the potential sale of less profitable assets.

This reorganization of nickel assets reflects changes in the global metals market and the geopolitical competition for essential resources for energy transition. The acquisition of the assets by MMG Limited, a company with significant Chinese involvement, underscores Beijing’s strategy to secure control over essential mineral resources.

China has been directing substantial investments to Indonesia, a country that has become central to global nickel production. In addition to direct acquisitions, Asia’s largest economy has forged strategic partnerships with Brazilian companies. Vale, for instance, has established agreements with China Baowu Steel Group and Shandong Xinhai Technology to develop nickel production projects in Indonesia.

¨*By Robson Rodrigues e Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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At CSN, mining guarantees group’s liquidity

Crisis in the steel market and disbursements for expansion put pressure on financial leverage

02/24/2025

Steel, the largest business of Companhia Siderúrgica Nacional (CSN), is no longer the main guarantor of businessman Benjamin Steinbruch’s group. Faced with adverse times for the sector globally and high investments in plant modernization, the group’s steel arm has been consuming cash, while the iron ore arm, under CSN Mineração, has become the main source of immediate liquidity.

At the end of the third quarter, of the approximately R$19.3 billion the group had in cash, R$14.5 billion was in the mining company. While steel generated 14% of EBITDA between January and September 2024, the latest data available, ore accounted for 56%.

CSN Mineração (CMIN) has been used to meet the group’s other commitments. In January, it signed a contract with the parent company (which houses the steel business) for the assignment of export receivables, with an estimated value of $1 billion for 2025. The funds will be used to amortize export prepayment contracts, advances on foreign exchange contracts or “similar CSN contracts”.

According to the statement, the contract provides for “governance” between the respective financial areas, “to ensure that only the excess ballast that CMIN would not use is transferred to CSN”.

In a report at the end of January, BNP Paribas analyst Alexis Panton wrote that CSN seems to be facing “an increasingly complicated liquidity situation” outside of mining. “We were not surprised by the operation, given CSN’s short-term obligations and extremely high negative cash flow outside CMIN,” he pointed out.

At the end of September, the analyst added, the parent company had short-term obligations of around $3 billion, including debt, leasing, accounts payable, financing to suppliers and prepayments, also without considering CSN Mineração.

The weakness of the steel industry, especially from the second half of 2022 onwards—when competition conditions in the global market became more difficult with the oversupply of cheap Chinese steel—and CSN’s high disbursements to diversify its business put pressure on debt.

The goal was to end 2024 with leverage measured by the ratio of net debt to EBITDA of 2.5 times. At the end of last year, however, CSN revised the target and is now looking to reach 3 times by the end of 2025. In September, this ratio stood at 3.34 times. With more cash than debt, CMIN had negative leverage.

About ten days ago, Moody’s cut CSN’s credit rating to “Ba2” from “Ba3”, raising the outlook from negative to stable, because of concerns about the group’s leverage trajectory over the next 12 months—for the period, the outlook for steel and ore is not positive.

“We had already changed the rating outlook to negative in September, but our premise was that leverage would be maintained, but CSN has released some news in recent months that has led to this reassessment,” Carolina Chimenti, a senior analyst at Moody’s, told Valor.

In recent years, the group has spent billions of reais acquiring assets. In cement, it bought Cimentos Elizabeth and LafargeHolcim in Brazil. In energy, it took CEEE Geração and, in logistics, the most recent operation was the proposal of R$742.5 million for 70% of the owner of Tora Transportes.

These expenditures, combined with the worsening results in the steel industry, have led analysts to adopt a more cautious stance on CSN’s shares and there are fears about the leverage commitments assumed in debt contracts.

In an extrapolation, without considering the EBITDA generated by the mining company, the BNP Paribas analyst arrived at indexes that would breach debt clauses agreed with creditors. But the bank’s calculation, according to a source close to the company, is inappropriate, because it considered holding debts (also for investment in all subsidiaries) and excluded the mining business from the EBITDA used to estimate these ratios.

Ms. Chimenti, with Moody’s, highlighted the acquisition of the parent company of Tora Transportes, as well as the investment plan announced by the group at the end of last year, as factors that influenced the credit rating downgrade. The agency believes that CSN’s leverage will remain between 4.5 and 5 times next year.

“CSN has debt maturity covenants, the lowest of which is 4.5 times [1.1 times above the leverage in September]. We are calm about the trend towards reducing the company’s leverage,” the group’s financial and investor relations director, Marco Rabello, told Valor.

According to the executive, the target announced at the end of last year is to be below three times by the end of 2025. However, in the medium and long term, the plan is to seek “much lower” leverage.

“One of CSN’s great advantages is its asset portfolio, which is less valued than it could be and which opens up space for future strategic liquidity actions. An example of this is the Infrastructure and Logistics vehicle, which we discussed at our CSN Day,” he added.

As well as the plans already announced for CEEE (to look for a minority partner) and for CMIN (to go public and bring in a minority partner), CSN still has 100% of two businesses, Cimentos and CSN Infra, which could follow the same path, including a potential public offering of shares.

In addition, given the strong consolidated cash position, which did not yet take into account the R$4.4 billion from the sale of the mining company’s 10.7% stake to Itochu Corporation at the end of last year, the group could use part of these resources to exchange more expensive debts and lengthen its indebtedness over the course of 2025.

In Moody’s assessment, CSN’s high cash position and longer debt amortization profile ease the group’s situation. “The company doesn’t have a history of making structural changes to its debt, but at the current rating, it doesn’t bother us.”

Ms.Chimenti draws attention to the fact that much of the liquidity is concentrated in CSN Mineração. “We would like to see this leverage more equalized between the subsidiaries,” he said. From a risk point of view, it would be better for the holding company not to depend so much on dividends from CSN Mineração.

Other companies in the steel sector, such as Gerdau and Usiminas, have carried out deeper restructuring of their debts since the sector’s last crisis, between 2015 and 2016, while CSN has reduced leverage through operational growth, Ms. Chimenti recalled. “Today, CSN has the lowest rating among the three.”

For Moody’s, the new stable outlook of the “Ba2” rating indicates the expectation that CSN will maintain a trajectory of reducing leverage to below 3 times and a cash position of around R$15 billion. “These targets increase the visibility of the company’s ability to maintain robust credit metrics,” the agency noted.

The other two main rating agencies, Fitch Ratings and S&P Global Ratings, have a “BB” global credit rating for CSN, which is equivalent to Moody’s “Ba2” rating. The former has a stable outlook, while S&P changed its from stable to negative last August.

Bank analysts who follow CSN and CSN Mineração shares are also wary of the companies. Valor has learned that nine major institutions cover CSN shares, while another 12 cover CSN Mineração. All the banks that cover CSN also cover CSN Mineração, however, three —BTG Pactual, Jefferies and Morgan Stanley—only cover the mining unit’s shares.

Of the nine institutions that cover CSN, seven have a neutral recommendation and two have a sell recommendation, with an average target price for the shares of R$11.90, a potential increase of 35% over Thursday’s close (20). In the case of CSN Mineração, there is one buy recommendation, seven neutral and four sell, with an average target price of R$5.60, a potential rise of 4.5%.

J.P. Morgan, the last bank to make changes to its estimates for the companies, noted that CSN’s results should continue to be pressured by lower steel prices amid the intense volume of imports from China. Analysts Rodolfo Angele and Thatiane Martins Candini wrote in a report that CSN Mineração’s shares have “stretched multiples”, i.e. they are overvalued in relation to the company’s financial indicators. The bank recommends selling the stock because it believes there are “more attractive names” in the sector in Latin America, such as Vale.

Mr. Rabello said that the company has already signaled a potential improvement in the steel industry’s performance following recent investments in Volta Redonda (Rio de Janeiro state). “As we’ve said before, the improvement in the operational and commercial scenario in ore, cement and steel, which will benefit from the investments made in Volta Redonda, will help with deleveraging,” he said, without providing additional information on the potential sale of the group’s assets or restructuring of liabilities.

CSN is also counting on the potential receipt of R$3.1 billion from rival Ternium, related to the Italian-Argentine company’s entry into Usiminas’ capital, to strengthen its liquidity position. CSN, which owns 12.9% of the steel company in Minas Gerais, argues that there was an exchange of control when Ternium bought the initial 27.7% of the voting capital of the steel company in Minas Gerais—which belonged to Votorantim and Camargo Corrêa and to the Usiminas Employees’ Fund—and has been seeking compensation in court for over ten years.

Until the middle of last year, Ternium had won every round of the dispute. In June, however, the Superior Court of Justice changed the course of the case by deciding to pay compensation to CSN. In December, the 3rd Panel of the court upheld the decision, but reduced the amount to R$3.1 billion from R$5 billion.

The Italian-Argentine group warned that it would appeal, and everything indicates that the case will reach the Supreme Court, in a battle that could take even longer. Along with its third-quarter results, Ternium reported that it had reversed $404 million of the provision relating to the litigation, given the decision of the 3rd Panel of the STJ.

*By Stella Fontes e Felipe Laurence — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Capital markets reach record share in corporate debt levels

Debt issuances account for 33% of Brazilian companies’ liabilities; share more than doubles in ten years

02/20/2025

Capital markets have reached a record share of total corporate debt in Brazil, driven by a surge in fixed-income issuances last year. This share rose to 33% in 2024, up from 31% in 2023, according to a study by consultancy firm FTI commissioned by Valor.

Looking at a broader timeframe, the shift in corporate debt composition is even more striking. A decade ago, capital market securities accounted for just 15% of corporate liabilities.

The 2024 figures represent a stock of R$2.2 trillion in debt securities, reflecting an average annual growth of 16.6%.

This increased presence of capital market instruments on balance sheets has not only diversified companies’ funding sources but also introduced new challenges in renegotiating debt with creditors. These challenges come at a time when Brazil is experiencing a record number of bankruptcy filings and out-of-court restructurings.

Recent cases, such as Americanas, Agrogalaxy, and Southrock, involved a significant base of retail investors, prompting the need for debt holder organization—an unprecedented development for individual investors generally unfamiliar with restructuring environments or creditor meetings, which are common in these processes. Another significant case involves the supermarket chain St Marche, which filed for precautionary measures to renegotiate debts and has high exposure to Agribusiness Receivables Certificates (CRAs), widely distributed among retail investors.

Eduardo Parente, director at FTI, noted that this trend has changed the dynamics of debt restructuring negotiations, adding a new layer of bureaucracy to processes that often require agility. The debt products that have seen the most growth in recent years are CRAs and Real Estate Receivables Certificates (CRIs), popular among retail investors due to their income tax exemption. “This made the instrument widely popular,” he said.

Mr. Parente explained that the negotiation dynamics have shifted precisely at a time when restructuring cases are on the rise. “Representatives of CRA and CRI holders are more constrained, and the process has become slower,” he said.

Before the rise of these products, companies and their advisors typically negotiated exclusively with bank creditors and foreign bondholders, who are more accustomed to these negotiations and organized for restructuring discussions. Now, companies must also convince thousands of retail investors. “This complexity brings new bureaucratic and legal challenges,” Mr. Parente added.

Fragmented debt

Bruno Tuca, a partner at Mattos Filho law firm specializing in fixed income, noted that over the past decade, capital markets have become a viable financing alternative, helping companies diversify their funding. However, with high interest rates and numerous restructuring cases, the challenge now is how to make renegotiations more fluid. “The difficulty arose because incentivized securities led to a highly fragmented retail investor base,” he explained.

This fragmentation makes it challenging for companies to gather the necessary quorum for debt renegotiation. In some cases, companies were unable to complete renegotiations because they couldn’t meet quorum requirements. Mr. Tuca noted that this issue is being closely monitored by banks that structure these operations, which are seeking solutions. “This is the first time we’re seeing this situation.”

Last year, Light faced difficulties in achieving the required quorum for one of its debt issuances while undergoing bankruptcy proceedings. After failing to gather the debenture holders, the issuance’s fiduciary agent approached the Securities and Exchange Commission of Brazil (CVM) to request a reduction in the quorum requirement, arguing that all avenues, including hiring a digital influencer, had been exhausted to reach investors. The regulator partially approved the request, marking another step in an already complex process.

Douglas Bassi, a partner at restructuring consultancy Virtus, illustrated the challenge by recounting a case last year where he had to contact each debenture holder individually to amend a debt contract clause that required a 90% quorum. The process took nearly nine months. “During that time, we had to work with the company on a temporary solution,” he said.

The regulatory requirements for incentivized securities add another layer of complexity to restructuring processes. Roberto Zarour, a partner at Lefosse law firm responsible for restructuring, pointed out that regulatory rules prevent incentivized securities from being prepaid, complicating situations where companies need to swap out securities during bankruptcy proceedings. This also limits liability management strategies, such as replacing more expensive debt with cheaper alternatives.

Ricardo Prado, a partner at Lefosse specializing in capital markets, noted that banks and companies are actively seeking solutions to make it easier to gather debt holders for necessary approvals. “Often, a company needs to approve a temporary waiver, but economic conditions change year by year,” he said.

Mr. Prado shared a case where a financially healthy company had to hire nine banks just to gather the necessary quorum, incurring additional costs. “This is yet another cost that companies have to bear,” he noted.

*By Fernanda Guimarães — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Research identifies enzyme that could drive new advances in cellulosic ethanol

This breakthrough discovery that could significantly advance more efficient and sustainable large-scale production of ethanol from agro-industrial waste

02/19/2025

Researchers from the National Center for Research in Energy and Materials (CNPEM), in collaboration with other institutions both in Brazil and abroad, revealed yesterday a breakthrough discovery that could significantly advance the large-scale production of ethanol from agro-industrial waste, such as sugarcane bagasse and corn straw. This form of ethanol, known as second-generation or cellulosic ethanol, has long held promise but faced technical challenges in its production. The findings were published in Nature on Wednesday (12).

The researchers identified a metalloenzyme called CelOCE (Cellulose Oxidative Cleaving Enzyme), which improves cellulose conversion through a previously unknown mechanism. This enzyme addresses one of the sector’s most pressing issues: the breakdown of cellulose biomass, a critical stage in fuel production.

According to a report by Agência Fapesp, the research arm of the São Paulo State Research Support Fund, cellulose is the most abundant plant polymer on Earth but is notoriously resistant to degradation. In nature, its breakdown is slow and requires a complex enzyme system.

With CelOCE, the team has pioneered a new mechanism—oxidative cleavage—that enhances the efficiency of cellulose decomposition. Currently, the efficiency of this process ranges between 60% and 70%, but CelOCE has the potential to increase that yield to 80%. Not only is the process more efficient, but it is also more sustainable, as it requires fewer and less complex enzymes than traditional methods.

“Any improvement in yield is significant, especially when we’re talking about hundreds of millions of tons of waste being converted,” said Mário Murakami, leader of the biocatalysis and synthetic biology research group, in an interview with Agência Fapesp.

The scientists note that CelOCE’s role is not to directly produce the final ethanol product but to assist in the initial breakdown of cellulose. Its action enhances the effectiveness of other enzymes, ultimately improving their ability to convert raw materials into sugars, which can then be used for ethanol production.

*By Izabel Gimenez, Globo Rural — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Movement against diversity resonates in Brazil

The rise of anti-diversity initiatives in the U.S., amplified by Donald Trump’s election, is impacting local subsidiaries’ performance

02/19/2025

On Saturday (8), executive Daniela da Silva Sapin announced her voluntary resignation from Meta via LinkedIn. Ms. Sapin had served as head of public policy for WhatsApp in Brazil for a year and shared in her post that she has spent her career advocating for an open internet, greater transparency, and, more recently, a technology sector that is more responsive to the public interest.

“The recent announcements at Meta, in my opinion, have tipped the balance between my ability to act in favor of these goals from inside vs. outside the company. A corporation aligning itself politically and economically with a powerful, newly elected government is nothing new to anyone. However, the speed and intensity of Meta’s rhetorical turn and the adherence to an ideological base so different from the values that guided my work until then—particularly the integrity and security measures implemented at WhatsApp in recent years—this is simply not something I can understand, let alone support,” she said in her post.

In another part of her message, Ms. Sapin expressed empathy for her colleagues, acknowledging the timing of her resignation: “To the now former colleagues, I know that this announcement comes at a peculiar time, as there will soon be more changes and more departures in the company. I wish you strength and resilience.” When contacted by Valor, the executive stated that her thoughts had been fully conveyed through her post. Meta did not respond to an interview request.

Although Ms. Sapin’s resignation is an isolated case, it may signal broader consequences as companies like Meta, McDonald’s, Walmart, Disney, and Accenture scale back their diversity, equity, and inclusion (DE&I) initiatives. These moves, driven in part by the anti- “woke” sentiment encouraged by U.S. President Donald Trump, could resonate in other markets and provoke pushback from professionals who oppose such shifts.

On Thursday (6), consulting firm Accenture announced it would discontinue its diversity and inclusion targets. Julie Sweet, the company’s CEO, shared a statement with employees outlining the company’s new corporate strategy, which includes three key changes: the elimination of global diversity targets established in 2017 and updated in 2020, the cessation of career development programs for specific demographic groups, and a pause in participation in external diversity benchmarking surveys.

“We will implement the updates outlined above and continue to refine our talent strategy, assessing our policies and practices to ensure they align with our business strategy, remain effective and inclusive, meet the needs of all our employees, comply with applicable global laws, and adapt to the changing landscape,” said Ms. Sweet in her statement. She also emphasized that the corporation would maintain its global equal pay initiatives.

Ms. Sweet’s email raised concerns among Brazilian employees, particularly those from specific demographic groups, such as Black individuals and the LGBTQIA+ community. “People’s first reaction was disappointment because they had always felt safe and welcomed at Accenture. The statement quickly became the talk of the office, and many feared it signaled the end of all diversity policies. The feeling is that the conservative wave in the U.S. could soon reach Brazil,” said one manager, who requested anonymity.

In response to the fallout, Ms. Sweet hosted a live video chat with employees worldwide last Monday (10). During the session, she delivered a brief initial statement and addressed questions. According to the manager, Ms. Sweet clarified that the removal of diversity targets did not imply a diminished commitment to diversity, equity, and inclusion (DE&I), nor would the company stop supporting these groups. “Between the lines, Sweet acknowledged the pressure from the U.S. government and shareholders over potential business impacts if no changes were made. She seemed visibly uncomfortable,” the manager said. As of now, there has been no communication from the leadership in Brazil.

Meanwhile, a week earlier, Google confirmed that it would abandon its diversity hiring targets and was re-evaluating its DE&I programs. The company also removed several commemorative observances—such as LGBT Culture Month, Black History and Indigenous Peoples Month, Holocaust Remembrance Day, Jewish Heritage Day, and Hispanic Heritage Day—from its standard and online calendars.

When contacted by Valor in Brazil, Google reiterated its commitment to fostering a workplace where all employees can thrive and have equal opportunities. The company also noted its role as a supplier to the U.S. government: “As a federal supplier, our teams are reviewing the changes required by recent court rulings and executive orders on this subject [diversity programs].”

In Brazil, there is uncertainty among employees about whether and when the new guidelines adopted by the company in the U.S. will be implemented across its global operations. “The situation is still one of observation; there is little clarity about what will happen in the coming months,” said one manager, who requested anonymity.

In Brazil, Uber has also ceased its involvement with the LGBTQAI+ Business and Rights Forum. This key initiative has been bringing together companies committed to promoting rights and inclusion for the community since 2013. The Forum, which includes more than 160 signatories, including Coca-Cola, Dow, Google, Microsoft, and prominent Brazilian companies like Vale, Natura, Gerdau, and Petrobras, did not disclose the reasons behind Uber’s decision to leave. “We received this news with great disappointment because Uber has always played a crucial role within the Forum,” said Reinaldo Bulgarelli, the Forum’s executive secretary. “It is up to the company to explain why it chose to leave.”

When asked about its departure, Uber explained that the decision is part of an ongoing review of the budget and impact of its local initiatives, a process that is not expected to be completed before the response deadline set by the Forum. The company reiterated its commitment to diversity, equity, and inclusion and emphasized its continued engagement with other initiatives and partners.

Similarly, IBM exited the Forum last year, although the company declined to comment on the matter.

The review of budgets and resources also led to changes at Qualicorp, a health insurance administrator, which dismantled its DE&I management department. According to a source with knowledge of the situation, this restructuring was part of a broader process in which the company reformed policies and implemented layoffs across various departments in an effort to reduce costs.

When contacted, the company stated that no internal actions had been finalized and emphasized that its DE&I program remains a core pillar of its “DNA and culture.” The organization reiterated its commitment to promoting diversity and inclusion, highlighting a workforce predominantly composed of women, including 60% in leadership positions. It also noted that it continues to conduct an annual diversity and inclusion census to “plan more targeted actions fostering a culture of respect for all people.”

Tatiana Iwai, coordinator of Insper’s Center for Business Studies and a professor of leadership behavior, suggests that this moment could serve as a defining test for identifying executives who “truly believe in what they say.” “When the agenda is gaining momentum, it’s easy to join in and say, ‘I support it.’ But when the agenda faces scrutiny, leaders and executives are put to the test,” she explains.

“Those advocating for ethical leadership, aiming to create fair and inclusive teams, now have the opportunity to demonstrate their commitment. This is when they begin to solidify their reputation. It’s time to show that their words align with their actions,” she adds.

However, Ms. Iwai also acknowledges the persistent resistance to DE&I initiatives within organizations. “In times of external polarization, this underlying resistance within companies often becomes more pronounced,” she notes. “It’s likely that many organizations will see the momentum for representation slow down, as the agenda is no longer perceived as an urgent priority.”

Ms. Iwai further observes that even when the DE&I agenda had widespread attention and significant investments, progress in representation was not advancing at the expected pace. “Given that these programs are now under scrutiny, linking investments to tangible outcomes and business results may become essential. This connection, which was unclear before, may now need to be more explicitly emphasized,” she suggests.

Adriana Prates, CEO of Dasein, an executive recruitment consultancy, argues that diversity initiatives have become a competitive advantage, particularly in attracting and retaining talent from younger generations who prioritize inclusive environments aligned with social purpose. “Backpedaling on these actions could alienate qualified professionals who are seeking companies with more diverse and innovative cultures,” she warns.

“On the other hand, factors such as professional development, inspiring leadership, and growth opportunities continue to significantly influence talent retention and attraction,” she says. “The impact will, therefore, depend on how these elements balance with the company’s ability to effectively communicate its values and commitments.”

André Freire, managing partner of the consultancy Exec, argues that companies retracting their DE&I initiatives may face higher turnover. “Professionals from minority groups may feel undervalued or excluded,” he warns. “Companies that fail to invest in diversity risk being perceived as outdated or insensitive.”

Ms. Iwai observes that, until now, organizations have embraced DE&I programs with the genuine intention of creating fairer work environments. However, as some companies begin to roll back these actions, employees will likely question the authenticity of these initiatives. “When these programs are revived in the future, they may be met with greater skepticism, and the effort to reintegrate them will likely be more challenging,” he explains.

Mr. Freire further notes that ending DE&I targets could negatively impact innovation, as diverse teams tend to foster greater creativity. Nevertheless, he believes the decline in diversity initiatives may not be as pronounced as it seems. “It’s striking when large companies widely publicize their pullback from these actions. But I still think the diversity movement is growing because many companies are just now beginning to adopt it,” he says.

“We need to consider the extent of this reduction,” ponders Ms. Iwai. “We’re observing an initial trend, but what’s the speed and scale of this retreat? It’s crucial to determine whether there is a total halt. Not all organizations are completely stopping; some may have scaled back or paused certain initiatives, while others continue.”

*By Fernanda Gonçalves e Michael Esquer

(Rafaela Zampolli contributed reporting.)

Source: Valor International

https://valorinternational.globo.com/
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Brazil advised to play nice amid tougher trade talks with U.S.

Building convergent agenda with Washington’s interests and avoiding war of words in media would be best bet, they say

02/18/2025

Brazil is likely to face greater challenges in renegotiating the impact of tariffs imposed by U.S. President Donald Trump during his second term compared to his first. While it would be helpful to avoid a war of words in the media and especially over politics, which could hinder negotiations, Brazil also could do well by developing a convergent agenda with the new U.S. administration.

This was one of the recommendations from analysts and economists at an event organized by the American Chamber of Commerce for Brazil (Amcham Brazil). They also noted that reducing domestic uncertainty could help mitigate potential external shocks affecting an economy already expected to see modest growth this year.

The first issue at hand is the 25% tariff on Brazilian steel and aluminum. According to Christopher Garman, executive director for the Americas at Eurasia Group, the process to mitigate tariff impacts will resemble 2018’s, albeit more challenging. “Previously, American producers dependent on foreign steel also exerted pressure. Brazil’s task is again to engage with these buyers and highlight the importance of Brazilian products,” he said.

Unlike during his first term, the Republican president is now more convinced that tariffs are the right tool to boost the economy and create jobs in the U.S. Evidence of this includes announcements made without full clearance or planning from his team, such as the 25% tariffs on Mexico and Canada, which were temporarily suspended less than 24 hours later.

“The bottom line is that they were retracted not because they were a mere negotiating bluster, but because they weren’t well-aligned,” argues Mr. Garman, indicating that part of the private sector remains complacent on the issue.

Mr. Garman highlights that the Trump administration is prioritizing renegotiating tariffs with partners in the United States-Mexico-Canada Agreement (USMCA), also known as NAFTA 2.0, delaying any resolution with Brazil.

Another contentious issue is reciprocal tariffs. Former U.S. Ambassador to Brazil Todd Chapman described Brazil as one of the “kings” of tariffs to protect national interests, alongside China. He cited ethanol as an example, where Brazil exports four times more in value terms to the U.S. than the inverse flow.

“Brazil has high tariffs, we have low tariffs. Why should we allow nearly free access to the world’s largest market without reciprocal access?” he summarized.

Bradesco chief economist Fernando Honorato notes that Brazil is somewhat shielded from the U.S.’s focus, given its trade deficits with the U.S. and the relatively insignificant trade flow between the two countries.

“Even an aggressive 25% tariff might reduce exports by $7 million to $10 million, minimally impacting Brazil’s trade balance,” he commented. “Reciprocity poses a risk. I’m more concerned about sector-specific impacts than broader macroeconomic ones.”

This scenario, however, underscores the risks that the lack of stability brings to Brazil’s economic outlook. “Without this anchor, external developments could quickly swing us from side to side, complicating the Central Bank’s task,” added Mr. Honorato.

Ana Paula Vescovi, Santander’s chief economist, warned of potentially indirect impacts from the new American president’s more protectionist stance on the global economy and Brazil, even if all threats aren’t realized.

A more fragmented global economy, combined with mass deportation policies, points to an economy with lower growth potential and higher inflation risk, she indicated. These measures cast doubt on the Federal Reserve’s ability to maintain its interest rate cut cycle.

“These macroeconomic risks and a stronger dollar in the medium term are concerns for the Brazilian economy,” Ms. Vescovi stated, noting that U.S. inflation expectations have been climbing since the end of last year, which could influence the Fed’s policy actions and inflation convergence.

To navigate these risks, Mr. Chapman advocated for greater private sector involvement in government negotiations. “International relations are too important to be left solely to government officials,” he affirmed.

He suggested considering investments in the U.S. as a strategy, citing companies like Gerdau and JBS, which already operate in the country.

Mr. Garman echoed this sentiment. “It won’t be easy, so there’s all the more reason to engage aggressively and highlight Brazil’s alignment with American interests,” he said. “Brazil is a critical supplier of minerals for the defense industry. The U.S. is also focused on energy security and reducing dependency on China in key supply chains. Brazil plays important roles in these areas.”

*By Marcelo Osakabe e Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Banks downgrade lending growth forecast to 8.5%

Widespread revision reflects worsening economic outlook with potentially higher inflation and interest rates slowing down borrowing in 2025 and 2026

02/18/2025

Brazilian banks have revised lending growth forecasts for this year to 9% from 8.5%, according to the Banking Economy and Expectations Survey by business federation Febraban. Among the major lenders that have already released their balance sheets, growth projections for their portfolios are even lower, around 6.5%.

According to Febraban’s survey, the portfolio of loans from non-directed funding is expected to expand by 8.1% this year (down from 8.3% in the previous survey), and the directed portfolio by 9% (down from 9.7%). When broken down by borrower type, business lending is expected to grow 7.1% (down from 7.8%), while consumer credit is expected to rise by 8.6% (down from 9.1%).

The downward revision of industry expectations was widespread, reflecting a consolidation of economic expectations for the year. “This revision was already anticipated and has been shaping up since the last quarter of 2024. The result reflects a worsening economic scenario, with expectations of higher inflation and, consequently, higher interest rates throughout the year,” stated Rubens Sardenberg, director of economics, prudential regulation, and risk at Febraban, in a press release.

The survey also collected the first projections for credit growth in 2026. The average forecast indicates a continuing slowdown in lending growth, with an anticipated expansion of 7.7% next year.

Meanwhile, there was a slight improvement in the projection for the default rate of the non-directed portfolio this year, which dropped from 4.7% to 4.6%, although it remains above the level observed at the end of 2024 (4.1%). This result can be attributed to increased caution in credit provision, which may reduce the expansion of defaults over the year.

The survey shows that a significant majority of respondents (76.2%) expect the Selic rate to rise beyond 14.25% per year in 2025, and that the cycle of cuts will not begin this year. For comparison, in last December’s survey, only 47.4% selected this option, showcasing a less optimistic view of the scenario since then.

In this context, expectations for interest rates have risen compared to the previous survey. Now, the median projection for the Selic rate is 15.25% per year by June 2025, remaining at this level at least until September.

Conversely, the projection for the exchange rate at the end of the year has improved, dropping to R$5.95 from R$6.00 previously. Regarding inflation, just under half (47.6%) of lenders believe it will be close to 5.5% (the current market consensus). However, one-third of analysts surveyed now expect inflation to be close to (or above) 6% this year.

Regarding economic activity, a little over half (52.4%) of the participants continue to project GDP growth of around 2.0% in 2025, similar to the previous survey (50% of respondents).

*By Álvaro Campos, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Consumption starts 2025 weaker as industry pushes price hikes

Retailers report sluggish sales as suppliers inquire about price increases of up to 7%

02/18/2025

Consumer spending showed signs of instability at the start of 2025, a stark contrast to the steady growth seen in the same period last year. Weekly monitoring by NielsenIQ (NIQ), obtained by Valor, indicates that February began with a slowdown in purchasing activity compared to January, shifting from strong sales volumes to a deceleration relative to 2024.

This trend did not occur a year ago when sales expanded week by week between January and February 2024.

From early January to February 9, sales volumes increased by 4.8% compared to the same period in 2024, based on NIQ’s weekly data analyzed by Valor Data. As of February 2, the cumulative growth was 5.2%. However, this increase was largely driven by the traditionally strong start of January, which tends to push the overall average higher.

Typically, the first week of the year sees a surge in sales due to consumers restocking household essentials after the holiday season. However, in 2025, sales momentum declined rapidly week by week compared to 2024, with volumes dropping for the first time between January 27 and February 2, registering a growth rate of just 2.3%.

The data is unaffected by the timing of Carnival in 2024, which took place after February 10 last year. NIQ noted that holiday-driven sales only began influencing the retail sector after February 5, according to last year’s report.

NIQ provides this data weekly to its clients, serving as a benchmark for companies to compare their performance with the broader market. Large retail groups primarily use the reports to track demand trends.

Sluggish demand

The consumption slowdown coincides with another wave of price increases from manufacturers to retailers, adding inflationary pressure on food and beverages that could further impact demand.

A large supermarket chain and a leading cash-and-carry wholesaler reported on February 14 that suppliers of essential grocery items are inquiring about price adjustments ranging from 5% to 7%. Items that had not previously been targeted for price hikes, such as eggs and potatoes, are now on the list.

“The dollar remains high despite recent declines, agribusinesses are prioritizing exports, and fulfilling 100% of purchase orders has become more difficult due to increased export volumes—these factors are all driving up prices,” said the CEO of one of these retail chains. “We are already selling eggs at over R$1 each. A year ago, a carton of ten eggs cost R$10; today, it’s R$15, and further price hikes are expected,” he added.

A separate report obtained by Valor from Scanntech Brasil, a data and research firm, noted that the average price level in January was the second highest in the past 13 months.

“January’s price levels were surpassed only by December 2024, when seasonal factors naturally drive prices higher,” the company said in its report.

Regional disparities

NIQ’s data indicates that Brazil’s Northeast region and Greater São Paulo (including the capital) are experiencing the weakest sales growth in 2025, lagging behind the national average in both supermarkets and cash-and-carry wholesalers.

These areas represent significant consumer markets, accounting for 22% of the country’s population in 2024, according to the Institute for Applied Economic Research (IPEA). Their sales performance has gained attention in recent weeks amid projections of economic deceleration and a sharp drop in President Lula’s approval rating, according to a recent Datafolha survey.

In the Northeast—a key region in Mr. Lula’s 2022 election victory—sales at hypermarkets declined by 3% in value terms (without adjusting for inflation) as of February 2, marking the worst regional performance. Volume data for this segment was not disclosed.

In large supermarkets (1,000 to 2,500 square meters), revenues in the Northeast grew by 5%, the smallest increase among all regions despite the uptick. Meanwhile, cash-and-carry sales in the region rose 12%, slightly below the national average of 13%.

Rising food prices, alongside structural economic challenges, have been cited by research firms as key factors in Mr. Lula’s record-high disapproval ratings.

Nationwide, small supermarkets have felt the slowdown the most since early January, while cash-and-carry stores have shown greater resilience.

Small supermarkets, often run by local entrepreneurs and family businesses, started the year with a 21% increase in sales compared to the same period in 2024. However, by early February, growth had slowed to just 1.4%.

Sales volatility

Valor found that the Brazilian Supermarket Association (ABRAS), the country’s largest food retail organization, has preliminary data for the week of February 3–9. The figures show a 2.8% increase in sales volume compared to 2024, following the decline posted in the previous week. According to the association, this reinforces the perception of an unstable consumption pattern in early 2025.

This data should be viewed in context: the comparison period—February 5–11, 2024—overlapped with Carnival, when sales surged 13.5%.

“We need to wait a few more weeks to assess the consistency of these peaks and valleys in consumption at the start of the year,” said João Galassi, president of ABRAS, when asked about February’s sales figures.

Mr. Galassi noted that while the recent interest rate hikes affect the broader market, they have a more pronounced impact on electronics, which rely on consumer credit. If demand for durable goods declines, more disposable income could become available for food and beverage purchases.

Despite waiting for more data, ABRAS announced at the end of January that it expects supermarket sales to grow by 2.7% in 2025—lower than the 3.7% increase in 2024. If this forecast holds, 2025 will mark the weakest sales performance for the sector since 2018 when sales rose just 2%. These figures are adjusted for inflation and reflect changes in sales volume.

This projection aligns with broader retail forecasts for 2025, which anticipate growth of 1.7% to 2% on average, compared to a 4.7% increase in volume in 2024.

Economic uncertainty

Eduardo Terra, managing partner at BTR Consultoria and a board member at several retail chains, noted that 2024 was a strong year for the sector, but companies remain cautious in their 2025 budgets. According to the Brazilian Institute of Geography and Statistics (IBGE), the retail sector grew by 4.7% in volume last year, the highest since 2012, but investment plans remain conservative.

“Since the Selic rate hike in 2021, companies have focused on improving productivity, renegotiating debt, and cutting costs. These priorities remain crucial, especially with interest rates rising again, particularly for more indebted retail chains,” Mr. Terra said.

A report sent to clients on Monday (17) by BTG Pactual’s analysis team highlighted that with weaker sales expected in 2025 compared to 2024, retailers will prioritize protecting profit margins rather than pursuing aggressive growth. Strategies to optimize working capital could lead to improved financial returns.

This cautious approach has been widespread in retail since 2021 when the COVID-19 crisis, rising inflation, and subsequent monetary tightening pushed companies to focus on margin preservation rather than sales expansion.

*By Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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