CSN to sell up to 11% of mining unit, still eyeing InterCement

Exclusive agreement for the acquisition was renewed this week, with expectations that the deal will be finalized by year-end, according to people close to the Brazilian steelmaker

10/31/2024

Benjamin Steinbruch’s Companhia Siderúrgica Nacional (CSN) announced the sale of up to 11% of its mining subsidiary to Japan’s Itochu Corporation, in a deal potentially exceeding R$4.3 billion, people familiar with the matter told Valor. The funds will be used to reduce the steelmaker’s leverage, providing greater financial strength as the group also negotiates the acquisition of InterCement, owned by Mover.

The sale of the minority stake includes a premium ranging from 20% to 30% over the current stock price of the mining company on Brazil’s B3 stock exchange, according to sources. CSN stock ended the Wednesday’s session up 2.23% at R$11.94, while CSN Mineração shares dropped 0.67%, closing at R$5.91.

Based on Tuesday’s closing price, the 11% stake is valued at around R$3.6 billion, with the premium pushing the deal’s total value to over R$4.3 billion. However, people close to the deal noted that some steps remain before the transaction is finalized, including the signing of a definitive agreement and approval from Brazil’s antitrust authority, CADE. The deal is expected to close within 30 days.

CSN had previously indicated its intention to sell a portion of its mining business and to seek a minority partner for its energy division to reduce debt. Itochu already holds just under 10% of CSN Mineração’s shares.

As of June, CSN’s net debt-to-adjusted EBITDA ratio stood at 3.36 times, driven by the depreciation of the real in the second quarter and higher investment levels. The company’s goal is to reduce this ratio to between 1 and 2 times. Adjusted net debt totaled R$37.2 billion at the end of Q2.

For analysts from Itaú BBA and Bradesco BBI, the sale of 11% of CSN Mineração at Tuesday’s closing price would reduce financial leverage by 0.3 to 0.4 times, which they considered modest compared to CSN’s target.

In parallel with the mining sale, CSN is continuing negotiations to acquire InterCement, owned by Mover (formerly Camargo Corrêa). The exclusive agreement was renewed this week, with sources close to CSN expecting the deal to be signed by December.

Negotiations are progressing, though pressure remains for Mover shareholders to fully assume the liabilities tied to the deal, which total R$4 billion. Initially, part of this amount—R$1.5 billion—was to be covered by creditor banks, said a person close to InterCement.

Another sensitive issue for CSN is the involvement of lawyer Thomas Felsberg as an advisor in the transaction, as he is known for handling corporate restructuring for companies facing bankruptcy.

People with knowledge of the situation indicated that InterCement’s out-of-court restructuring process is advancing, with no immediate risk of a bankruptcy filing.

If the company seeks protection from creditors, asset sales would occur through productive units.

CSN is interested in acquiring InterCement’s Brazilian operations, which would position it as a competitor for leadership in the cement sector alongside Votorantim, as well as a 51% stake in Loma Negra, providing CSN entry into the Argentine market.

A person close to the negotiations said CSN does not plan to use cash or take out loans to finance the acquisition, given InterCement’s high debt. Instead, CSN aims to restructure InterCement’s liabilities as part of its out-of-court recovery, with a portion of the purchase price financed through debt.

Another portion of InterCement’s debt would be converted into equity in the resulting company formed by combining CSN Cimentos and InterCement, with creditor banks holding shares. While an agreement is expected to be signed by year-end, the transaction itself would likely close in 2025.

Negotiations gained momentum at the end of the first half, with the automatic renewal of CSN’s exclusivity agreement. In August, InterCement initially declined to renew the deal, but talks continued, and a new exclusivity agreement was signed in September.

In addition to InterCement’s heavy debt load, sources pointed to CSN’s financial leverage and the relative delay in selling assets that could improve liquidity as hurdles for the acquisition. In the case of CSN Mineração, iron ore price volatility this year prolonged talks with potential buyers. Negotiations related to CSN’s energy business, including the Rio Grande do Sul-based CEEE, were also impacted by damage caused by heavy rains in the state in May.

In 2021, Mr. Steinbruch’s company acquired the Brazilian assets of Swiss cement maker LafargeHolcim, in a transaction fully approved by the CADE without conditions. This added 10 million tonnes of capacity, making CSN the third-largest cement producer in Brazil.

In 2023, Brazil sold 62 million tonnes of cement, a 1.7% decline from 2022, which had already seen a 2.8% drop, according to the National Cement Industry Union (SNIC). The volume sold in 2023 matches the levels seen in 2011.

CSN said it had no further comment beyond its statement to the Securities and Exchange Commission of Brazil (CVM). InterCement and Mr. Felsberg also declined to comment.

*By Stella Fontes, Mônica Scaramuzzo — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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IBAMA upholds denial for Petrobras drilling in Amazon basinrazil’s environmental agency listed technical issues they believe prevent reversing previous decision against permit

10/30/2024

Twenty-six analysts from the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) signed a report recommending the environmental permit denial for Petrobras to drill a well in Block FZA-M-59, located in the Foz do Amazonas Basin on the Equatorial Margin, should be upheld. The team listed technical issues they believe prevent reversing the previous decision against granting the permit.

Although higher-level authorities supported the report, IBAMA’s president, Rodrigo Agostinho, sent an official letter to Petrobras allowing the state-owned oil company to provide “clarifications” on the points raised in the report before a final decision is made. Petrobras did not immediately reply to a request for comment.

IBAMA’s recommendation comes as a setback for Petrobras, which, under Magda Chambriard’s leadership, has been stressing the need to open new exploratory frontiers in oil and gas. Last week, the company’s chief exploration and production officer, Sylvia Anjos, said, “We will do everything that IBAMA requests.”

In May 2023, IBAMA had denied Petrobras’s request for an environmental permit to drill a well in deep waters in the Foz do Amazonas. Petrobras appealed to the agency and submitted several documents revising environmental plans to overturn the decision. Key points in the revised plans focused on the impact of air support operations at Amapá’s Oiapoque Airport on Indigenous communities and a wildlife rescue plan in the event of spills.

In Report 223/2024, reviewed by Valor, the 26 environmental analysts argued that Petrobras’s revisions do not present a “viable alternative” to adequately mitigate biodiversity loss in case of an oil spill. This issue, according to the analysts, is “especially critical” given what they described as “significant marine biodiversity” and the “high environmental sensitivity of ecosystems likely to be impacted.”

“Thus, we did not find, in the documents analyzed, sufficient elements to reconsider the recommendation to deny the environmental permit and archive this licensing process,” the 26 analysts said. The report was electronically signed between October 10 and 11. However, subsequent communications have left room for further input from the company until IBAMA’s president issues a final decision.

Following the report’s release, IBAMA’s offshore oil and gas exploration licensing coordinator, Ivan Werneck Sanchez Bassères, issued an official letter acknowledging “significant” technical improvements by Petrobras in emergency response plans but still considered information regarding wildlife rescue strategies for oil-affected animals insufficient to reconsider the process’s archival recommendation, advising that the license denial be maintained.

IBAMA’s general coordinator for marine and coastal project licensing, Itagyba Alvarenga Neto, recommended sending the report to Petrobras for “review and addressing of all issues raised by Ibama’s technical team,” calling this step a “reasonable alternative.” Mr. Alvarenga disagreed with Petrobras’s positions on the impact of air traffic on Indigenous communities but acknowledged progress on the wildlife plan, though he did not find the advancements sufficient for plan approval.

IBAMA’s licensing director, Claudia Barros, aligned with Mr. Alvarenga’s approach: “It is deemed reasonable to forward the Technical Report … to the company for review and response to all issues raised by IBAMA’s technical team,” Ms. Barros said. In September, she had estimated a resolution on the matter by the end of the year.

Air traffic and potential impacts on Indigenous communities in the area were among the reasons Petrobras appealed the license denial. In its revised studies, Petrobras argued it would “use the pre-existing, licensed airstrip within its already established operational capacity without expanding capacity,” and that the noise from aircraft is not a direct impact of drilling but rather of the airport, which is licensed by the State Environment Secretariat of Amapá.

In the report, the analysts noted that IBAMA did not question the Oiapoque airstrip’s legality, which Petrobras will use as a support base for drilling activities. They also pointed out that Petrobras’s environmental study indicates the airport’s use “represents a 3,000% increase in its activity,” with flights over areas where no other routes exist.

“The fact that the airstrip is licensed and the company’s intended use falls within its operational capacity does not mean the project will not cause specific impacts due to its presence in the region,” the report says.

Petrobras had also proposed a new Wildlife Protection Plan, which included setting up a wildlife rescue base in Belém, but IBAMA deemed the distance too long in case of an accident. Petrobras then proposed establishing an advanced wildlife response base in Oiapoque, enabling access by sea, river, or air, and potentially installing a mobile reception unit in Vila Velha do Cassiporé, a district of Oiapoque.

The rescue proposals in Oiapoque were considered to have the potential to reduce response times in case of an oil spill, but the analysts noted “inconsistencies” in the rescue strategy, including the definition of response teams, travel times, adverse “metoceanographic” conditions, and the inability to use the drillship or rescue and stabilization vessels.

*By Fábio Couto — Rio de Janeiro

Source: Valor International

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CVM streamlines regulations for public takeover bids

New guidelines, part of the 2024 regulatory agenda, take effect on July 1, 2025

10/30/2024

The new rules concerning the so-called OPAs—public takeover bids—were issued on Tuesday as part of the Brazilian Securities and Exchange Commission’s (CVM) regulatory agenda for this year. These measures will come into force on July 1, 2025.

Public takeover bids, conducted outside organized securities markets, can take several forms and aim at acquiring shares of a publicly traded company. They may occur, for instance, during a change of control block, delisting, and other scenarios.

The CVM has issued two norms: the first, Resolution 215, establishes a new regulatory framework applicable to OPAs, replacing CVM Resolution 85, which has been in effect since 2022. The second, Resolution 216, modifies other rules to align them with the new regulation.

The regulation was well-received by experts consulted by Valor. Among the innovations, they highlight the simplification of the criteria that mandate an OPA for increased participation, which was previously calculated based on a formula applied by the CVM that was sometimes challenging to apply in practice, causing legal uncertainty.

Now, in an OPA for increased participation, the CVM has determined that the operation will be mandatory whenever the acquisition of outstanding shares by the controlling shareholder or an affiliated person leads to the reduction of the total outstanding shares of the same class and type to below 15%.

Another significant change is the possibility of combining a takeover OPA with an OPA for delisting.

“This was a long-standing market demand, previously prohibited based on case-specific decisions, and now it is explicitly allowed,” said Evaristo Lucena, a partner in the transactional area at Trench Rossi Watanabe.

In the case of a differentiated quorum (OPA for delisting), it was established that a simple majority would suffice when the number of outstanding shares of the “target company” is less than 5% of the share capital.

According to Marcos Sader, a partner at I2A Advogados, the simplification acknowledges that companies with a smaller number of outstanding shares relative to total capital (“free float”) can have a lower quorum for a delisting OPA. “Thus, the quorum shifted from two-thirds of circulating shares to a simple majority. This facilitates the closing of capital when there is little shareholder dispersion.”

In cases of automatic waiver of the valuation report, the new regulation allows the price of the shares subject to the OPA to be determined based on alternative criteria that serve as a reference for fair value.

In the OPA auction, the hiring can be automatically waived in situations of low shareholder dispersion or when the auction costs are disproportionately high compared to the offer’s value. The new regulation also covers the roles performed by the intermediary and establishes rules for registration procedures and confidential consultations.

CVM President João Pedro Nascimento said that the resolutions consider previous practical experiences and reflect market developments and international standards.

*By Victoria Netto, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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China to demand full traceability for beef supply chain

First shipments of 100% traceable beef expected by 2025, according to Chinese NGO Global Enviromental Institute

10/28/2024

China, the main destination for Brazilian beef exports, signaled during its last technical visit to Brazil in December that it will soon require full traceability across the beef supply chain, from the birth of the animal to its export.

Although this requirement is already included in the trade agreements between the two countries, Chinese importers have not enforced it until now.

“The Ministry of Agriculture informed us that the mission was positive, but the key takeaway is that China will indeed start demanding traceability,” said Danielle Schneider, traceability coordinator for the Brazilian Association of Meat Exporting Industries (ABIEC), during an event hosted by Imaflora in Cuiabá.

Ms. Schneider said these changes are expected to unfold over the next two years, with China establishing its own traceability protocols. “Unlike Europe, China is not yet asking for information related to deforestation, only traceability. However, by doing this, we know that addressing deforestation could be the next step,” she acknowledged.

A study by the Chinese Academy of Social Sciences and the Getulio Vargas Foundation, supported by the American NGO The Nature Conservancy, found that Chinese consumers would be willing to pay up to 22.5% more for Brazilian beef if it came with guarantees of being sourced from zero-deforestation areas.

Peng Ren, project manager at the Chinese NGO Global Environmental Institute, stated that discussions to develop traceability solutions between the two countries will begin next month, with the goal of starting the first shipments of 100% traceable beef as early as next year. “We are at the start of this negotiation,” the executive said.

Following audits conducted in December 2023, China approved 38 new Brazilian meat processing plants for export, including 24 dedicated to beef. According to Brazil’s Ministry of Agriculture, this was the largest number of plant approvals granted in a single instance in the history of trade relations between the two countries.

By Cleyton Vilarino, Globo Rural — Cuiabá

Source: Valor International

https://valorinternational.globo.com/
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Municipal election results weaken Lula-Bolsonaro polarization

Centrist Social Democratic Party emerges as the big winner, electing 887 mayors; Brazilian Democratic Movement secures 854

10/28/2024

This year’s municipal election results have diluted the national polarization between President Lula and former President Jair Bolsonaro. In most of the 50 runoff contests, candidates occupying the political center emerged victorious. Those who remained strictly within their party’s ideological spectrum were largely defeated.

The centrist Social Democratic Party (PSD)—formed by dissidents from various parties, led by former São Paulo Mayor Gilberto Kassab—finished the electoral race with the highest number of municipalities, winning 887. PSD claimed victory in 9 out of 10 runoff elections, including in Belo Horizonte and Curitiba, with Fuad Noman and Eduardo Pimentel, respectively.

In terms of the number of municipalities, the also centrist Brazilian Democratic Movement (MDB) ranked second, re-electing Ricardo Nunes in São Paulo and Sebastião Melo in Porto Alegre, while electing Igor Normando in Belém, totaling 854 municipalities. Regarding governed electorate size, MDB and PSD were nearly tied, with MDB overseeing 27.7 million voters and PSD 27.6 million.

“The election showcased a defined right, a defined left, and a center that’s taking shape,” Mr. Kassab said, identifying Mr. Bolsonaro as the right wing’s leader and Mr. Lula as the leader of the left. Mr. Kassab places his party, the MDB, and Brazil Union at the center, saying that the political landscape for 2026 remains open. “The issue for the center in Brazil is the lack of major options,” he said. According to Mr. Kassab, Governor Tarcísio de Freitas (Republicans) of São Paulo is a state leader rather than a national one. The national president of the MDB, Congressman Baleia Rossi, also mentioned to Valor on Thursday that “nothing is decided for 2026” and that “everything is open.”

Mr. Bolsonaro’s Liberal Party (PL) won only 6 out of 22 runoff contests. Of the 9 capitals where it competed, it secured victories in just two: Cuiabá with Abílio Brunini and Aracaju with Emília Corrêa. However, the party achieved significant results in larger country town cities, with its most crucial win in Guarulhos, the largest city in São Paulo’s metropolitan area, with Lucas Sanches. Overall, the PL governs 516 municipalities, representing 19 million voters.

Where Mr. Bolsonaro directly confronted governors in runoffs, he lost. This was the case in Goiânia, where he campaigned on the day of the election in an attempt to defeat Governor Ronaldo Caiado (Brazil Union). However, the Bolsonaro-backed candidate Fred Rodrigues (PL) lost to Sandro Mabel (Brazil Union).

Mr. Bolsonaro also faced setbacks in some capitals where the governor played no significant role in the runoff. In Manaus, he and his family actively campaigned for Capitão Alberto Neto (PL), but the winner was incumbent Mayor David Almeida (Avante). In Belo Horizonte, Mr. Bolsonaro and his political group threw their weight behind Bruno Engler, who had led in the first round. Still, Fuad Noman prevailed after a highly aggressive campaign. A newcomer to elections, Mr. Noman secured the runoff with late support from the left, but his victory was primarily attributed to his image as an experienced and mature administrator, in contrast to his opponent.

*By César Felício — São Paulo

Source Valor International

https://valorinternational.globo.com/
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Petrobras tops dividend yield rankings for the year

Metric derived from the ratio of shareholder payouts to stock price

10/25/2024

Petrobras has emerged as the Brazilian company with the highest dividend yield this year. The preferred and common shares of the oil giant are leading the list of stocks with the highest “dividend yield” (DY) percentage, according to a report by financial information platform Comdinheiro share with Valor.

This indicator is calculated from the ratio of dividends paid to shareholders to the stock price. For Petrobras, the preferred shares show a DY of 12.43% for the period from January to September. The common shares have a rate of 11.8%. Cemig’s preferred share follows, with a DY of 10.31%.

CPFL, Taesa, Vale, BB Seguridade, PetroRecôncavo, Banco do Brasil, and Usiminas complete the list of the ten stocks with the highest dividend returns for the year up until September. See below:

1. Petrobras ON (PETR4): 12.43%

2. Petrobras ON (PETR3): 11.80%

3. Cemig PN (CMIG4): 10.31%

4. CPFL ON (CPFE3): 7.88%

5. Taesa units (TAEE11): 7.85%

6. Vale ON (VALE3): 7.81%

7. BB Seguridade ON (BBSE3): 7.44%

8. PetroRecôncavo ON (RECV3): 7.14%

9. Banco do Brasil ON (BBAS3): 6.85%

10. Usiminas PNA (USIM5): 6.57%

From an investor’s perspective, it is advisable not to rely solely on the “dividend yield” when selecting a stock, but also to consider factors like inflation, sector crises, and the company’s investor remuneration policies, said Filipe Ferreira, director at Comdinheiro, a Nelogica company.

“Investors need to take a broader view and analyze the macroeconomic context in which the company operates, secular trends, and the company’s performance,” he said in a statement.

He emphasizes the importance of examining the company’s dividend policy, particularly the average DY over the past five and 10 years.

A report by Valor this month indicates that dividend payments in 2024 have reached the same level as the entire previous year, defying the more pessimistic expectations seen at the end of 2023.

By September, R$222.18 billion had been distributed as dividends, interest on equity (JCP), and other forms of shareholder remuneration, surpassing the R$171.8 billion paid during the same period last year. Throughout 2023, Brazilian companies returned R$224.2 billion to shareholders.

*By Rita Azevedo, Valor — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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High inflation reading shows challenging outlook

ith a rise of 0.54% in October, the IPCA-15 presents concerning data, according to economists, and inflation estimates for this year may worsen

10/25/2024

Mid-month inflation index IPCA-15— a barometer for Brazil’s full month official inflation—presented “concerning” data in the eyes of economists, potentially triggering upward revisions in inflation estimates for 2024. The index rose 0.54% in October compared to September, surpassing the median of 0.51% among forecasts gathered by Valor Data. With this result, the IPCA-15 now shows a 4.47% increase over the past 12 months. Year-to-date, the index reached a 3.71% increase, according to data from statistics agency IBGE.

The largest impact came from the 5.29% increase in electricity prices, which accounted for 0.21 percentage points of the overall 0.54% rise in the IPCA-15, representing 38.9% of the month’s total increase. Vehicle insurance prices surged by 3.64%, bottled gas prices climbed by 2.17%, and meal prices increased by 0.70%—these were the main drivers of inflation in October. Consequently, household food inflation rose 7.05% over the 12 months leading up to October, exceeding the 4.47% increase in overall inflation during the same period.

On the other hand, transportation prices intensified their deflation, dropping to -0.33% in October from -0.08% in September, driven by an 11.40% decrease in airfare prices and free public transportation during the first round of municipal elections.

In light of these figures, the J.P. Morgan team has already revised its inflation estimate for 2024 to 4.7% from 4.5%, which exceeds the Central Bank’s target cap.

“Looking ahead, the October IPCA-15 seems to signal a more challenging fourth quarter. First, wholesale and consumer price tracking suggests that food prices will rise further, mainly due to a spike in meat prices, leading to an upward surprise in our estimates as well. Second, the effects of exchange rate depreciation on goods prices will likely remain in play,” the bank noted in a message to clients.

J.P. Morgan also justified the revision by announcing that it no longer expects a temporary discount on electricity prices by the end of the year.

According to Alberto Ramos, chief economist for Latin America at Goldman Sachs, the October IPCA-15 results reflect a “hostile” composition due to the spread of higher-than-expected price increases, including core inflation.

In addition to the Diffusion Index, which measures the proportion of goods and services that experienced price increases, rising to 58.3% in October from 55.0% the previous month, the average of the five core inflation measures tracked closely by the Central Bank accelerated to 0.43% in October, up from 0.18% in September, according to calculations by MCM Consultores. Over 12 months, the average of the core indices rose from 3.60% to 3.81%.

“The core inflation surprise was even greater than the headline. We saw a slightly worse reading for industrial goods, but still at a relatively low level. However, when we look at services, particularly underlying services, the variation is considerably worse than expected,” said Andrea Damico, chief economist at Armor Capital.

Underlying services inflation increased by 0.59% compared to the previous month. “I see a deterioration in data quality that the Central Bank is genuinely giving importance to,” Ms. Damico remarked, reinforcing the probability that the Central Bank will raise the base interest rate by another 50 basis points in its November meeting, bringing it to 11.25% per year.

For André Valério, an economist at Banco Inter, the IPCA-15 is unlikely to change the Central Bank’s stance, which has already signaled further rate hikes at its November 6 meeting. The data also heightens pressure on the government to implement stricter fiscal adjustments.

According to Carla Argenta, chief economist at CM Capital, the scenario highlighted in this IPCA-15 report strengthens the Central Bank’s monetary tightening stance. “For the Central Bank, the economy is operating at full capacity, and with growing demand, the adjustment occurs through prices. To address this, the institution believes in an even more restrictive monetary policy,” Ms. Argenta noted.

By Rafael Vazquez, Lucianne Carneiro — São Paulo and Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Be8 will start producing  a new biofuel to accelerate  decarbonization

With a competitive cost, Be8 BeVant reduces carbon monoxide emissions by up to 50%, becoming a solution for companies seeking to meet short-term sustainability goals

10/24/2024

With a green coloration, Be8 BeVant will be offered at an estimated cost up to 50% lower than the current international market price for renewable diesel.
With a green coloration, Be8 BeVant will be offered at an estimated cost up to 50% lower than the current international market price for renewable diesel. — Photo: Disclosure

Be8,  the  leading  biodiesel  company  in  the  country,  announces  the  start  of  production of Be8  BeVant for the next month. Be8 BeVant is an innovative bio-distilled methyl ester  biofuel, which fully replaces fossil diesel and can reduce  greenhouse  gas  emissions  by  up  to  50%. The  company  is  currently just  waiting for the license from the National Agency of Petroleum, Natural Gas and Biofuels (ANP) to start the operation. It is expected that the preliminary production capacity of 28 million liters of biofuel per year will be sold by the end of this year.

A  higher  ester  content  reduces  carbon monoxide  emissions  by  up  to 50%, particulate  matter  emissions by  85%,  and  black  smoke  by  90%. The  use  of  this  new  fuel  is  focused  on  the key economic sectors looking to  accelerate  decarbonization. 

“The great advantage of Be8 BeVant is that, unlike other technologies that depend on future infrastructure and investments, it is ready to be used immediately in current engines and new truck versions at a competitive cost”, explains Erasmo Carlos Battistella, president of Be8.

Negotiations are already underway with clients in the agricultural, urban transportation and mining sectors, with deliveries expected by the end of 2024. Besides being an accessible and easy-to-implement solution, the product doesn’t require significant changes in infrastructure or engines, unlike alternatives like hydrogen or electric vehicles.

The new biofuel has proven quality, higher lubricity, and the engine testing phase on a test bench has confirmed its advantages and characteristics. Proofs of Concept (PoC) were conducted in partnership with engine manufacturers and fleet operators.

Innovation stems from the experience Be8 gained in Europe and the United States, including operating a biodiesel plant in Switzerland.

Erasmo Carlos Battistella, president of Be8: We are facing an immediate solution for companies seeking to meet their short-term decarbonization goals” — Foto: Disclosure
Erasmo Carlos Battistella, president of Be8: We are facing an immediate solution for companies seeking to meet their short-term decarbonization goals” — Photo: Disclosure

Depending on market demand, Be8 plans to expand its production at the Passo Fundo (RS) and Marialva (PR) units. The product will be offered at an estimated cost up to 50% lower than the current international market price for green diesel (hydrotreated vegetable oil — HVO). It also has the distinguishing feature of a green color to set it apart from other biofuels.

“We are facing an immediate solution for companies seeking to meet their short-term decarbonization goals”, says Battistella. Biofuel is ideal for large consumers of traditional diesel oil committed to reducing their emissions, especially in high-intensity transportation sectors such as mining and logistics. The product has the potential to fuel generators and meet the demands of road, rail, waterway and maritime modes.

Accelerating the decarbonization goal

In a scenario where many companies are commited to achieve carbon neutrality by 2030, the new biofuel emerges as a strategic ally— especially after the enactment of Law 14.993/24. The Future Law, as it is called, is an important chapter in the national strategy to meet the decarbonization goals set out in the Paris Agreement and the Global Commitment for Renewable Energy and Energy Efficiency— signed by 116 countries at the last COP. The goal is to triple the world’s installed renewable energy production capacity and double the global annual rate of improvements in energy efficiency by 2030. Brazil is one of the countries with the potential to become a global power in renewable energy.

“Be8 BeVant arrives at a crucial moment when companies are looking for practical ways to meet their sustainability goals,” emphasizes Battistella. The potential is significant, considering the urgency to find short-term decarbonization solutions for the transportation sector and the companies’ commitments to net zero emissions in the coming years. “In the logistics sector, the reduction in emissions helps client companies meet their ESG goals in Scope 3, which involves the entire supply chain,” adds Battistella.

*By Be8 Energy

Source: Valor International

https://valorinternational.globo.com/
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Investment in hybrids, EVs surpasses R$63bn in Brazil

In an accelerated transition scenario, hybrid and electric vehicles are projected to dominate local market, comprising 54% of sales by 2030

10/24/2024

Raquel Mizoe — Foto: Divulgação
Raquel Mizoe — Photo: Divulgação

In five years, sales of hybrid and electric vehicles are expected to surpass those of combustion models. According to consultancy studies commissioned by the industry, this shift may occur even sooner. Currently, hybrid and electric vehicles (EVs) make up 7% of the market, but their share is set to grow rapidly starting in 2025, when the first results of investments aimed at the new generation of vehicles will begin to materialize. Expert estimates suggest that at least half of the announced cycles will be dedicated to electrification, amounting to over R$63 billion.

Since the end of last year, Brazil has witnessed a wave of successive investment announcements from automakers. With an additional R$1.1 billion from BMW announced earlier this month, total investment in the light vehicle industry now reaches R$116.65 billion for the decade. Adding R$10.6 billion from truck and bus manufacturers, the total rises to R$127.3 billion, marking the highest level of investment in the history of the automotive industry in the country over a ten-year period.

Of this total, at least 50% will be allocated to the development of electrified cars, primarily hybrids that run on ethanol, according to estimates by Paulo Cardamone, president of Bright Consulting, a firm specializing in the sector. However, investments in the new generation of vehicles could be even higher, considering the details revealed by companies in their announcements of new cycles.

At the start of Brazil’s energy transition in the automotive sector, hybrids are expected to dominate national production, according to expert projections and automakers’ announced programs. During this phase, Brazil’s unique formula for integrating itself into the global decarbonization process will play a key role: the development of hybrid models that can be fueled with ethanol.

The first ethanol-hybrid vehicle of this new investment phase will be a Fiat model, scheduled for release on November 5. Fiat, a brand under Stellantis, will join Toyota and CAOA Chery, which already produce such vehicles in Brazil.

Except for the recently arrived Chinese automakers, which need to invest in new factories, the largest established companies in the sector are not including industrial expansion in their new investment cycles. Instead, most of the funds will be directed toward the development of new products.

Márcio de Lima Leite, president of the Brazilian Association of Automotive Vehicle Manufacturers (ANFAVEA), confirmed that a significant portion of the announced programs will focus on hybrids and the development of biofuel-powered engines. “The need for a technology shift is driving our members to make these substantial investments,” he said.

For several years, heavy investments in electromobility have also been underway in the U.S., Europe, and China.

In Brazil, a study conducted jointly by ANFAVEA and the Boston Consulting Group (BCG) presents two scenarios. In the accelerated transition scenario, hybrids and electric vehicles would dominate the market, accounting for 54% of sales by 2030. In a more gradual transition, combustion vehicles would lose market leadership slightly after 2030. By 2035, electrified vehicles are projected to represent 65% of the market.

Bright Consulting’s projection is even more optimistic, predicting that electrified vehicles will lead the market by 2028. The consultancy estimates a 57.4% market share within three years. By 2030, the share of combustion vehicles is expected to drop from the current 96% to 28%, according to the study.

The BCG study suggests that only by 2040 will fully electric models dominate Brazil’s new vehicle market.

The announcement of the new investment cycles aligns with the launch of Mover (Green Mobility and Innovation), a federal program that provides tax credits in exchange for commitments to product development and decarbonization, among other incentives. For instance, companies that invest at least 0.5% of their revenue in research and development will benefit from reduced taxes.

This benefit also applies to the export of engineering services. “Brazil has the potential to export its expertise in biofuels,” said Raquel Mizoe, director of emissions at the Automotive Engineering Association (AEA).

To qualify for the tax incentive, companies must also comply with new CO2 emissions standards. Another aspect of the Mover program, which still requires regulation, is the measurement of CO2 emissions across the entire vehicle lifecycle, from production to consumption. Currently, emissions measurement is limited to what exits the tailpipe.

However, the drive to reduce greenhouse gas emissions is not the only factor pushing automakers to develop cleaner vehicles. Ms. Mizoe noted that Brazil’s regulations for other gases are becoming increasingly stringent.

“The PROCONVE [Vehicle Emissions Control Program] legislation, which aims to protect public health, is imposing stricter limits on gases like nitrogen oxide, hydrocarbons, and soot. These rules require changes to components like the catalytic converter,” she said. The next stage of PROCONVE, known as L8, will come into effect in early 2025.

In the initial phase of the energy transition in Brazil, the mass market will be shaped by the so-called mild hybrid, a more affordable hybrid car where the electric motor never operates independently but assists the combustion engine in reducing emissions.

Ms. Mizoe said mild hybrids offer fuel savings and emissions reductions of 8% to 10% compared to combustion vehicles. For conventional hybrids, the reduction reaches 20% to 25%.

Mild hybrids are part of the development plans of major automakers like Stellantis and Volkswagen. These models, more affordable than fully electric vehicles, are the way these companies aim to maintain market leadership.

“We will have a slower transition, but that doesn’t mean we’re lagging,” said Mr. Leite, president of ANFAVEA, which strongly advocates for the use of ethanol in the decarbonization process and opposes the increasing import of electric vehicles from China. “Brazil has already found its path with biofuels,” he said.

While automakers’ executives often claim there is room for all technologies, hybrid and electric vehicle advocates are already taking sides. Like ANFAVEA, the AEA supports what Ms. Mizoe calls “hybridization with ethanol.”

Those who support hybrid models point to the need not only to leverage Brazil’s expertise in biofuels but also to preserve the country’s existing auto parts industry. They also highlight the need to expand the infrastructure of electric charging stations to support fully electric vehicles on highways.

The growth of the fully electric fleet will require Brazil to have 500,000 charging stations by 2040, according to ANFAVEA. Currently, there are only 10,600 stations.

The higher cost of fully electric models still limits their appeal to wealthier consumers. However, this obstacle is likely to be overcome soon with the use of new minerals in batteries and the potential for recycling these materials, said consultant Jaime Ardila, a specialist in the field and founder of U.S.-based firm Hawksbill.

Mr. Ardila noted that the replacement of lithium with sodium is already helping to reduce battery costs, the most expensive component of an electric vehicle. “Lithium, which is much more expensive, will lose ground. Advances in recycling these new minerals have been significant; in Europe, it will soon be mandatory,” he said.

“With lower costs and recycling, demand for fully electric vehicles will rise because consumers will prefer them,” he said. Mr. Ardila believes the dominance of hybrids in Brazil will be temporary. “No more than five years,” he said. Additionally, he noted that the ongoing investments are increasingly directed toward electrification technologies.

“It would be a huge mistake to make such large investments in new combustion vehicles, which will have a short lifespan. Automakers’ headquarters will not support such a strategy,” Mr. Ardila added.

“Except for those who love the sound of an engine, electric cars offer more technology and all the benefits of decarbonization,” said Ricardo Bastos, president of the Brazilian Electric Vehicle Association (ABVE).

Electrification, whether hybrid or fully electric, is here to stay, and federal programs are supporting the cause. The government now owes a public policy for vehicle inspections to remove polluting and unsafe cars, trucks, and buses from Brazil’s roads.

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Northeast expands renewable power transmission across Brazil

According to the grid operator, new lines will restore wind and solar generation levels seen before the August 2023 blackout

10/22/2024

New assets have increased power transmission from the Northeast to the Southeast/Central-West by 12%
New assets have increased power transmission from the Northeast to the Southeast/Central-West by 12% — Photo: Divulgação

Brazil’s national grid operator ONS has increased the capacity to transmit renewable power from Brazil’s Northeast to the rest of the country with the activation of three new transmission lines and a power substation. These assets received operational clearance last week.

According to ONS, the new lines will allow the operator to reduce the restrictions on wind and solar generation to levels observed before a blackout in August 2023. The authorized lines, all operating at 500 kilovolts (kV), include Pecém-II – Pacatuba C, Fortaleza II – Pacatuba C, and Pacatuba – Jaguaruana II.

The Pacatuba substation has also commenced operations. This development increases the capacity of the Northeast—a region rich in wind and solar power plants—to transmit power that had been restricted since August 15, when a blackout impacted 25 states and the Federal District due to equipment failures in a line located in the region.

The power outage led ONS to adopt more restrictive operations until measures ensuring system reliability could be implemented, thereby limiting the transmission of renewable power from the Northeast to the rest of Brazil. This practice is known in the electric sector by the terms “constrained off” and “curtailment.”

Marcio Rea, managing director of ONS, said that the new assets have increased power transmission from the Northeast submarket to the Southeast/Central-West by 12%, raising the capacity from 11,600 megawatts (MW) to 13,000 MW. The capacity for power export from the Northeast to the North has also been increased by 30%, from 4,800 MW to 6,000 MW.

Later this month, the Olindina-Sapeuçu transmission line, also at 500 kV, will become operational, further boosting the capacity from the Northeast to the Southeast/Central-West from 13,000 MW to 13,800 MW. “This will reduce the need for restrictions,” said Mr. Rea.

Mr. Rea acknowledged, however, that generation cuts will not cease entirely with the activation of new wind and solar projects. “It’s impossible to eliminate the cuts,” he added.

Mr. Rea also mentioned that ONS, the Ministry of Mines and Energy (MME), and the Energy Research Company (EPE) are exploring scenarios to expedite the first battery auction in the electric sector, initially scheduled for 2028 to 2029. The auction model is still under internal discussion. Batteries are considered an alternative to manage wind and solar power transmission during peak demand times, such as between 5 p.m. and 8 p.m.

At the end of the day, as solar photovoltaic generation exits the electrical system with the end of solar radiation, the system loses about 30,000 MW. Furthermore, peak hours mark a transition period for wind energy, as winds tend to be stronger at night. To meet this demand, ONS relies on thermal and hydroelectric power plants; however, during droughts, such as the current one, the operator aims to conserve reservoir use, which limits options.

With a battery system, wind and solar energy could be stored and injected into the transmission network as needed. However, the battery auction’s execution depends on the power regulator agency ANEEL regulating the subject.

ANEEL did not reply to Valor’s request for comment. Its 2024-2025 regulatory agenda includes “regulatory adjustments” in 2025 to incorporate storage systems into the electrical system.

The ONS managing director said that ONS, EPE, and MME are in discussions with ANEEL on regulation and believes that after rule definition and auction execution, a storage project could be operational within a year post-auction. “It’s a significant step forward and would further improve the issue of renewable energy cuts,” said Mr. Rea.

He said he believes that introducing batteries into the electric sector could start with an offer exceeding 500 MW of storage to facilitate market formation. However, the initial demand definition is up to the MME.

*By Fábio Couto, Valor — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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