Floods put Brazil’s 2% GDP growth at risk

Economists estimate an impact of 0.2 to 0.3 percentage points driven by agribusiness

05/13/2024

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The impact of the floods in Rio Grande do Sul, the state with the fourth-largest share of Brazil’s Gross Domestic Product, on the national economy may range between 0.2 and 0.3 percentage points, according to preliminary estimates. That could put in check the possibility of a GDP growth above 2% for 2024, despite the resilient general activity.

XP Asset has revised its projection for Brazil’s GDP this year to 2.1% from 2.4%. While the previous expectation was for growth of 0.7% in the second quarter compared to the first, the financial firm now expects a drop of 0.2%. “And I think the impact could be even worse than our estimates suggest,” said chief economist Fernando Genta.

That is because the estimate considers rather the direct effect of the floods on the economy of Rio Grande do Sul than an overspill into other areas, Mr. Genta explains. For example: as the annual minimum wage raise is already given, the increase in food prices due to problems with crops in Rio Grande do Sul could lead to a deterioration of households’ purchasing power and, therefore, affect consumption in the GDP.

Fernando Fenolio, chief economist at Wealth High Governance, estimates that the adverse impact could vary from 0.02 percentage points on the national GDP, if there is a full recovery of industrial capacity in Rio Grande do Sul and a 25% loss of the remaining local harvest, to 0.34 percentage points, if the loss of the remaining harvest is complete and industry recovery does not exceed 25%.

An impact of 0.22 percentage points, caused by a total loss of the remaining harvest, although with 75% recovery of industrial capacity, seems a more likely scenario at the moment, according to Mr. Fenolio. “We will review our GDP projection. It could go to 1.8%, compared to the 2% we were expecting for this year, mathematically,” he said. Inflation, in turn, would shift to 4% from 3.8%. “It’s a classic supply shock, less GDP and more inflation.”

In preliminary estimates by 4intelligence, the Rio Grande do Sul’s GDP growth could reach just 0.5% this year, from 5.5% previously projected, due to the disaster. Considering that the state accounts for around 6.5% of the national economy, the floods could reduce Brazil’s GDP growth by 0.2 percentage points in 2024, according to the estimates. As a result, 4i’s official projection of a 1.9% increase in Brazil’s GDP this year could be reduced to 1.7%.

“The main impact on activity will occur in May. In June, we believe that most activities will be back to normal, depending on the material damage and the pace of reconstruction,” Bradesco said in a report. The bank also sees a potential impact of 0.2 to 0.3 p.p. on the Brazilian GDP as a result of the disaster.

G5 Partners has a similar estimate, indicating a loss of 0.3 percentage points. “As we have never experienced a natural disaster of the magnitude seen in Rio Grande do Sul, we sought references from other locations. We used the effects of hurricanes Katrina and Rita in the U.S. in 2005 as examples,” said Luis Otávio Leal, G5’s chief economist.

Based on a study by the U.S. Department of Commerce, which measured the impact of these hurricanes on the U.S. GDP quarterly, and adapting to metrics in Brazil, Mr. Leal estimated that the floods could take 10.5 percentage points off the variation in Rio Grande do Sul’s GDP in the second quarter of 2024, compared to the first quarter. As a result, his projection for the Brazilian GDP growth in 2024 would fall to 1.8% from 2.1%.

G5 did not change the estimate, but, before the floods, the firm was expecting to raise its annual forecast for national GDP following the release of official data for the first quarter.

“I believe the comparison with the effect of hurricanes Katrina and Rita makes sense, as there was similar material damage. However, the estimate does not consider other variables, such as the difference in the countries’ ability to act,” Mr. Leal points out, as the U.S. has an organized structure to act in cases of disasters like this.

According to Banco Pine, the projection for Brazil’s GDP growth in 2024, of 2.3%, can be revised to 2.1%, in an initial estimate.

“The impact tends to be mitigated for the national GDP. Regionally, it’s much more, and thinking in trillions of reais, there’s a loss of wealth. But I’m even more concerned about agribusiness,” said the chief economist of the bank, Cristiano Oliveira. He notes that if the state accounts for 6.5% of the national GDP, its participation in the agricultural GDP is almost double, around 12.5%.

Considering the state alone, 4i estimates that the most affected sector will be agriculture, which could grow 25% less than expected in the second quarter. “Rio Grande do Sul’s agricultural GDP, alone, was expected to grow 18.9% in 2024, recovering from a giant crop failure in 2022 that was not entirely replaced in 2023. Now, the increase could be just 1.9%,” said Bruno Lavieri, 4i’s chief economist.

Assuming that half of the unharvested crop on the fields has been lost, 7.5% of rice production and 2.2% of soybeans in Brazil could be impaired, according to Bradesco. The bank argues that these estimates may still be conservative.

With that in mind and considering a possible impact on wheat planting, which has just begun, and on the slaughter of chicken and, mainly, pigs, Bradesco estimates that the drop in Brazilian agro GDP in 2024 could aggravate to 3.5% from the expected 3%.

“There is also all the infrastructure involved in agribusiness, with storage silos, roads, and energy transmission. All of that should be impaired for some time,” said Mr. Oliveira of Pine. Therefore, he says the effect of the disaster on GDP tends to “last longer and worry more” than on inflation.

In services, transportation is likely to struggle for longer due to road closures. In services provided to households, activities related to leisure, hospitality, and personal services could also be strongly impacted, Bradesco points out. 4i’s projection for services in Rio Grande do Sul was reduced to a drop of 3.1% in the year from an increase of 1.9%, with losses concentrated in the second quarter.

The industry could be less impacted: the estimate for 2024 was reduced to 1%, from 1.8%. “Extractive activities have almost no weight in the state, while manufacturing, which is important given vehicle and machine production, should experience a specific impact and recover in the future, as demand was only pent-up. Furthermore, we should see some boost in construction, as the damage should boost construction works,” said Mr. Lavieri.

For 2025, 4i raised its GDP forecast for Rio Grande do Sul to 6.1% from 2%. “We maintain our projection for services and industry, which should grow a little less in 2024, but would recover next year. Agriculture is expected to continue below what was initially expected,” said Mr. Lavieri.

“Agribusiness in the region will likely suffer the consequences of the current event for many months to come, maybe casting doubt on the success of the next harvest,” said Mr. Oliveira. He points out that the La Niña phenomenon is expected to return in July, making the weather dry in Rio Grande do Sul. Although this could seem positive given the damages caused by excessive rainfall, it harms crops. “Unfortunately, extreme weather events tend to hit the state hard given its location,” he said.

*Por Anaïs Fernandes, Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Floods cause soy to rise more in Brazil than in Chicago

Some analysts see a price mismatch, while others believe that speculative movement and exchange rates explain differences

05/13/2024

Soybean crop affected by rains in Soledade, Rio Grande do Sul — Foto: Daniel Calegari/Arquivo Pessoal

Soybean crop affected by rains in Soledade, Rio Grande do Sul — Foto: Daniel Calegari/Arquivo Pessoal

The heavy rains that damaged soybean crops in Rio Grande do Sul left their mark on the grain market last week, including the sign of a possible decoupling between prices in Brazil and Chicago.

On the U.S. stock exchange, prices rose in the first days of the floods, reflecting fears about potential losses, but the rate of increase lost strength, and the commodity ended the week with an appreciation of 0.33%, at $12.19 per bushel. In Paranaguá, the Esalq/BM&FBovespa soy index rose 2.05% in the same period, to R$133.86 per bag, according to Valor Data.

Some analysts see a decoupling between the two markets. For Leandro Guerra, from LC Guerra Corretora de Cereais, one sign of a disconnect in soybean prices in Chicago and Brazil is the improvement in export premiums, which were negative until last month.

“There is a difference of up to 15 million tonnes between estimates from consultancies and those from official bodies about the [soybean] harvest in Brazil. Furthermore, the floods in Rio Grande do Sul have increased the uncertainties about the harvest, which also contributes to the positive premium,” he said.

Luiz Pacheco, an analyst at TF Consultoria Agroeconômica, sees soybeans with more room to rise in the domestic market than in the foreign market due to the demand for biodiesel—soybean oil is the main raw material for production. “There is a dispute between trading companies for soybeans that will be crushed and those that will be destined for export,” he said.

Mr. Pacheco assesses that not even the losses in the Rio Grande do Sul harvest caused by excessive rain justify the rise in prices in Chicago since the United States Department of Agriculture (USDA) indicated a surplus supply on Friday in its new report on the global harvest.

“World ending stocks grew by 11 million tonnes in this harvest [2023/24]. Even with a likely reduction of up to 2 million tonnes in Rio Grande do Sul, there is still a lot of soy left in the world,” he said.

João Birkhan, CEO of Sim Consult, disagrees with the notion of a decoupling between the two markets. He assesses that the price of soybeans is not “detached” from the international market, even though, at various times, prices follow opposite paths. “We don’t have such a large consumption of soybeans in the domestic market to the point of decoupling. Brazil is a large exporter. Therefore, prices will rarely diverge from the international market. It can happen in specific cases,” he said.

Mr. Birkhan adds that the foreign exchange rate helped the recovery of soybean prices in the domestic market. The exchange rate rose to R$5.3 per dollar last month, which favors the conversion of values into reais by farmers.

The rise in soybeans on the domestic market amid the rains in Rio Grande do Sul also had a speculative component, said Darcy Pires of União Corretora. According to him, this movement caused trading companies to pay up to R$2 more for a bag of soybeans at the beginning of last week. But, last Friday, the price returned to an average of R$130 at the ports, according to the broker. Despite the uncertainties about production in Rio Grande do Sul, Mr. Pires believes there is “a downward trend,” as Brazil still has a good volume of soybeans.

Cotrisoja, a cooperative based in Tapera, Rio Grande do Sul, saw a “sudden rise” in prices. “There was a rapid accommodation in prices, with the market waiting for new information about the Rio Grande do Sul harvest. Despite the expected loss of productivity, there is no rush to purchase soybeans for now,” said Adriano Borghetti, commercial director at Cotrisoja.

Currently, a bag of soybeans is worth R$118 in the region. “But it’s difficult to say whether it will remain at this level. We don’t know how the harvest and logistics issues, which affect almost the entire state, will unfold,” he added. There remains uncertainty about the scale of the losses, which could increase with the new wave of storms in the state.

*Por Paulo Santos, Raphael Salomão — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Petrobras discusses new stage of share buybacks

Sérgio Caetano Leite, the oil company’s chief financial and investor relations officer, says that the pilot project involving 157 million shares is 86% complete

05/10/2024

Sérgio Caetano Leite — Foto: Leo Pinheiro/Valor

Sérgio Caetano Leite — Foto: Leo Pinheiro/Valor

Petrobras is studying a new stage in its share buyback program, which began last year, Sérgio Caetano Leite, the company’s chief financial and investor relations officer, told Valor. “All the big oil companies, the counterparts, do it and treat the buyback as shareholder remuneration,” said Mr. Leite.

The first step was taken in 2023 and involved a pilot project of around 157 million preferred shares, which is 86% complete, Mr. Leite said. “We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%,” he compared.

The executive spoke to Valor between appointments at the Offshore Technology Conference (OTC), the oil industry’s main event, in Houston, Texas. Mr. Leite said that the company has enough cash to finance the planned investments, without the need to resort to the financial market. The company recently issued $250 million in bonds abroad to exchange expensive debt for cheaper debt. According to the executive, the company is monitoring the market for similar operations.

Mr. Leite also said that volatility explains the long period without any change in fuel prices: diesel oil has not been adjusted for more than 100 days, while gasoline has had no change in refineries in the last six months. The volatility, he said, prevents the company from seeing a clearer scenario to define the direction of the prices of oil products. Read below the main excerpts from the interview:

Valor: Petrobras carried out a share buyback program last year. Does the company have any plans for a new round?

Sérgio Caetano Leite: The body that authorizes the buyback is the board of directors and there is prior governance: we do internal studies, which go through committees. The management team approves [the proposal] and it goes to the board, which approves [the operation]. Share buybacks were included as another form of shareholder remuneration. All the big oil companies, the counterparts, do it and treat the buyback in this way, as shareholder remuneration. We approved this pilot project, around 157 million preferred shares, and we have already surpassed 86% of the total number of shares put up for repurchase. We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%. We respond to Brazilian legislation and U.S. legislation, CVM (Securities and Exchange Commission of Brazil) and SEC (U.S. Securities and Exchange Commission). So we had to be careful before starting this program, hence the decision to do the pilot first. One of the characteristics of the buyback program is that if you are going to release any notice of material fact, any press release, anything that could impact the share price, you have to stop the buyback. It takes two or three days to be able to repurchase. Petrobras issues more than two announcements a week. Another characteristic is that if the company’s board of directors learns of something that could affect the share price, even if they haven’t communicated it, they have to stop [the buyback operation].

Valor: Companies usually buy back shares when they believe they are cheap. Do you agree with this view?

Mr. Leite: It’s a sign, but note that in the case of Petrobras, we bought and canceled the shares, we didn’t hold them in treasury to sell again later. That would be legal, but it wasn’t our strategy. Some companies buy back shares and hold them when they see that prices are low. This is not the case, as Petrobras has reduced the number of shares on the market. That’s why it’s considered a form of remuneration. A Petrobras shareholder has two forms of remuneration. One is dividends and the other is appreciation. If I bought a set of shares for R$100, the end of the year comes and they are worth R$150, then we distribute value in the form of earnings in addition to dividends. They are also divided by the number of shares. When you reduce the share base, you can earn on the appreciation and the next dividends will be divided among a smaller number of shares. That’s why it’s considered shareholder remuneration. We are discussing the new phase of the program. The idea is to propose it to the board of directors and, if approved, we will continue to expand the program.

Valor: Can the discussion about dividends return in the face of higher oil prices?

Mr. Leite: We’ve chosen to distribute extraordinary dividends at the end of the year, and there’s a reason for that: it’s because you visualize the full year. You can have good quarters and bad quarters. To be clear, for years we’ve only released extraordinary dividends at the end of the year because we’ve been able to see the full picture. The dividend formula is in place and until someone decides to change the policy—and this decision was not made—it [the current policy] will be applied and the extraordinary dividend will be paid. Of course, if oil prices surge, we generate more cash because we sell abroad at a higher price.

Valor: Oil prices are volatile. Does this make setting fuel prices opaquer?

Mr. Leite: Since we revised our commercial strategy last year, we have maintained and reinforced the objective of not passing on volatility directly to the end customer, for various reasons, including the fact that it’s not good. Brazil runs on diesel. Imagine a truck that leaves home with one price, calculates the freight, the price of fuel changes halfway through, and when it gets there [at the destination] to return it’s another freight price. It makes no sense. And it’s bad for Petrobras’s cash flow predictability. If we sell assuming volatility, you can sell with the price down and lose money, or sell a contract [with the price] up and leave the market, because the competitor starts putting in more product.

Valor: So what is the strategy?

Mr. Leite: The strategy has a variation range and we follow it. As long as it’s in the range, we don’t make any sudden moves. When there is a structural change, that’s the time to make the move. Petrobras always ends up being the target of comments, but what happens is that companies, associations, and operators have no way of calculating Petrobras’s price [exactly]. Petrobras is the most efficient fuel importer on the market because of its infrastructure. We have logistical and competitive advantages. Our policy dictates that we shouldn’t sell below the marginal value and, when Petrobras is at the marginal value, it has a very good margin. We keep observing the market every day, every week. When we have to change, we will.

Valor: The company used to be the world’s most indebted oil company and today it’s holding its own. Is there room for Petrobras to take on more debt?

Mr. Leite: At Petrobras, debt is made up of two parts, financial and accounting, which comes from IFRS [International Financial Reporting Standards] rules. Our debt is made up of contracts, such as Floating Production, Storage, and Offloading (FPSO) units, helicopters, all kinds of ships. The financial debt comes from issuing bonds. And 100% of the investments in Petrobras’s strategic plan, those R$500 billion, just over $100 billion, are paid for with cash generation. Petrobras doesn’t raise money for investment. The strategic plan is funded with the company’s own money. Up until now, capital discipline has meant that the company has financed the entire plan with its own cash. Last year, Petrobras won two or three awards with a global bond we issued, for $250 million. A pool of 13 or 14 banks handled the operation. We got low rates, and we were equivalent to AAA [investment grade] companies. The market recognized the quality of the securities and we had overdemand. If we issued twice as much, people would buy it. We haven’t issued since 2020 or 2021. And we did it for several reasons. One was to see how the market was viewing the company. And because the rates were in our favor. It’s important to be in the debt market. We had a financial debt of $28 billion, we issued R$1.25 billion [$250 million] and today we owe $27 billion. In the past, rates were higher, we borrowed R$1.25 billion and used the money to buy bonds. We call this debt curve management. Whenever the market shows a rate mismatch in our favor, when there is an opportunity to lower the debt, we tap the market and buy the old debt. We don’t need to issue to do projects. That’s with our cash reserves, it [the cash flow] gives [space] and there’s leftovers, which you see in the form of dividends.

*Por Fábio Couto — Houston

Source: Valor International

https://valorinternational.globo.com/
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Suzano to look at opportunities in different regions, CEO says

Company made $15bn offer to buy IP, sources say; earnings fell 96% in Q1, to R$220m

05/10/2024

Walter Schalka — Foto: Ana Paula Paiva/Valor

Walter Schalka — Foto: Ana Paula Paiva/Valor

Just under two months before stepping down as CEO of Suzano, Walter Schalka said the pulp and paper company will maintain its long-term investment perspective and, consequently, growth. However, the executive declined to comment on the company’s interest in International Paper (IP), arguing that Suzano does not speak about specific operations.

“The company, in a rationalist manner, will look at organic and inorganic opportunities in different geographies,” he said. According to sources, Suzano made an informal offer to acquire the U.S.-based company, valued at $15 billion. However, one of the obstacles to a potential deal is a requirement made by Suzano—the end of the agreement involving the acquisition of DS Smith by IP.

Suzano released its first quarter results on Thursday (9), which brought the effects of the strong pulp depreciation in the first half of 2023. Net earnings fell 96%, to R$220 million, also pressured by the financial result. Net revenue totaled R$9.46 billion, a drop of 16%, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell 26%, to R$4.56 billion.

Pulp prices have been recovering since the middle of last year. According to Mr. Schalka, the market is more favorable than last year, with “robust” demand in the three main regions: Asia, Europe, and North America. Non-recurring events, such as strikes, logistical issues, and unexpected factory shutdowns, led to a better price moment, with a gradual increase.

“The average price realized in the first quarter has not yet captured all of the increases,” he said.

At the beginning of the year, pulp price in China was $617 per tonne, compared to $740 this month. Given this scenario, the expectation is that the average price realized in the second quarter will be higher than at the beginning of the year.

According to Mr. Schalka, pulp revenue in the first quarter also reflects a movement to replenish stocks, which in December were below safe levels and, if maintained at those levels, could put supply to customers at risk in the future.

The Cerrado Project, which involves the construction of a plant with a capacity to produce 2.55 million tonnes of pulp per year in Ribas do Rio Pardo, Mato Grosso do Sul, is on schedule and the forecast for starting operations by the end of June has been maintained. Suzano is investing R$22.2 billion in the project.

With the start of operations, the expectation is for a gradual reduction in financial leverage, which reached 3.5 times in March, within the cap set by the debt policy in investment cycles. According to Mr. Schalka, with a cash cost of pulp production of R$812 per tonne in the first three months of the year, which is 13% below a year earlier, Suzano should see a further drop in this item after the stabilization of the Cerrado Project.

Marcelo Bacci, chief financial, investor relations, and legal officer, says that Cerrado will bring a “quite significant” return at current pulp price levels. “The new projects will have a higher investment per tonne than those that are being carried out now, as wood, land, and industrial capex have become more expensive, and will have to be justified by higher pulp prices,” he pointed out.

*Por Stella Fontes — São Paulo

Source: Valor Inaternational

https://valorinternational.globo.com/
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Floods put Brazil’s 2% GDP growth at risk

Economists estimate an impact of 0.2 to 0.3 percentage points driven by agribusiness

05/10/2024

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The Central Market is flooded after heavy rain in Porto Alegre — Foto: Andre Penner/AP

The impact of the floods in Rio Grande do Sul, the state with the fourth-largest share of Brazil’s Gross Domestic Product, on the national economy may range between 0.2 and 0.3 percentage points, according to preliminary estimates. That could put in check the possibility of a GDP growth above 2% for 2024, despite the resilient general activity.

XP Asset has revised its projection for Brazil’s GDP this year to 2.1% from 2.4%. While the previous expectation was for growth of 0.7% in the second quarter compared to the first, the financial firm now expects a drop of 0.2%. “And I think the impact could be even worse than our estimates suggest,” said chief economist Fernando Genta.

That is because the estimate considers rather the direct effect of the floods on the economy of Rio Grande do Sul than an overspill into other areas, Mr. Genta explains. For example: as the annual minimum wage raise is already given, the increase in food prices due to problems with crops in Rio Grande do Sul could lead to a deterioration of households’ purchasing power and, therefore, affect consumption in the GDP.

Fernando Fenolio, chief economist at Wealth High Governance, estimates that the adverse impact could vary from 0.02 percentage points on the national GDP, if there is a full recovery of industrial capacity in Rio Grande do Sul and a 25% loss of the remaining local harvest, to 0.34 percentage points, if the loss of the remaining harvest is complete and industry recovery does not exceed 25%.

An impact of 0.22 percentage points, caused by a total loss of the remaining harvest, although with 75% recovery of industrial capacity, seems a more likely scenario at the moment, according to Mr. Fenolio. “We will review our GDP projection. It could go to 1.8%, compared to the 2% we were expecting for this year, mathematically,” he said. Inflation, in turn, would shift to 4% from 3.8%. “It’s a classic supply shock, less GDP and more inflation.”

In preliminary estimates by 4intelligence, the Rio Grande do Sul’s GDP growth could reach just 0.5% this year, from 5.5% previously projected, due to the disaster. Considering that the state accounts for around 6.5% of the national economy, the floods could reduce Brazil’s GDP growth by 0.2 percentage points in 2024, according to the estimates. As a result, 4i’s official projection of a 1.9% increase in Brazil’s GDP this year could be reduced to 1.7%.

“The main impact on activity will occur in May. In June, we believe that most activities will be back to normal, depending on the material damage and the pace of reconstruction,” Bradesco said in a report. The bank also sees a potential impact of 0.2 to 0.3 p.p. on the Brazilian GDP as a result of the disaster.

G5 Partners has a similar estimate, indicating a loss of 0.3 percentage points. “As we have never experienced a natural disaster of the magnitude seen in Rio Grande do Sul, we sought references from other locations. We used the effects of hurricanes Katrina and Rita in the U.S. in 2005 as examples,” said Luis Otávio Leal, G5’s chief economist.

Based on a study by the U.S. Department of Commerce, which measured the impact of these hurricanes on the U.S. GDP quarterly, and adapting to metrics in Brazil, Mr. Leal estimated that the floods could take 10.5 percentage points off the variation in Rio Grande do Sul’s GDP in the second quarter of 2024, compared to the first quarter. As a result, his projection for the Brazilian GDP growth in 2024 would fall to 1.8% from 2.1%.

G5 did not change the estimate, but, before the floods, the firm was expecting to raise its annual forecast for national GDP following the release of official data for the first quarter.

“I believe the comparison with the effect of hurricanes Katrina and Rita makes sense, as there was similar material damage. However, the estimate does not consider other variables, such as the difference in the countries’ ability to act,” Mr. Leal points out, as the U.S. has an organized structure to act in cases of disasters like this.

According to Banco Pine, the projection for Brazil’s GDP growth in 2024, of 2.3%, can be revised to 2.1%, in an initial estimate.

“The impact tends to be mitigated for the national GDP. Regionally, it’s much more, and thinking in trillions of reais, there’s a loss of wealth. But I’m even more concerned about agribusiness,” said the chief economist of the bank, Cristiano Oliveira. He notes that if the state accounts for 6.5% of the national GDP, its participation in the agricultural GDP is almost double, around 12.5%.

Considering the state alone, 4i estimates that the most affected sector will be agriculture, which could grow 25% less than expected in the second quarter. “Rio Grande do Sul’s agricultural GDP, alone, was expected to grow 18.9% in 2024, recovering from a giant crop failure in 2022 that was not entirely replaced in 2023. Now, the increase could be just 1.9%,” said Bruno Lavieri, 4i’s chief economist.

Assuming that half of the unharvested crop on the fields has been lost, 7.5% of rice production and 2.2% of soybeans in Brazil could be impaired, according to Bradesco. The bank argues that these estimates may still be conservative.

With that in mind and considering a possible impact on wheat planting, which has just begun, and on the slaughter of chicken and, mainly, pigs, Bradesco estimates that the drop in Brazilian agro GDP in 2024 could aggravate to 3.5% from the expected 3%.

“There is also all the infrastructure involved in agribusiness, with storage silos, roads, and energy transmission. All of that should be impaired for some time,” said Mr. Oliveira of Pine. Therefore, he says the effect of the disaster on GDP tends to “last longer and worry more” than on inflation.

In services, transportation is likely to struggle for longer due to road closures. In services provided to households, activities related to leisure, hospitality, and personal services could also be strongly impacted, Bradesco points out. 4i’s projection for services in Rio Grande do Sul was reduced to a drop of 3.1% in the year from an increase of 1.9%, with losses concentrated in the second quarter.

The industry could be less impacted: the estimate for 2024 was reduced to 1%, from 1.8%. “Extractive activities have almost no weight in the state, while manufacturing, which is important given vehicle and machine production, should experience a specific impact and recover in the future, as demand was only pent-up. Furthermore, we should see some boost in construction, as the damage should boost construction works,” said Mr. Lavieri.

For 2025, 4i raised its GDP forecast for Rio Grande do Sul to 6.1% from 2%. “We maintain our projection for services and industry, which should grow a little less in 2024, but would recover next year. Agriculture is expected to continue below what was initially expected,” said Mr. Lavieri.

“Agribusiness in the region will likely suffer the consequences of the current event for many months to come, maybe casting doubt on the success of the next harvest,” said Mr. Oliveira. He points out that the La Niña phenomenon is expected to return in July, making the weather dry in Rio Grande do Sul. Although this could seem positive given the damages caused by excessive rainfall, it harms crops. “Unfortunately, extreme weather events tend to hit the state hard given its location,” he said.

* Por Anaïs Fernandes, Marcelo Osakabe, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Multi to make Oppo cell phones in Brazil

Chinese company is in fifth place in cell phone brands

05/09/2024

The Multi Group, formerly known as Multilaser, announced on Wednesday (8) an exclusive partnership for the manufacture and distribution of smartphones from China’s Oppo in Brazil. Sales of the devices will be made exclusively by retailer Magalu. Since 2022, Oppo has been importing its cell phones from China to serve the Brazilian market.

“In this partnership, responsibility for marketing, trade marketing, and product positioning is the responsibility of the partner,” Multi said in a statement to shareholders.

Oppo ranked fifth among the largest cell phone manufacturers in the world, with 25.2 million units sold and an 8.7% share in the first quarter of this year, according to data from consultancy IDC. A year earlier, Oppo held 10.3% of the global market.

Samsung leads global smartphone sales, with 20.8% of the market in the first quarter, followed by Apple, with 17.3%, and China’s Xiaomi (14.1%) and Transsion (9.9%), reports IDC.

*Por Daniela Braun — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil floods kill 107 as losses top R$6bn

State government estimates that 600,000 MSEs were affected by rains and flooding

05/09/2024

A boat navigates through a flooded street after heavy rain in Canoas, Rio Grande do Sul — Foto: Carlos Macedo/AP

A boat navigates through a flooded street after heavy rain in Canoas, Rio Grande do Sul — Foto: Carlos Macedo/AP

The death toll due to the rains in Rio Grande do Sul has risen to 107, with 136 people missing and one death under investigation. According to the Civil Defense of Rio Grande do Sul, 67,542 people lost their homes and have been relocated to shelters provided by the public authorities, and 163,786 have been displaced. Of the total 497 municipalities in the state, 425 were affected by the heavy rains in the region. The number represents more than 85.5% of all state’s municipalities.

The financial impacts of the storms that started last week are also starting to be assessed. The damage to municipalities in Rio Grande do Sul affected by the floods now reaches R$6.3 billion, according to the most recent survey by the National Confederation of Municipalities (CNM). Of this total, R$1.9 billion are in the public sector and R$1 billion in the private sector. Most of the damage is in the housing sector, with losses of R$3.4 billion, arising from 61,400 homes damaged or destroyed.

The CNM points out that the data gathered until 2 pm on Wednesday (8) are partial and are being updated as municipal administrations enter information into the Integrated Disaster Information System, by the Ministry of Integration and Regional Development.

In the public sector, the estimate points to R$1.4 billion in losses in infrastructure works alone (bridges, roads, pavement work, and urban drainage systems) and R$ 351 million in losses related to material damage (public facilities such as schools, hospitals, and city halls).

In the private sector, the most affected sector is agriculture, with an estimated loss of R$595 million. Livestock farming faces losses of R$148 million. In industry, the loss is estimated at R$183 million. Losses with other services amount to R$58 million and local businesses, R$39 million.

Rio Grande do Sul’s small-business support service SEBRAE estimates that 600,000 micro and small enterprises (MSEs) were affected by the rains and flooding. The number represents 40% of the total of 1.5 million MSEs in the state.

“We attended a meeting with the state’s Department of Economic Development to prepare a methodology for diagnosing companies. The survey should be carried out from Thursday (9) with publicity so that micro, small, medium, and large entrepreneurs can participate,” said Ariel Fernando Berti, SEBRAE’s director in Rio Grande do Sul.

The new survey, according to Mr. Berti, should help financial institutions and banks evaluate loan facilities for the affected sectors, as it will disclose numbers on the real impact of damages and losses.

According to him, the priority right now is to save lives, resume essential service systems, and ensure safety for everyone in the most affected areas. “Many people have been displaced in completely devastated communities that are stranded from other areas, and are facing collapse of bridges or road issues. The priority is to save lives,” he emphasized.

The return of rain and strong winds to the Porto Alegre area on Wednesday (8) forced the city hall to pause the rescue of victims of the historic floods in Rio Grande do Sul. The Civil Defense is preparing for a new cold front expected to arrive in the state on Friday (10), causing storms almost as strong as those seen last week. They are expected to occur in the same areas affected last week.

According to the current estimate, 330 millimeters of rain is expected from Friday (10) to next Monday (13) in Porto Alegre. The forecast indicates that, during that period, the most intense rain should occur in the area between the center-north and east of Rio Grande do Sul, including the north coast of the state and the south of Santa Catarina. In these areas, the volume of rain should vary between 200 mm and 300 mm.

For Thursday (9), the forecast by the National Institute of Meteorology (INMET) is for cold, dry weather in the south of Rio Grande do Sul, with minimum temperatures varying from 4°C to 8°C.

(With Folhapress)

*Por Paula Martini, Luiz Fernando Figliagi — Rio de Janeiro, São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Brazil slows rate cuts amid division within Monetary Policy Committee

Policy interest rate was cut by 25 bp; decision was made by 5 to 4 in the collegiate meeting

09/05/2024

Central Bank’s building in Brasília — Foto: Beto Nociti/BCB

Central Bank’s building in Brasília — Foto: Beto Nociti/BCB

In a decision that divided its members, the Central Bank’s Monetary Policy Committee (COPOM) on Wednesday reduced the policy interest rate, known as Selic, to 10.50% per year from 10.75% per year. The 25-basis-point cut was supported by five members of the committee, while the other four voted to continue the 50 bp reduction, as in the last six meetings.

This division has sparked adverse reactions among market agents, who are concerned about a potentially more inflation-tolerant board after Central Bank President Roberto Campos Neto’s term ends this year.

The board consists of the Central Bank president and eight directors. Mr. Campos Neto and directors Carolina de Assis Barros, Diogo Guillen, Otávio Damaso, and Renato Dias de Brito Gomes supported the 25-bp cut. In contrast, Ailton de Aquino Santos, Gabriel Galípolo, Paulo Picchetti, and Rodrigo Teixeira, all appointed by President Lula, voted for a 50-bp reduction.

A Valor survey had predicted this outcome, with 78 of the 118 financial institutions and consultancies expecting a 25-bp cut and another 40 anticipating a 50-bp reduction.

The last split in the committee over interest rate cuts occurred at the start of the current cut cycle in August 2023. At that time, the decision to reduce the rate to 13.25% per year from 13.75% per year garnered five votes—those of Mr. Campos Neto, Mr. Aquino, Mr. Barros, Mr. Galípolo, and Mr. Damaso. Directors Fernanda Guardado, Maurício Moura, Guillen, and Gomes had voted for a 25-bp reduction.

A significant development in Wednesday’s statement was the absence of clear guidance on the next steps for the Selic rate. Historically, the COPOM has indicated reductions of 50-bp cuts in “upcoming meetings.” This pattern shifted at the March meeting when the guidance was narrowed to a 50-bp cut at only the “next meeting” amid heightened uncertainty. Since then, the landscape has grown even murkier, and such a cut has not materialized.

Contributing to this uncertainty were doubts about the direction of interest rates in the United States and the Brazilian government’s revision of the fiscal target for 2025 from a surplus of 0.5% of GDP to a zero deficit. In this context, Mr. Campos Neto outlined four potential scenarios for monetary policy. The first scenario would see a reduction in uncertainty, taking “the usual path.” The second would occur if high uncertainty persisted without significant changes, potentially leading to “a reduction in pace.” In the third scenario, increasing uncertainty would strongly impact key variables, necessitating a discussion on adjusting the risk balance. In the worst case, escalating uncertainty would cause global stress, prompting the Central Bank to alter its baseline scenario.

In its latest statement, the COPOM noted that the external environment “appears to be more adverse.” In March, the situation was described as “volatile.” The increased adversity is attributed to significant uncertainty about when the United States will begin monetary easing and “the speed at which a sustained decline in inflation will be observed in several countries.”

Regarding the domestic situation, the statement indicated that economic activity and labor market indicators “have been more dynamic than expected.” In March, the COPOM had described these indicators as consistent “with the economic slowdown scenario anticipated by the COPOM.”

On fiscal matters, the COPOM has been closely monitoring “recent developments in fiscal policy and their impact on monetary policy,” emphasizing that a credible fiscal policy “committed to debt sustainability helps anchor inflation expectations and reduce financial asset risk premiums, consequently affecting monetary policy.” Before the fiscal targets were revised, the committee had underscored “the importance of the firm pursuit of these targets.”

The statement also emphasized that the board “unanimously” agreed that the uncertain global scenario and the domestic environment, marked by resilience in activity and unanchored expectations, “call for greater caution.”

The COPOM’s inflation projections have increased, with expectations of 3.8% this year and 3.3% in 2025. In March, inflation was projected at 3.5% for 2024 and 3.2% for 2025.

*Por Gabriel Shinohara, Alex Ribeiro — Brasília and São Paulo

Source: Valor International

https://valorinternational.globo.com/
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ADNOC gives up on buying Braskem amid Maceió soil sinking

Lack of definitive agreement on the petrochemical company’s environmental liabilities made Abu Dhabi state-owned company withdraw from negotiations

05/08/2024

Five years on, Alagoas has once again become the sticking point in Braskem’s sale process. The lack of a definitive agreement on the petrochemical company’s environmental liabilities in Maceió and a recent interest in other oil and gas assets around the world, including BP, led the Abu Dhabi National Oil Company (ADNOC) to give up on buying the Brazilian company, Valor has learned.

Braskem, however, is still on the radar of another Arab company, Petrochemical Industries Company (PIC), which received Novonor representatives in Kuwait last week, according to sources. PIC is still conducting due diligence, which is still in its initial stages.

Rumors that ADNOC was withdrawing from the dispute began circulating around 20 days ago. At the time, BP had already received an expression of interest from the Abu Dhabi state-owned company to buy a slice of its shares or control, according to Reuters. The talks, however, did not prosper.

According to sources familiar with the negotiations between Novonor (formerly Odebrecht) and ADNOC, the talks have progressed well, with signs that an agreement could finally be reached by the end of November. Novonor was still not satisfied with certain terms of the offer, but for the first time the parties involved in the potential transaction were converging on the same point: that of signing a sale and purchase agreement.

However, the collapse of Braskem’s rock salt mine 18 in Maceió in December and the exposure the case gained, culminating in an investigative parliamentary committee (CPI), threw cold water on ADNOC’s interest.

The Arab state-owned company wasn’t frightened by the soil sinking in Maceió per se but by insecurity generated by political interference in the discussions and questions surrounding the reparation agreements signed by the petrochemical company, as well as the lack of a definitive solution that could prevent, for example, questions about liability in the event of further events. So far, Braskem’s damages in Alagoas stands at R$15.5 billion.

In November, ADNOC made a new non-binding offer to buy control of Braskem, held by the former Odebrecht, for R$37.29 each share, or R$10.5 billion. The proposal was also presented to Novonor’s creditors – Bradesco, Itaú Unibanco, Santander, Banco do Brasil, and Brazilian Development Bank (BNDES) – who hold Braskem shares as collateral for debts of around R$14 billion.

For the sale of Braskem to go ahead, ADNOC would have to present a binding offer (with a commitment to buy) at the end of the due diligence it was conducting. Petrobras would then have to indicate its position in the transaction.

The petrochemical company’s second-largest shareholder, with 36.1% of the total capital (and 47% of the voting shares), Petrobras has the right to buy the share of its partner Novonor—38.3% of the total capital and 50.1% of the common shares—or to sell its stake together with the former Odebrecht.

At the beginning of Monday night, Petrobras informed that it is carrying out due diligence on Braskem for the possible exercise of a tag-along or pre-emptive right, in the event of the sale of the shares held by Novonor.

It is unclear how the creditor banks of the former Odebrecht will react to yet another failure in the years-long attempt to sell Braskem. In June 2019, LyondellBasell abandoned exclusive negotiations precisely because of the revelation of the soil-sinking problem in Maceió.

Sought for comment, Novonor said that it was still engaged “in order to move forward with the process, in line with the commitment made to its related parties,” and ADNOC confirmed that it had withdrawn from the negotiations.

*Por Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Foreign Direct Investment at highest level since 2017

Current account had a deficit of $32.6bn in first quarter

05/08/2024

Foreign Direct Investment totaled $23.3 billion in the first quarter of this year, the highest result for the period since 2017. The month of March, which saw the highest figure for the month since 2012 at $9.6 billion, contributed to this result.

FDI is considered the most stable form of financing for external accounts. Over 12 months, it decreased to $66.5 billion (2.98% of GDP) from $75.2 billion (3.76% of GDP) in March last year, but it still exceeds the current account deficit.

In the 12 months ending in March this year, the deficit was $32.6 billion (1.46% of GDP). In March 2023, the cumulative figure was $49.3 billion (2.46% of GDP). The head of the Central Bank’s statistics department, Fernando Rocha, said the deficit is low given the country’s economic conditions and is “fully financed by long-term capital, mainly FDI.”

FDI includes equity participation, intercompany operations (loans from a parent company abroad to a subsidiary in Brazil, minus amortizations paid abroad), and reinvested earnings. Mr. Rocha said that intercompany transactions were the main contributors to the increase in FDI in March, rising to $5.5 billion this year from $2.5 billion in the same month of 2023.

For Rafaela Vitória, chief economist at Banco Inter, the recovery of FDI was the positive surprise of the quarter. She said that the net inflow equivalent to 3% of GDP over 12 months is a “quite comfortable” level, considering the current account deficit. “Despite the more negative movement in the market, which signals a perception of increased risk from foreign investors due to higher interest rates and recent currency devaluation, Brazil is likely to continue to attract enough direct investment to keep the external accounts in surplus,” she said.

In the first quarter, the current account balance was negative at $14.4 billion, compared to $12.6 billion in the same period of 2023. In this comparison, the figure is mainly impacted by the service account, which had a deficit of $10.7 billion in 2024 compared to $7.6 billion in the first three months of 2023.

Mr. Rocha added that this service account shows an increase in trade flow. He also said that the explanation for the dynamics of services has changed in recent months. The major factor in the increase in the deficit is explained by intellectual property services (such as license payments for software distribution) and the account for telecommunications, computing, and information.

Luís Otávio Leal, a partner and chief economist at G5 Partners, said that the balance of current transactions in March, with a deficit of $4.6 billion against a surplus of $700 million in March 2023, includes factors such as increased expenses on travel, transport, and equipment rental, “all reactive to the recovery of the economy and income.” According to the economist, the deficit is expected to reach $45 billion by the end of this year, or 2% of GDP.

Current transactions were also impacted by the result of the goods trade balance, which had a surplus of $12.5 billion in the first quarter, and the primary income account, consisting of capital remuneration revenues and expenses—profits and interest—which had a deficit of $16.5 billion in the same period.

*Por Gabriel Shinohara, Alex Ribeiro — Brasília, São Paulo

Source: Valor International

https://valorinternational.globo.com/

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