Stronger inflation in 2025 on analysts’ radar

IPCA at 5% in 2025 worries some economists amid effects of employment in the services sector

04/10/2024

Alexandre Bassoli — Foto: Silvia Zamboni/Valor

Alexandre Bassoli — Foto: Silvia Zamboni/Valor

Although the market’s median expectation for inflation in 2025 has been around 3.5% for months, some economists expect inflation to accelerate from this year to the next, especially due to the dynamics of service prices.

“My biggest concern is the tight job market,” said Alexandre Bassoli, chief economist at Apex Capital. He sees inflation ending 2024 at 4.2% and going to 5% in 2025.

“The monetary easing cycle started amid peculiar conditions, with economic growth that surprisingly accelerated and an unemployment rate that has fallen persistently to its lowest levels since 2015. Economic slack seems to be low,” he added.

According to the economist, it is already possible to see the tight job market translating into higher wages, which puts pressure on inflation in services, especially in more labor-intensive segments.

“Looking ahead, I don’t see this degree of tightness decreasing; on the contrary. The economy seems to be starting the year stronger than we had thought and I think we will see the effects of interest rates adjustment for a while,” said Mr. Bassoli.

Étore Sanchez, chief economist at Ativa Investimentos, highlights the dispersion of projections for the 2025 inflation. The median estimate in the Focus survey is 3.53%, but it ranges between 3% and 5.1%. Ativa expects an Extended Consumer Price Index (IPCA) of 3.8% in 2024, accelerating to 4.2% in 2025.

Next year’s inflation should be pressured by services, according to Mr. Sanchez. “We are experiencing an easing in the monetary policy despite the resilience of services inflation. Therefore, it is not expected to fall, especially because we don’t see the job market weakening,” he explains.

Mr. Sanchez also expects some offset coming from regulated prices, such as urban transportation. “Some prices haven’t been adjusted as 2024 is a municipal election year. That will only postpone inflation a little. Next year, it will come back,” he said.

Mr. Sanchez also expects more fluctuation in food prices in 2025. “It is a short-term cycle. In one year, farmers receive higher pay, which encourages an increase in productivity and planted area. The following year, it falls. Then, it rises again. It is natural to see volatility from year to year,” he said.

Therefore, according to Mr. Sanchez, only the prices of industrial goods could bring positive news for inflation in 2025. “Industry is linked to the international market, where we expect to see inflationary relief. The industry has largely reflected the import of disinflation, which I expect to continue next year, but it may not be strong enough to slow down inflation in 2025 as a whole,” Mr. Sanchez adds.

Gustavo Arruda, head of Latin America research at BNP Paribas, expresses uncertainty about a favorable contribution from industrial goods. “We buy into the idea that there is disinflation of industrial goods stemming from the global slowdown, from China, and from some lagged effects after the pandemic shock. It aided last year and still aids this year, but for 2025, it appears that this effect will be diminishing,” he said.

In addition to the pressure on services in the 2025 IPCA, Mr. Arruda points out the perspective of a still expansionary fiscal policy fueling demand, while monetary policy should move towards neutral territory. “I don’t think it will be expansionary, but it won’t be contractionary either, or it may be less restrictive.”

BNP Paribas projects inflation of 3.5% per year in 2024 and 4% in 2025. If the Central Bank fails to reduce interest rates to 9% per year, as BNP Paribas projects, or a little below that level, at the end of the cycle of cuts, by stopping it sooner than expected, the bank’s estimate for the 2025 IPCA will have to be revised downwards, said Mr. Arruda.

Mr. Sanchez highlights that Ativa’s projections for the Central Bank’s stance “differ slightly” from what the investment firm believes monetary policy should be at present. Ativa anticipates that the key rate Selic will remain steady at 10% until at least March 2025, at which point the Central Bank would begin considering 2026. He added that the Central Bank aims for inflation matching expectations “but has not been very successful in this endeavor.”

Projections for the 2025 inflation are crucial not only because the year is already present in the “relevant horizon” that guides the Monetary Policy Committee’s actions, but also because the reading that there is little room for reducing inflation expectations ahead impacts monetary correction and price dynamics, Itaú Unibanco points out in a report.

The bank estimates that a shock of 0.50 percentage points in inflation projections for one quarter leads to an increase of 0.36 percentage points in inflation in the following six quarters.

“Given the dynamics and balance of risks in the current scenario, which, among other factors, involves a more challenging international scenario and resilient economic activity and domestic job market, we see little room for reducing inflation expectations ahead,” economists Julia Gottlieb, Natalia Cotarelli, and Julia Passabom wrote in the report.

According to part of the economists who are wary about the 2025 inflation, one risk is the Central Bank being led to raise interest rates again next year. That possibility also faces uncertainties given the prospect of a change in its team. By the end of 2024, the federal government is expected to appoint a new president and two directors for the Central Bank.

“We see an increase in the Selic rate in the second half of 2025 as the most likely scenario given the inflationary situation. The Central Bank will probably be led to increase interest rates in a context of narrow economic slack and pressure on services inflation,” said Mr. Bassoli of Apex. He projects the Selic at 9.25% at the end of this year and 10.5% in December 2025.

Uncertainties regarding the Central Bank’s new composition affect inflation expectations for 2025. However, Mr. Arruda of BNP Paribas does not believe the change will necessarily mean the monetary authority will be dovish to the point of avoiding rising interest rates again, if necessary. “Each Central Bank is different. I think it may become more dovish than in the past, but that does not necessarily imply that we are moving towards an extreme situation,” he said.

*Por Anaïs Fernandes, Victor Rezende — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Retailers pass on tax increases to consumers

ICMS increases and cuts in subsidies catch sellers by surprise

04/10/2024

Felipe Tavares — Foto: Divulgação

Felipe Tavares — Foto: Divulgação

A combination of adverse legal measures affecting retail chains has begun to impact consumers’ wallets, leading to price pressures in the market.

Unexpected changes in tax regulations by the government and the Supreme Federal Court (STF) approved at the end of 2023, along with the sales tax ICMS increase in 11 states in January, have led companies to pass on part or all of these costs to customers—and this trend also extends into 2024.

The federal government and the states need funds to offset revenue losses from 2023 and reduce the deficit in public accounts, passing on part of this bill to companies—which transfer some of it to consumers to preserve their margins.

According to a survey by CNC, the National Confederation of Commerce and Tourism, consumers already perceive the current moment as unfavorable for the purchase of durable goods, such as TVs and refrigerators, due to higher prices and expensive credit. March showed the lowest confidence level in this sector since October.

Two central changes in this discussion, both complex in legal terms and approved at the last minute in 2023, were the new interpretation of the payment of Difal (differential ICMS tax rate) and a change in the rules for tax incentives granted by states for investments.

This becomes a headache, especially for retailers, who are more exposed to these measures. The Difal change, specifically, started impacting online retailers last year.

According to Felipe Tavares, chief economist at CNC, “the issue lies in the fact that the retail sector is directly impacted. If retailers bear the brunt of these changes, it ultimately affects the end consumer in equal measure,” particularly if businesses cannot absorb the increased tax costs.

“I often say that when a company’s taxes increase, it’s the customer who pays,” said Carla Hamada, coordinator of the tax committee of ABAAS, the association of self-service wholesalers.

As for the subsidies, the Ministry of Finance projects an extra R$35 billion to be added to the federal government’s revenue in 2024. As for Difal, the total bill for the retailers ranged from R$9.5 billion to R$10 billion in 2022, the year marked by a legal dispute over outstanding amounts. These dues have already been settled with the states.

The increase in the ICMS rate transfers another R$9.2 billion annually to the coffers of 11 states. The change in the rate is effective from January to April, depending on the region of the country.

Companies such as Magazine Luiza, Casas Bahia, Arezzo, Mateus, and Assaí told analysts in recent conference calls they have already felt or passed on to consumers the effects of one of these three changes in recent months (ICMS increase, Difal revision, or investment limitation).

The change in law also impacted retailers. The government offers a subsidy by reducing or exempting companies from paying taxes as a counterpart to investments, such as the opening or expansion of factories, distribution centers, or machinery purchases.

Until last year, companies deducted these incentives from income tax payments, improving net profit. But the new law sanctioned by President Lula on December 29 excludes benefits linked to operating expenses, focusing on incentives that effectively promote productive investments.

It is a way to reduce distortions, which ultimately boosts the federal government’s cash reserves but affects the results of the groups.

In a report in December, XP analysts projected the need for up to a 3% price increase for retailers covered by the bank, on average, to offset an 8% to 15% decrease in net profit due to the new law. This would happen when considering a 50% to 100% decrease in the tax benefit.

As for Difal, it is used to split the ICMS collection between the state where the company is located and the state where the product is consumed.

Example: A product is sold from a state with a 15% ICMS to another with 18%. The credit related to the three-percentage-points difference is divided between the states. This practice is more common in online retail operations.

The question in the courts was whether companies should bear the Difal from April 2022 or after 2023, as companies argued before the Federal Supreme Court. In late November, the Supreme Court, in a surprising turn of votes, decided it would apply after 2022, catching the sector off guard.

Marcelo Roncaglia, a partner specializing in tax law at the Pinheiro Neto Advogados law firm, said that before the Supreme ruling, smaller retailers, facing significant legal uncertainty, complied with and paid the tax. In contrast, larger retailers sought injunctions and deposited the amount in a court-held account. However, with the final decision, all retailers are now obligated to pay the tax for 2022.

“The sad part is that the poorer population ends up being penalized because consumption taxes have a greater share in the budget of these classes than among the richer ones,” he said.

Some large companies had not provisioned the sum, requiring a write-down after the Supreme Court decision. Retailers Renner and Magazine Luiza are in this group. Price increases gained momentum after the second half of 2023.

In a highly competitive retail environment, these price hikes end up losing steam. Brazil is a country of fragmented commerce and high competition, which helps accommodate price increases. However, constant crises (such as from 2015 to 2016 and after 2020) weaken businesses across the board and the groups’ abilities to absorb increases. And this is the case at the moment.

“These changes without any foresight create tax confusion in a chaos already established by the legal madness that companies face in the country. This only generates uncertainty and higher costs,” said Mr. Tavares of CNC.

At Magazine Luiza, with the increase in taxes, especially with Difal, an additional R$3 billion was added to the company’s costs in 2023. About R$1.2 billion of that was Difal. “If we divide it by quarter, it’s R$300 million that we hadn’t collected in 2022, which we started collecting in 2023. So, there was a very significant increase in prices to defend our profitability,” CEO Frederico Trajano told analysts in March.

It took three quarters to pass everything on, with a total pass-on sum of about R$1 billion in 2023. There was no effect on the chain from the subsidies.

At retailer Casas Bahia, the company accounted for the effect of Difal for 2022 in the results and passed on the full amount to prices.

According to Mr. Tavares of CNC, it may not be possible to identify this pressure in inflation indicators now. This is because these effects spread within durable and semi-durable categories, with a smaller weight in the index.

In the chains, there has been an increase in home appliance prices in five of the last six months, considering Brazil’s official inflation index IPCA, and in four of the last six months in clothing categories. Both segments were affected by Difal.

Subsidies, on the other hand, impact the wholesale food sector, which has made robust investments in the last three years.

In January, Genial Investimentos mentioned in a report the effects on Assaí, a cash-and-carry chain. It stated that investment subsidies had reduced tax and social contribution payments by R$248 million in 2022, a benefit that will no longer be in place.

For financial publishing company Empiricus, the end of this effect can be offset by price increases in 2024, albeit less than those of its competitors.

In the fashion sector, Arezzo&Co’s chief financial officer, Rafael Sachete, said at an event last week that chains in general felt the new Difal rule and the impact of the change in how subsidies are taxed at the same time.

In Arezzo’s case, with the changes in the rules, the group held back acquisitions and streamlined its structure to improve margins. In 2024, this approach continues, aiming “not to pass on too much to price increases.”

He said that there was a price increase to cover part of the Difal impact. The company plans to avoid major hikes in order to remain competitive—and gain efficiency in expenses by selling more.

“These gains from the expenditures, however, are not permanent. So, the gain has to come in two ways, through increased revenue or by starting to raise prices,” he said. “The focus for 2024 is still to increase revenue, but we may have a limit on that at some point.”

There are still other measures taken that have already reached the balance sheets this year, such as the increase in ICMS rates by the states.

According to consultancy LCA Consultores, IPCA is expected to be impacted by 0.10 points with the tax increase, rising from 4.1% to 4.2% for the year.

A study by Pernambuco’s trade federation Fecomércio indicates that food, beverages, clothing, and footwear will be the most affected by the increase—ICMS will rise between 17% and 22%, depending on the state. In pharmacies, prices increased automatically after January, according to ABRAFARMA, the entity that represents the stores, because stocks are lean.

Looking a little further ahead, other surprises may appear and make this bill more expensive for consumers.

There is an ongoing debate in the states to increase the ICMS rate on Brazilians’ international purchases, for shipments up to $50 made on foreign online marketplaces and apps. The tax could increase to 25% from 17% on the sale, according to initial discussions.

At present, it is the consumer who assumes the responsibility of paying the ICMS on products purchased from online marketplaces such as AliExpress, Amazon, and Shopee, directly through methods like card payments, instant-payment system PIX, or payment slips.

This 17% rate has been enforced since August by companies participating in the Remessa Conforme program (which establishes a set of rules for the advanced customs clearance of products in exchange for an exemption from import taxes for shipments up to $50), limited to international websites, after being previously exempt. Now, less than a year since its implementation, discussions about a potential increase are anticipated to take place in state assemblies this semester.

ICMS increases are a way for states to try to replenish their budgets, which have been affected since the pandemic.

Casas Bahia, Magazine Luiza, and Arezzo/Soma did not comment beyond what is already public. Assaí said it maintains strict expense control, citing the balance from October to December, and constantly seeks opportunities for efficiency improvements. It added that the ICMS increase is passed on directly to the consumer because the industry already includes the tax change in sales to retailers.

*Por Adriana Mattos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Moraes rejects request to exempt X from judicial measures in Brazil

Office of the Chief Prosecutor of Brazil says that company representatives should be heard in the investigation

04/10/2024

Alexandre de Moraes — Foto: Rosinei Coutinho/SCO/STF

Alexandre de Moraes — Foto: Rosinei Coutinho/SCO/STF

Justice Alexandre de Moraes of the Federal Supreme Court denied a request from representatives of platform X in Brazil (formerly Twitter), stating that they should be held accountable for the actions of the company, which is based in the United States, including any criminal liabilities.

On Sunday, the justice ordered the opening of an inquiry to investigate Elon Musk, the platform’s owner, following his threats to defy court orders mandating the blocking of profiles on the social network. The justice also implicated the billionaire in the investigation of digital militias.

In a statement to the court, the federal attorney general, Paulo Gonet, argued that the legal representatives of the platform in Brazil should be included in the investigations. The Federal Police have yet to schedule the testimonies. According to the Office of the Chief Prosecutor, the hearings are necessary to ascertain whether the company has unblocked any profiles suspended by court order and to identify who was responsible for such actions.

In a request submitted to the Federal Supreme Court, company X Brasil claimed it had no involvement in the “management, operation, and administration” of the platform, asserting that its activities were confined to the “commercialization, monetization, and promotion” of the former Twitter in the country. The statement clarified that any new court orders concerning the platform should be directed to the company abroad, not to its national representatives.

In his decision, Justice Moraes stated that the company was attempting to shirk responsibility concerning the orders issued by the Supreme Court. “X Brazil is seeking to exempt itself from responsibility regarding the compliance with orders issued by Brazil’s highest court of justice, under the pretense that the decision-making power lies with the international corporations that established the platform,” he remarked.

He further noted that the claim “displays a certain cynicism” and “verges on bad faith litigation.” “The activities of X Brasil, as delineated in the Articles of Association, disclose its clear civil and criminal liability in connection with the platform ‘X.’ Consequently, any obstruction of justice or noncompliance with a court order will fall upon the directors of the said company,” he added.

The justice also highlighted that the request presented to the Court is noteworthy because the company’s argument emerges “after years during which the company has complied with judicial directives and participated in numerous meetings, both at the Supreme Court and at the Superior Electoral Court, concerning the misuse of social media in the electoral process.”

Justice Moraes also contended that the company “is seeking a de facto jurisdictional immunity clause,” for which there is no basis in the national legal framework. “On the contrary, the inclusion of one of the so-called international operators in its corporate structure indicates an exploitation of legal identity, as it could opt not to adhere to the orders of Brazilian courts without facing any repercussions, shielded by its representative in Brazil.”

On Saturday, Mr. Musk took to social media to launch direct attacks against Justice Moraes. As the chairman of the Superior Electoral Court, the justice had played a key role in intensifying regulations on platforms to curb the dissemination of “fake news” during the election period.

The billionaire started the day by responding to a January post from the justice, questioning “why so much censorship.” In the afternoon, the businessman continued to post messages suggesting that freedom of speech was under threat in Brazil.

Mr. Musk’s remarks elicited criticism from authorities. On Tuesday, Justice Cármen Lúcia, vice-chairwoman of the Superior Electoral Court, supported Justice Moraes’ position, stating that all natural and legal persons are bound by the country’s legal system and must adhere to judicial rulings.

“Regardless of their origin, race, gender, creed, or economic status, all individuals and entities are subject to the laws of the country and must obey judicial decisions,” she stated.

She also mentioned that “judicial decisions can be appealed against, criticized, or questioned, but they must not be disregarded.”

The justice, who is set to preside over the Superior Electoral Court during this year’s municipal elections, further emphasized that “judges in Brazil are there to ensure the authority of the ruling and its enforcement.”

“Without an independent judiciary to enforce its rulings, there’s no assurance of the rule of law. Without the safeguard of the Democratic Rule of Law, the security of democracy is compromised. Without democracy, there is no freedom, and without freedom, there is no dignity,” she declared.

Lula

President Lula seized the opportunity during the launch of a program aimed at reducing deforestation in the Amazon to address “billionaires” seeking habitable conditions beyond Earth. This statement came amidst the ongoing criticisms by businessman Elon Musk, owner of the platform X, directed at Supreme Court Justice Alexandre de Moraes.

While President Lula did not directly mention Mr. Musk, he suggested that billionaires could better utilize their wealth by preserving forests and enhancing people’s lives.

“Some billionaires are attempting to build rockets for travel, aren’t they? They must realize the importance of living on our planet and dedicate a significant portion of their wealth to preserving the environment and enhancing the quality of life for people,” President Lula remarked during the Planalto Palace event for the Union with Municipalities for Reducing Deforestation program.

Although the president refrained from naming the entrepreneur explicitly, his reference was unmistakable. Mr. Musk, who owns the X platform, is also recognized for his ventures into the space industry, investing substantial sums in rocket launches, which is precisely the activity President Lula highlighted in his speech on Tuesday.

*Por Isadora Peron — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Petrobras considers billion-real agreement with federal government

Decision could end dispute involving actions worth R$55.2bn and help government reduce primary deficit to zero

04/09/2024

Agreement could put an end to a dispute involving actions totaling R$55.234 billion — Foto: Roberto Pagot/Agência Petrobras

Agreement could put an end to a dispute involving actions totaling R$55.234 billion — Foto: Roberto Pagot/Agência Petrobras

State-owned oil company Petrobras is studying the possibility of entering into a tax settlement to be proposed by the federal government regarding charter agreements for oil rigs, Valor learned from two sources familiar with the matter.

The agreement could put an end to a dispute involving actions totaling R$55.234 billion and, at the same time, help the government to reduce its primary deficit to zero this year.

The draft notice was released for public consultation on Friday (5) by the Attorney General’s Office of the National Treasury (PGFN) and the Federal Revenue Service. It will receive inputs until next Friday (12). The notice is expected to be published by the government by the end of the month when the companies would be able to join the agreement.

The subject was one of the topics discussed at a meeting at the Planalto Palace last week, attended by Chief of Staff Rui Costa and ministers Fernando Haddad (Finance), and Alexandre Silveira (Mines and Energy). They also discussed the issue around Petrobras’s extraordinary dividends.

According to a government source, the state-owned company is likely to join the tax settlement, as it has been losing proceedings on the subject at the Administrative Council of Tax Appeals (CARF).

The company’s executive board is weighing the pros and cons of entering into the agreement, which could end actions worth R$55.234 billion if all litigation is included in the deal. If the agreement is accepted, the oil giant will receive a discount on the debt amount.

However, in its financial statements, Petrobras describes processes related to charter agreements as a “possible loss,” claiming that there are manifestations in favor of the company’s understanding in higher courts.

“The company ratifies the classification [of withholding income tax, IRRF] of the loss as possible as there are manifestations in favor of the company’s understanding in superior courts and will seek to ensure its rights,” says an excerpt of the 2023 fourth quarter’s financial statements.

“The other processes involving [federal tax] CIDE and [social taxes] PIS and Cofins are in different administrative and judicial stages and are described as possible losses as there is a legal provision in line with the company’s understanding,” Petrobras added in its financial report.

The notice placed for public consultation allows the tax settlement—a type of agreement to end administrative or judicial dispute—on the levy or not of IRRF, CIDE, PIS, and Cofins on remittances abroad, arising from the bipartition of the legal transaction in a charter agreement regarding vessels or oil rigs.

It is the so-called settlement of major tax theses, which is being carried out by the Federal Revenue and the PGFN to end disputes and secure revenue for the federal government. That is because, if there is no agreement, even if the federal government wins the dispute at the CARF, companies can appeal in processes that drag on for years.

According to the notice draft, companies that enter into the charter agreement will be allowed to choose from two payment options. The first option offers a 60% discount on the total debt amount. The remainder must be settled with a down payment of at least 30% and the balance in up to six monthly installments.

The second option offers a 35% discount on the total debt amount. The remainder must be paid with a down payment of at least 10% and the balance in up to 24 monthly installments. The draft also says the tax settlement may include the use of tax loss credits and negative tax base on the Social Contribution over Net Profit (CSLL), up to a cap of 10% of the remaining balance after the initial discount has been applied.

The tax settlement is one of the economic team’s major bets to increase tax revenue and get closer to the target of reduce primary deficit to zero in public accounts this year.

In the latest federal budget revenue and expenditure assessment report, the government estimated R$36.6 billion for these initiatives, which involve other notices and individual transactions, in addition to the issue of the charter agreement. Petrobras did not respond to a request for comment.

*Por Jéssica Sant’Ana — Brasília

Source: Valor International

https://valorinternational.globo.com/
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Uncertainty over U.S. rates stalls reopening of Brazilian IPO market

After more than two years without initial public offerings, the chance for companies to debut on the stock exchange may come only at the end of the year

04/09/2024

Roderick Greenlees — Foto: Gabriel Reis/Valor

Roderick Greenlees — Foto: Gabriel Reis/Valor

The delay by the U.S. Federal Reserve in implementing monetary easing, along with the resulting market volatility caused by this uncertainty, has postponed the reopening of Brazil’s initial public offering market after more than two years of dormancy. While initially anticipated for the period between April and June, forecasts now suggest that the IPO window will likely open in the second half of the year. However, some projections extend this timeline to between September and December, with most operations potentially being launched in February 2025.

Roderick Greenlees, the global head of Itaú BBA’s investment bank, currently maintains his estimate of three to five primary issues this year. If follow-on offerings are considered—when listed companies make new offerings—the total reaches 25 to 35 operations, with a volume ranging between R$35 billion and R$50 billion. Mr. Greenlees states that if the initial cut in U.S. interest rates does not occur in June, he will revise the forecasts.

“There is a huge pent-up demand from both issuers and investors. We have good companies wanting to tap the market,” said Mr. Greenlees. Among the candidates for going public are Inspirali, a medical school business within the Ânima educational group, construction companies Pacaembu and Tegra, and Cimed, the country’s third-largest pharmaceutical company by volume. Cimed has already indicated that its offering may be delayed until 2025. The market is also anticipating the arrival of sanitation company Aegea and cement maker Votorantim Cimentos, among others.

Marcelo Millen, head of Citi’s equity division in Latin America, states that the bank has been in discussions with “a number of companies” preparing to go public this year. He declined to disclose the sectors, but mentioned that the companies share common characteristics: they are “large, valued at least R$5 billion, with a strong track record of execution, and resilience in delivering results.” Additionally, he said that they intend to launch an offering of at least R$2 billion to ensure liquidity in the secondary market. “We are optimistic about interest rate cuts in the United States,” he said.

The executive mentioned that the U.S. market has been facing challenges but is now exhibiting a gradual rebound. In March, there was euphoria surrounding the IPO of Reddit, a social media and news-sharing platform, which closed at the top of its price range and subsequently rose almost 50% on its first day of trading. It is expected to be a kind of pioneer, but since 2024 is an election year, he said, the U.S. market will have fewer windows for offerings.

According to Mr. Greenlees, therefore, it is a matter of time to launch the first offering in Brazil since 2021. He mentions that many companies have maintained up-to-date public records, giving them an advantage as they can initiate the offering process within three weeks. Those who do not have the process ready need three to six months, depending on the stage of the company.

“So the timeline begins to compress. I initially anticipated one or two offerings in the second quarter, but I no longer consider that possibility. The risk of there being no offerings is low now,” said Mr. Greenlees. Victor Rosa, head of Scotiabank Brazil’s investment bank, explains that the stock market is highly sensitive to predictability. Therefore, if any factor disrupts expectations, it could potentially postpone the market opening until the end of the year or even into 2025.

Rodrigo Guedes, lead partner of equity capital markets at KPMG Brazil, remarks that the company has secured four new mandates, signed at the end of January. He sees potential investment opportunities in infrastructure and logistics, sanitation, financial services (fintechs), non-electronic retail, industry, and agriculture.

The offerings managed by consultancy Grant Thornton exhibit a similar profile, encompassing companies in sectors such as biotechnology and civil construction. Five companies have nearly finalized their processes and are now awaiting the opening of the window. Additionally, Octavio Zampirollo, an audit partner at the company, mentioned that four new candidates arrived at the beginning of the year. At G5 Partners, partner Levindo Santos stated that two mandates were signed in February, stemming from dormant conversations initiated two years ago. These discussions were reactivated due to the improved market conditions.

Mr. Greenlees mentioned, “We have interesting operations that will enter the market with first-quarter numbers, made even more favorable due to falling interest rates.” These sectors are also known for having less risk and greater liquidity, which is appealing to foreign investors, said Mr. Rosa. According to Mr. Guedes, since 2020, there has been a reversal in foreign participation in offerings, which previously ranged from 60% to 70%. Domestic investors have now assumed greater prominence.

He expects the reopening of the market to occur “closer to December,” as setting the price of the offering in September would require the company to be ready within a month and a half. “With the complex international economic and geopolitical situation, I don’t know if we have many ready. If the windows for IPOs are missed this year, the next opportunity will be in February 2025.”

Mr. Millen of Citi says he already sees investors willing to consider IPO opportunities. He stressed that the market is “fully functional for follow-on offerings.” Mr. Guedes of KPMG noted that the profile of secondary offerings this year will also begin to change, with an increase in operations aimed at investment objectives, whereas last year they were primarily focused on reducing indebtedness.

There were only five offerings until March. One was Energisa, which raised R$2.5 billion. The proceeds will be used, in addition to reducing leverage, for investments in concessions and potential mergers and acquisitions. “In the coming months, we will continue to see transactions aimed at capitalizing companies, as well as those for new projects and investments,” said Mr. Greenlees.

*Por Liane Thedim — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Private investment, fiscal adjustment, inclusion are key to growth

Experts say country needs to devise a healthy business environment to attract capital

04/09/2024

Dario Durigan — Foto: Ana Paula Paiva/Valor

Dario Durigan — Foto: Ana Paula Paiva/Valor

Experts at the Rumos 2024 event, hosted by Valor at the Rosewood Hotel in São Paulo, said that for Brazil to achieve growth and improvement, it must focus on three key pillars: fiscal adjustment, private investment, and the inclusion and sustainability agenda. According to economists, government officials, and private-sector representatives, the country has already made progress, such as approving the tax reform. Still, it needs to create a healthy business environment to attract domestic and foreign private capital.

For example, the uncontrolled increase in public spending is often cited as a cause for concern among investors. During the event, the executive secretary of the Ministry of Finance, Dario Durigan, acknowledged that actions to reduce and improve the quality of public spending were necessary. “Seeking to reduce expenses is important for the economic team,” he said.

The ministry’s number two justified the beginning of the tax adjustment on the revenue side due to “distortions” caused by the granting of benefits, exemptions, and other devices that reduced collection without bringing structural economic gains. “With the spending cap [the rule that limited growth in public spending to the previous year’s inflation, replaced by the tax framework], there was a lock on expenses, but there was no lock on the revenue side,” he said. “The special regimes, presumed credits, [tax] advantages, and loopholes were sometimes reproduced even by municipalities.”

The government “has been recomposing the tax base by attacking the most serious inefficient gaps.” In the short term, Mr. Durigan acknowledged that, alongside adjustments, the government is counting on dividends from state-run companies to aid in the rebalancing of government accounts. “The Finance Ministry’s view is that the [dividend] inflows are relevant from a fiscal point of view, but this should happen with the appropriate dialogue.” According to Mr. Durigan, “[Finance] Minister Fernando Haddad does not deny and I do not deny that it is important to have these revenues.”

In the long term, the secretary believes that fiscal adjustment will be achieved through the tax reform itself. “Fiscal consolidation was set in motion last year and we now see good results at the beginning of 2024. However, it is an agenda that over time will be fulfilled by tax reform, which will bring about the most comprehensive reorganization of our tax system.”

During another panel, Marcos Barbosa Pinto, the secretary of economic reforms at the Ministry of Finance, discussed a series of measures spearheaded by the ministry. These are initiatives to reduce the net interest rate spread (the difference between the funding rate and the banks’ lending rate). The secretary referenced a study conducted by the Central Bank, which indicates that if Brazil had a spread equivalent to the global average of 6% per year, it would experience a 40% increase in credit availability and a 5% rise in GDP.

“In the long term, we have an important goal,” he said. Brazil has a spread of around 20% per year. “We can reduce it,” said the secretary. “Brazil has the conditions to unlock a gigantic credit volume and very large growth.”

Mr. Durigan added that the economic team has been working with a dual agenda on a long-term development vision: fiscal and ecological consolidation. “To achieve growth alongside social development and environmental responsibility, we need two distinct agendas,” he said. The executive secretary said that “these issues complement each other.”

Solutions to increase productivity in Brazil were also issues of debate at Rumos. Mr. Barbosa Pinto said, “Brazil will not be able to grow sustainably without attacking the problem of productivity.”

He viewed this as “long-term and challenging work,” but he said that significant changes could be observed in the short term through measures implemented in the recent past, such as the fiduciary alienation law, which significantly expanded the real estate credit market. Mr. Barbosa Pinto mentioned the approval of the new guarantee framework last year, which is expected to decrease financing costs and speed up the recovery of assets pledged as collateral in contracts.

Economists Silvia Matos, coordinator of the Macro Bulletin at the Brazilian Institute of Economics (FGV Ibre), and Cassiana Fernandez, head of economic research for Latin America and chief economist for Brazil at J.P. Morgan, suggested that the structural reforms could potentially have positive effects on productivity. “Something that surprised us was the positive effects of the labor reform,” said Ms. Matos. “The post-pandemic recovery was different. It came specially with formal employment.”

According to Ms. Fernandez of J.P. Morgan, the bank’s models also point to a potential growth of Brazil closer to 1.5% per year. The economist said she had “great confidence” in the effects that consumer spending tax reform could have on productivity going forward.

Santander’s chief economist and former Treasury secretary Ana Paula Vescovi assessed the need to reduce credit costs in Brazil to accelerate growth. “It is necessary to reduce the cost of finances and make room for the private sector to play its role,” she said.

Ms. Vescovi emphasized the importance of the country being able to devise “a healthy business environment with legal certainty.” The economist said she often talks with international investors “who look at Brazil and see the comparative advantages we have at this time of energy transition.” However, issues such as the governance of state-run companies and the tax reform process itself, which still needs to be regulated by Congress, end up inspiring caution.

*Por Anaïs Fernandes, Marcelo Osakabe, Sérgio Tauhata, Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com

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Companies accelerate debt payments

Firms are taking advantage of cheap debentures to pay off more expensive papers

04/08/2024

Matheus Licarião — Foto: Carol Carquejeiro/Valor

Matheus Licarião — Foto: Carol Carquejeiro/Valor

Amid falling interest rates on debentures, Brazilian companies have been planning offerings aimed at paying off debts and repurchasing previous issues. About 40% of the issues of debentures registered in March aimed to manage liabilities, according to a survey made by Valor based on information sent to the Securities and Exchange Commission of Brazil, known as CVM.

The current scenario is conducive to this type of operation. With lower rates and increased investor interest, companies are looking more at liabilities to find out “what can be improved, lengthened, or swapped for other debt,” said Getúlio Lobo, head of fixed income distribution at XP’s investment bank.

From now on, companies are expected to raise funds through longer-term securities to repurchase shorter-term debts, said Mr. Lobo. They could also negotiate with investors to exchange older securities for new debentures.

Not all companies will be able to exchange older papers for new ones, though. Companies with higher credit risk will hardly be able to do such a move because investors would not accept moving from expensive to cheap papers just to lengthen the company’s debt, said Matheus Licarião, head of debt capital markets at Santander.

“However, for companies with high-quality scores, asset managers will have to put money on the papers, even if the same asset is at a lower price,” he said. “Major asset managers are flush with cash and looking at the market to make new allocations.”

The increase in the maturity of issues seen in recent months contributes to more companies seeking offers for liability management. “We started to see ten-year, seven-year debentures, even in securities that are not incentivized. With the possibility of longer-term financing open for more predictable businesses, companies are expected to accept paying a little more to extend the terms of their debts,” said Felipe Wilberg, head of fixed income and structured products at Itaú BBA.

Of the 72 offerings filed last month, 28 are aimed at refinancing or paying off debts. Tecban, known for the Banco24Horas ATM network, and the MRV construction company launched offerings for that reason.

Of this total, 11 offerings had as a specific objective the early payment of other debentures. Among them are the offerings of the power distributor Equatorial Goiás, the automotive parts maker Iochpe Maxion, and the drugmaker Eurofarma.

The current interest of companies in issues aimed at repurchasing old debentures is also related to the crisis experienced by the corporate debt market in early 2023 after an accounting fraud at Americanas came to light.

As risk perception worsened, bond rates rose mainly during the first half of last year. But the companies’ need for credit has not changed, and many have had to raise funds in the capital market or directly with banks—and pay more for it.

“We always see demand for debt refinancing, but there is a stronger movement this year. Many companies were concerned in 2023 about liquidity and raised funds at a higher cost than usual and with shorter terms. They sought to replenish their cash reserves because they did not know how long the situation would last. Now, they are taking advantage of the overheated market to engage in liability management,” said Enrico Castro, head of debt capital markets at BNP Paribas Brasil.

The debenture market is experiencing a rally amid the prospect of a fall in the Selic policy rate and after several events that boosted demand. The first was the change in the taxation of exclusive funds, which increased the demand for corporate debt securities.

In February, new rules were announced for securities offerings such as real estate and agribusiness receivables certificates (CRI and CRA). Individual investors don’t pay income tax on these securities. The changes boosted the market for incentivized debentures—tax-exempt securities issued by infrastructure companies.

Falling interest rates should not last indefinitely. While this does not change, the list of future offerings continues to grow, especially of incentivized securities. “We see a robust pipeline of incentivized debenture issuances, considering current spreads that have been at the most competitive level for at least five years,” said Mr. Castro.

*Por Rita Azevedo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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China surpasses Argentina, supplying 40% of Brazil’s imported cars

Acceleration started in the second half of 2023; country becomes relevant customer for China

04/08/2024

Gabriela Faria — Foto: Gabriel Reis/Valor

Gabriela Faria — Foto: Gabriel Reis/Valor

China accelerated exports of vehicles in the first quarter of the year and led the external supply of cars to Brazil. The Asian country, which is now the world’s largest producer of automobiles, accounted for 39% of passenger vehicles imported by Brazil from January to March 2024, up from 10.3% in the same period last year. Argentina, historically the largest supplier of vehicles to Brazil, saw its share fall to 16% this year from 40.2% in 2023. Mexico ranks third, with a share of 12.1% in the first quarter of 2024, compared with 13.6% in the same period of 2023.

In the full year 2023, Argentina ranked first in car sales to Brazil, with $2.24 billion, up 9.8% from the previous year. In the second half of 2023, China accelerated vehicle sales to Brazil, ending the year in second place with $1.09 billion, compared to $186.7 million in 2022.

From January to March 2024, of the $1.46 billion in Brazilian foreign purchases of automobiles, $569.9 million came from China. The figure is more than five times the $102.9 million for the same period in 2023 and more than half of what Brazil bought in cars from China last year. China’s fast pace also boosted the total import of passenger cars by Brazil, which grew 46.4% year over year in the first quarter.

Argentina shipped $234.6 million to Brazil in the first quarter, down 42% year over year. Mexico exported $176.3 million to Brazil from January to March.

China’s official export figures also indicate that Brazil has gained ground in the country’s car exports. Brazil, which was the nineteenth destination for passenger vehicles shipped by China in the first two months of 2023, ranked fifth in the same period this year, behind Russia, Belgium, the United Kingdom, and Mexico.

Imports from China stand out because they are growing much faster pace than the domestic market, said José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB). According to data from the Secretariat of Foreign Trade (SECEX/MDIC), more than 60% of cars imported from China in the first quarter of the year are fully electric. “The data show a strategy for a new landscape with China working to gain ground in this market,” he said.

Davi Gonçalves, an analyst specializing in the automotive sector at Tendências, a São Paulo-based consultancy, recalled that imports of Chinese electric and hybrid vehicles grew last year, especially in the fourth quarter.

“The flow remained strong despite the introduction of an import tax in January and is likely to remain so in the short term. Among the cyclical factors that favor the category is the increased interest of Brazilian consumers in high-tech, renewable energy cars amid a more favorable environment for products aimed at high-income individuals,” he said.

The competitive prices of Chinese automakers and Brazil’s weak production of these vehicles also play a role, said Mr. Gonçalves.

With the result seen from January to March, vehicles became Brazil’s second most imported item from China and helped to boost total purchases from the Asian country. While the value of Brazilian imports fell 1.8% from January to March compared to the same months in 2023, the arrival of products made in China grew 14% in value, according to SECEX. The growth was driven by a 40.2% increase in volume. There was a 17.6% drop in average import prices.

Gabriela Faria, an economist at Tendências, recalls that the reduction in prices in Chinese imports combines a more general scenario of price reduction after the shocks that put pressure on global inflation with a specific situation in China, which has been experiencing “deflation.” “China expanded its production capacity, but there was no local demand to absorb the supply. Prices fell as a result, including those of the products it exports,” he said.

Several other countries have seen China grab a larger share of their car imports, said Mr. Gonçalves. “Although levels are expected to remain historically high throughout the year, some obstacles limit the pace of expansion,” he said. In addition to the Import Tax, Mr. Gonçalves cited the expected increase in domestic production, which includes the start of operations by Chinese automakers in Brazil between the end of this year and the beginning of next year. Following a decision by the Brazilian government, electric cars started paying 10% of Import Tax in January 2024. The rate is expected to rise gradually until it reaches 35% in July 2026.

China has increased exports of several items and one is cars, which has raised protection policies in several countries, said Livio Ribeiro, a partner at BRCG consultancy and researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV). For instance, Brazil protected its industry by increasing the Import Tax rate.

“In the specific case of Brazil, one element seems different. The Brazilian car industry is a 60-year-old baby reliant on Brasília for protection. However, the government has an interest in absorbing Chinese companies. So, the government imposed an import tax, but paved the way for these companies to bring part of their production here, which is not an immediate process,” he said.

Brazil’s higher auto imports reflect one of Beijing’s directives to elevate China’s position in value chains, said Mr. Ribeiro.

“China is driving a technological densification of exports worldwide, and vehicles are no exception,” he said.

“China is already at the point of exporting factories as well, following the example of other Asian countries, but much faster.”

Korea’s Hyundai is an example of success in this regard, he said. “I think China wants to do something similar. One difference is that electric cars cater to a niche demand, whereas previous experiences focused on mass production,” he said.

On the other hand, Argentina’s lost ground in Brazil’s car imports shows that one should not treat both countries’ automotive industries separately, said Mr. Ribeiro.

“It’s actually a single industry spread across two countries. With the crisis in Argentina, there is a movement to produce in Brazil rather than there, and this seems more evident in mass production cars with a higher volume of production,” he said.

The slowdown in domestic demand in Argentina is not the only reason, he said. Insecurity about some conditions during the presidential transition, such as labor union negotiations, also played a role.

*Por Marta Watanabe — São Paulo

Source: Valor Inaernational

https://valorinternational.globo.com/
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Moraes orders probe into Elon Musk’s activities

Following provocations by the proprietor of the X platform, the justice has mandated an investigation into Mr. Musk’s involvement with digital militias

04/08/2024

Alexandre de Moraes — Foto: Gustavo Moreno/SCO/STF

Alexandre de Moraes — Foto: Gustavo Moreno/SCO/STF

Justice Alexandre de Moraes from Brazil’s Federal Supreme Court has mandated an investigation into the actions of businessman Elon Musk, the proprietor of the X platform (previously known as Twitter). The decision was issued on Sunday (7) after the billionaire’s public declarations of potentially defying judicial mandates regarding the removal of content and the suspension of user accounts on his social media network.

In addition to targeting Mr. Musk in the ongoing investigation into digital militias, Justice Moraes has explicitly instructed the platform to adhere to all current and future court orders issued by both the Federal Supreme Court and the Superior Electoral Court. Failure to comply will result in a daily penalty of R$100,000 and legal repercussions for the individuals responsible for the company’s operations within Brazil.

Furthermore, the Brazilian Supreme Court Justice has called for Mr. Musk to be investigated for allegations of obstructing justice, as well as organizing and encouraging criminal activities. Justice Moraes highlighted that Mr. Musk’s behavior might amount to a “felonious criminal instrumentalization” of the platform, necessitating his inclusion in the existing probe.

In his ruling, Justice Moraes drew connections between the X platform and the attempted coup events of January 8, 2023. He stated, “It is utterly unacceptable for any social network or private messaging service provider representatives, especially those from the former Twitter, now ‘X,’ to feign ignorance of the criminal misuse perpetrated by so-called digital militias. This misuse encompasses the dissemination, propagation, organization, and expansion of numerous illegal activities on social networks, particularly those that gravely undermine the Democratic Rule of Law and aim to dismantle the Federal Supreme Court, the National Congress, and the Planalto Palace—essentially, the very foundation of the Brazilian Republic.”

Justice Moraes referenced a post-coup attempt meeting held “in an absolutely public and transparent manner” at the Superior Electoral Court with representatives from all major platforms, which focused on “the real peril of this criminal misuse” by social networks and messaging services.

Over the weekend, according to Justice Moraes, Elon Musk “initiated a misinformation campaign” targeting the actions of the Supreme Court and the Superior Electoral Court. This behavior, Mr. Moraes implies, demonstrates the platform’s complicity in attitudes supportive of a coup.

On Saturday (6), Elon Musk launched criticisms at Justice Alexandre de Moraes, who, in his capacity as Chairman of the Superior Electoral Court, played a pivotal role in enforcing stricter regulations on platforms to curb the dissemination of “fake news” during the electoral period.

The day commenced with the billionaire addressing a January statement by Justice Moraes, querying, “Why are you demanding so much censorship in Brazil?” As the day progressed, Mr. Musk escalated his remarks, insinuating that Brazil’s freedom of expression was being compromised.

In a statement on X, Mr. Musk articulated, “We are lifting all restrictions. The judge has applied massive fines, threatened to arrest our employees, and cut off access to X in Brazil. As a result, we will probably lose all revenue in Brazil and have to shut down our office there. But principles matter more than profit.”

On Sunday, he again mentioned Justice Moraes, promising to publish “everything” he demanded and showing how, allegedly, those requests violate Brazilian law. “He should resign or be impeached,” he asserted.

Mr. Musk’s posts garnered applause from users and even legislators on the political right, such as Congressmen Nikolas Ferreira and Eduardo Bolsonaro, the son of former President Jair Bolsonaro.

These developments have thrust the regulation of social networks and the proposition to levy taxes on major tech companies back into the public discourse. Amidst the ongoing tussle between Justice Moraes and Elon Musk, recent reports by the Folha de S.Paulo newspaper and corroborated by O Globo newspaper highlight a government initiative poised to impose taxes on big tech entities.

The Federal Attorney General, Jorge Messias, emphasized the urgency of this conversation, stating, “We cannot continue in a society where billionaires from overseas can dominate social media platforms, positioning themselves in ways that challenge our rule of law.”

Paulo Pimenta, the minister of the Special Secretariat for Social Communication (SECOM), voiced his stance against the remarks made on X. On the platform, he declared his refusal to let “anyone, no matter their wealth or influence, insult” the nation.

Similarly, Congressman Orlando Silva, who serves as the rapporteur for the Fake News Bill aimed at regulating social networks, expressed his concern. He remarked, “We’ve reached a critical juncture. Elon Musk is now openly challenging the authority of the Judiciary Branch.”

Mr. Silva announced his intention to request that Brazil’s speaker of the Lower House, Arthur Lira, expedite the bill’s voting process. This move aims to establish a “liability regime for digital platforms.” “It is a measure to protect Brazil,” he stated.

*Por Isadora Peron — Brasília

Source: Valor Ingternational

https://valorinternational.globo.com/
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Stronger company results create positive outlook for 2024

Survey of 394 non-financial companies shows growth in revenue and profit in last quarter of last year

04/08/2024

Aline Cardoso — Foto: Carol Carquejeiro/Valor

Aline Cardoso — Foto: Carol Carquejeiro/Valor

Brazilian publicly traded companies had a strong performance in the fourth quarter of 2023, with both profit and revenue growth compared to the previous year and the third quarter. This achievement was driven by companies focused on the domestic market and continued cost-cutting efforts, which offset the weakness in commodities. In the view of analysts, this positive trend opens up a perspective for strong performance throughout this year, especially for domestic companies. This optimism is bolstered by declining interest rates and rising consumer spending.

A survey by Valor Data of 394 non-financial companies shows that the net profit of this group of companies reached R$54.1 billion, a 12.6% increase compared to the previous year and 20.4% compared to September. Meanwhile, revenues reached R$913.5 billion between October and December, a 3.4% increase over the same period in 2022 and 4.9% compared to the third quarter. These figures exclude Petrobras and Vale due to their size, to avoid distorting the results, as well as companies that have recently undergone court-supervised reorganization, such as Oi, Light, and Paranapanema, whose numbers significantly vary year-over-year.

Despite the improvement, analysts interviewed by Valor considered the fourth-quarter results “neutral,” meaning there were no major surprises and mostly fell within the market’s expectations for the quarter.

Companies operating in the domestic market had a more positive performance than those exporting commodities, which were affected by falling prices and the fact that the exchange rate remained around R$4.8 per dollar.

“In aggregate, the results were only 4% below what we expected, which we consider neutral performance,” said Aline Cardoso, head of Brazil equity strategy at Santander. “Still, we had a quarter in which company profits grew on average by 3%, compared to a 20% decline in the third quarter.”

“The quarter was slightly worse than we expected, especially in EBITDA and profit, but undeniably, it was a very strong performance in year-over-year comparison,” said Carlos Eduardo Sequeira, head of research at BTG Pactual. He highlighted the performance of companies operating in the domestic sector, supported by better economic performance during the period.

The energy, sanitation, and telecommunications sectors, in general, surpassed expectations. In the energy sector, increased demand for electricity and higher prices, driven by higher temperatures, boosted results during the last three months of the year.

Meanwhile, telecommunications companies, especially Telecom Italia’s TIM and Telefónica’s subsidiary, took advantage of a more “rational” competitive environment—with less aggressive offers—and passed on price increases above inflation to customers. Reductions in investments also resulted in a significant margin increase and robust cash generation.

Overall, what caught analysts’ attention was the improvement in efficiency that domestic companies demonstrated in the fourth quarter, with margin expansion and robust cash generation thanks to initiatives taken in recent years. “In a more challenging environment, companies needed to pursue greater efficiency in profit margins,” said Mr. Sequeira.

According to Bank of America (BofA), which considers 79 companies composing the benchmark stock index Ibovespa, including financial companies, earnings per share fell by 13%. In contrast, EBITDA decreased by 3%, and revenues remained stable on a year-over-year basis. Compared to the third quarter, earnings per share fell by 1% for the year, EBITDA rose by 15%, and sales fell by 6%.

Excluding effects from energy and commodity companies, notably Petrobras and Vale, earnings per share grew by 21% in the fourth quarter, compared to the same period in 2022, with EBITDA also rising by 21%, and revenues of the 79 surveyed companies increasing by 5%. Compared to the third quarter, earnings per share remained stable, while EBITDA increased by 9%, and company sales increased by 6%.

Commodity-related companies had weak results as expected due to falling prices, resulting in reduced profits. According to BTG’s survey, commodity companies experienced a 7.2% decline in revenues and a 22.7% decline in net profit, on a year-over-year basis. According to Santander, results ended up slightly better due to a smaller-than-expected decline in prices.

Both oil and pulp experienced lower prices during the fourth quarter, with Brent crude falling by 7% during the period, averaging $83, while pulp traded in China saw a 29% reduction in prices, to $615 per tonne, due to macroeconomic uncertainties worldwide.

Meanwhile, iron ore maintained high levels, with supply-side issues, but steel mills had low utilization rates, and steel prices remained under pressure.

Overall, expectations for the year seem more optimistic. An analysis by Santander of earnings conference call transcripts during the first quarter shows a significant increase in the use of the word “recovery” and fewer mentions of inflation and default, indicating that companies anticipate a better environment in 2024—which could mean improved profit margins throughout the year.

“We expect that the economic recovery, real wage gains, and lower unemployment should have positive effects on consumer sectors during the first quarter,” said the head of research at BTG. “It won’t be a spectacularly stronger season, but the trend of improvement is expected to continue,” he said. He added that much of the improvement will come from lower interest rates, reducing pressure on financial expenses.

*Por Felipe Laurence, Victor Meneses — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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