First Brazilian device will monitor corn and soy in the state of Maranhão
09/27/2022
The maiden mission of the first Brazilian agricultural nanosatellite will be to monitor corn and soy crops in the northeastern state of Maranhão. A partnership of technical and financial cooperation between the Brazilian Agricultural Research Corporation (Embrapa) and Visiona Tecnologia Espacial will enable the capture of images of the planted areas by the VCUB 1 — considered a validation satellite. The equipment, as big as a shoe box, will be launched into space in early 2023 by a rocket belonging to the U.S. company SpaceX, owned by billionaire Elon Musk.
VCUB 1 is expected to improve the visualization of agricultural targets, located on the ground, of the public images of the U.S. and European government satellites that are used for crop monitoring. The nanosatellite will pass 14 times a day over the country, rotating in the opposite direction of the Earth, increasing the amount and quality of data collected for agriculture. The equipment will have an unprecedented system in Brazil, which allows the camera to be precisely aimed at the desired location or to perform an orbit correction, among other applications.
Embrapa and Visiona – a joint venture between Telebras and Embraer that operates as an integrator in the space industry and leads the remote sensing market in Brazil – believe that the technology can offer an unprecedented solution in obtaining more accurate estimates of crop productivity. The Foundation for the Support of Research and Development (Faped) is also participating in the agreement.
The partnership was named Estimation of Agricultural Productivity by Means of a Spectral Agrometeorological Modeling. João Antunes, a researcher at Embrapa Digital Agriculture and technical manager of the agreement, said that the initiative will mean an evolution of API Agritec (agriculture-oriented programming interface) to provide more assertiveness in productivity forecasts for soybean and corn crops in Maranhão. Under the agreement, the research center will be responsible for validating the information, spatial images, and maps of agricultural crops provided by Visiona.
Farmers in Maranhão have registered their farms, indicating their location, the crops they grow there and the estimated productivity. These data are cross-referenced with Embrapa’s data and images from other satellites already available. When the VCUB is in operation, the nanosatellite information will be incorporated into the interface.
However, this is expected to happen only by the end of second half next year. After being launched, the nanosatellite will undergo a trial period of three to six months, when all subsystems will be put to test, and validated. Initially, Visiona’s idea was to launch the equipment in 2021, but there was a delay.
VCUB 1 will be equipped with a high spatial resolution camera specifically designed to capture agricultural targets in greater detail. The technology will enable the capture of detailed images 3.5 meters from the ground. Satellites currently in operation provide images in 5 to 30 meters detail.
“When agrometeorological data is associated with satellite images, the models gain precision, allowing greater certainty in decisions. Furthermore, the data collection system can serve the Internet of Things (IoT) market in places with little infrastructure,” Embrapa CEO Celso Moretti said.
João Paulo Campos — Foto: Divulgação
“The possibility of combining high-quality images and collecting data from sensors in the field makes VCUB a powerful platform for agricultural applications, and the partnership with Embrapa will be fundamental to transform this potential into concrete solutions aimed at the Brazilian market,” Visiona CEO João Paulo Campos said.
Mining company signed R$184mi lease contract for area to install solid bulk terminal
09/27/2022
Mining company Bemisa, part of the Opportunity group, signed on Monday a contract worth R$184 million to lease an area in the Suape port complex, in Pernambuco, where it intends to build a solid bulk cargo terminal with an estimated investment of R$1.5 billion.
The venture is part of a larger project that includes an iron ore mine in Piauí and a railroad to replace what would be the Transnordestina railway in the Pernambuco stretch, with 717 kilometers. The three projects total more than R$10 billion in investments, of which about R$5.7 billion refer only to the railway part.
The lease contract for the 57.8-hectare area is valid for 30 years and was signed with the government of Pernambuco. The terminal in Suape will have the capacity to receive and ship 50,000 tonnes of ore per day, besides the potential for storing 780,000 tonnes. When it is operational, the terminal is expected to employ 400 people.
Bemisa’s project is presented as an alternative to part of the original Transnordestina project. Begun in 2006, the railroad was only half finished – the stretch that goes through Ceará – under CSN’s command.
Luís Vidal, a member of Bemisa’s board, says that the idea is to undo the regulatory knot, improving legal security, and thus reduce the project’s risks to attract more investors interested in using the railway to export production through Suape.
Bemisa and the government of Pernambuco have begun discussing alternatives to unlock the Transnordestina situation in 2019. In December, the company obtained permission from the Ministry of Infrastructure to build a railroad starting in Eliseu Martins (Piauí) and running through Pernambuco with a similar route to that of Transnordestina.
According to Mr. Vidal, the project is vertical and its three parts (mine, railroad and terminal) are interdependent. “The election is an important step for us to know how the federal government is going to position itself in relation to all of this. Investors will also respond to the new government and we will be able to attract them more quickly or not,” Mr. Vidal said.
Governor Paulo Câmara (Brazilian Socialist Party, PSB) said that Bemisa’s project can be a structured solution for several productive arrangements in the Northeast region. Port of Suape CEO Roberto Gusmão highlighted the grains of Matopiba (region bordering the states of Maranhão, Tocantins, Piauí and Bahia), the fruits of the São Francisco River Valley, and the plaster producing region of Pernambuco.
Ibovespa drops 2.33% and interest rates rise amid global worsening
09/27/2022
The week leading up to the elections in Brazil began in a very tense manner in the financial market. The foreign exchange rate reached R$ 5.4 to the dollar, the highest in more than two months. The benchmark stock index Ibovespa ended Monday’s session down 2.33% and interest rate futures rose at Exchange B3.
The growing tensions in the international scenario, with ever stronger fears of a recession, have hit the already tense local market, which underperformed its peers on Monday. The real had the worst performance among the 33 major global currencies. At the end of the session, the foreign exchange rate advanced 2.52%, to R$ 5.3804 to the dollar – after going as high as R$5.4164. At the end of the day, the Central Bank announced that on Tuesday it will hold a foreign exchange auction of up to $1 billion.
“Now on the eve of the election, there is a tendency for investors to go ‘lighter’ for the weekend, reducing their exposures,” said Fabio Guarda, a partner and manager at Galapagos Capital. “We have a very full week in the country, with the release of [Brazil’s mid-month inflation index] IPCA-15 on Tuesday, the Copom [Monetary Policy Committee] meeting minutes, and the Quarterly Inflation Report. This situation precipitates a little elimination of risk and a reduction of exposure to the local market. They [foreign investors] end up leaving because of a greater risk, which does not necessarily involve a worsening scenario,” he adds.
In the stock market, the negative mood affected the market in general. Only 3 of the 92 Ibovespa stocks ended the trading session with some gain. Among the biggest drops, 3R Petroleum ON lost 6.83%, Petz ON retreated 6.63% and Magazine Luiza ON, 6.26%. Considering the blue chips, Itaú PN retreated 1.80%, followed by Bradesco PN (-1.59%). Vale ON fell 0.83% and Petrobras PN decreased 1.6%. The Ibovespa, after falling 2.33%, closed at 109,114 points – the lowest level since August 9.
In fixed income, the Interbank Deposit (DI) rate for January 2024 rose to 12.95% from 12.81%; and for January 2027, it advanced to 11.695% from 11.38%.
Gustavo Menezes — Foto: Claudio Belli/Valor
Globally, the new tax plan announced by the UK government, which made investors price a significant interest rate hike by the Bank of England (BoE) at its next meeting, was the main catalyst. “The big change came from the behavior of the markets abroad. We ended up entering the stress package in this movement started in the UK yield curve,” said Gustavo Menezes, macro manager at AZ Quest.
According to Mr. Menezes, the emerging currencies, which were somehow holding up against the currencies of developed countries, could not pass unscathed with such a large magnitude of interest rate hikes, which ended up affecting Europe and the United States. He suggests that the market is starting to question and get ahead of possible future postures of other central banks.
The DXY index, which measures the dollar’s strength against a basket of six major currencies, was trading up 0.82% around 6:00 pm, at an all-time high of 114.119 points. Compared to emerging currencies, the dollar advanced 0.92% against the Mexican peso; 0.72% against the South African rand; 2.42% against the Chilean peso; and 0.18% against the Turkish lira.
“Last week, Ibovespa rose more than 2% and the U.S. stock markets closed in sharp decline, so we are left with some fat. And in the final week before the election, it is normal that the stock markets get more nervous,” said Pedro Galdi, an analyst with Mirae Asset. He also highlighted that the possibility of a recession in Europe and the United States, the slowdown in China, and the war in Ukraine contribute to the environment of volatility. “It is the investor who wants to reduce risk by going where there is more liquidity,” says Mr. Galdi.
Regarding the stock market, despite short-term volatility, Goldman Sachs said in a report that Ibovespa could reach 121,000 points as early as 2022. “The move would be consistent with first-quarter levels, although just above our year-end target of 116,000 points,” says the report signed by Ceasar Maasry and Jolene Zhong.
As for positioning for the election, the bank suggests that investors consider domestic cyclical companies. According to the report, the stability in interest rates should help these companies, “a trend probably disconnected with the election result in the very short term, and reasonably insulated from the current significant volatility in global macroeconomic markets.”
*By Augusto Decker, Gabriel Roca, Igor Sodré, Matheus Prado — São Paulo
Experts agree with IPC Maps data that show post-pandemic habits
09/27/2022
Sales of cell phones and accessories are expected to grow at double-digit levels this year — Foto: Brenno Carvalho/Agência O Globo
The consumer market is expected to spend R$175 billion this year on telephone services, packages (TV, Internet, and phone), and the purchase of cell phones and accessories. This represents a potential growth of 10.1% compared to 2021 and 32.53% compared to 2019. The growth is based on current prices and may have a margin of error of 5%.
This is what IPC Maps, a study prepared by IPC Marketing Editora, shows. Experts consider that the data is coherent with the country’s reality.
Marcos Ferrari, CEO of Conexis, which represents the big telcos, said that “the pandemic has changed society’s consumption basket and connectivity has become vital.” Mr. Ferrari, a former secretary of economic affairs during the Rousseff administration, added that “people’s lives, companies, businesses have acquired a new form with the importance of connection.” He recalled that the National Household Sample Survey (Pnad) showed that 98% of people access the Internet via cell phone.
The growth of services is “booming” and will continue, said Vivien Suruagy, head of the federation of telecommunications and information technology network infrastructure (Feninfra). These companies expect to spend nearly R$20 billion this year on infrastructure services for operators, small providers, and suppliers, up 10% to 20% over 2021, according to Ms. Suruagy’s informal analysis.
“I think this growth is totally reasonable,” said Luca Belli, coordinator and professor of the Center for Technology and Society at the think tank Fundação Getulio Vargas (FGV). Mr. Belli recalled that the Pnad, from the Brazilian Institute of Geography and Statistics (IBGE), showed in the last few weeks the increase of connected people and of the use of cell phones and connected TV.
“However, you have to be more critical to understand these statistics,” Mr. Belli said. Not all Brazilians are connected, he added, citing that the lower-income population does not have a connection and is unable to surf the internet. In addition, a good part of Brazilians with access to this type of technology “have very limited bandwidth. There is a digital divide.”
Marcos Pazzini, a partner at IPC Marketing in charge of IPC Maps, said that the main telecom consumption categories were analyzed: landline phone, which has been losing importance for users for years; cell phones, the main device in people’s daily lives; the entertainment-work duo; and chargers, which have gained importance, especially after manufacturers decided to sell them apart from new cutting-edge 5G smartphones – both iPhones and brands that run on Android.
IPC found that telecoms account for 3.3% of household expenses after analyzing water, electricity, telephone, and Internet bills, among others.
The advance in telecom spending is stronger than the expectations for overall household consumption in 2022 in the wider IPC survey, which analyzed 22 sectors. General consumption is expected to draw R$5.6 trillion this year in Brazil, up only 0.92% from 2021.
“Brazil is always among the top countries in terms of consumption, whether of telecommunications services or mobile devices, accessories, and appliances,” said Matheus Rodrigues, a Deloitte partner in Brazil and a specialist in the technology, media, and telecom industry.
The growth in consumption of telecommunications products and services in Brazil had already been noted by Deloitte. The executive cited a recent study held by the company showing that Brazil leads five of six pillars in the industry when compared to the United States, United Kingdom, Germany, and Japan. Brazil is a leader in music streaming, games, social media, Internet navigation, media, videos, shows, and movies. The country is only behind in the segments of live concert streaming and movies at home.
According to IPC Maps data, the growth in telecoms spending this year ranges between 9.51% and 10.6%, depending on the category, compared to last year. Landlines are expected to see the smallest growth (9.51%).
The loss of importance of the landline phone becomes more evident when analyzing the potential spending when looking at the bills in reais in 2022 compared to 2019. Spending on this service dropped on average 80%, to R$10.15 billion, while cell phones are expected to grow 35%, to R$58.4 billion. Telephone, TV, and Internet packages are expected to rise 167% to R$58.4 billion, while cell phones and accessories are expected to increase 229.3% to R$47.9 billion.
“Few people depend on landlines and many who still have them at home do so for convenience because if you cancel the landline in the package, the price goes up,” said Mr. Pazzini. In fact, the sharp decline compared to 2019 follows industry trends, but the growth forecast for 2022 seems illogical. The executive explains that it is a nominal variation and the same is true for cell phones and accessories. “It does not mean that it grew by more than 200% in real terms. Inflation from 2019 to 2022 is expected to reach around 70%,” he said.
The industry’s revenues have been falling in real terms since 2015 due to structural issues. Even with an inflation of 5% to 6% per year, there is positive growth in telecoms, said Fernando Moulin, a professor at Insper and ESPM, and a partner at the consultancy Sponsorb. Mr. Molin, who has already worked for telecom companies, said that the growth indicated in the survey is justified by the change in people’s habits, and the tendency is for this to continue. “Digital transformation points to the North, with cultural, economic, and social changes,” he said.
Mr. Molin agrees that the macroeconomic scenario for 2023 is indeed challenging. But microeconomic conditions do not change, and one of them is habit; people want to be connected.
Cell phones, on the other hand, grew the most because people who used them eventually were forced to buy better devices to work at home and make video calls during the pandemic, Mr. Pazzini said.
Sales of cell phones and accessories are expected to grow at double-digit levels this year, said Reinaldo Sakis, research and consulting manager for consumer devices at IDC Brasil. He linked the increase to the change in the mix of products, higher prices, and higher costs caused by manufacturing problems in Asia passed on to products and components. IDC estimates a 5% drop in units sold in 2022, despite the new 5G technology, because retailers are “well stocked.”
In 2021, IDC saw a 6.1% drop in sales in units compared with 2020. In the second quarter of 2022, there was a 3.1% increase, with the sale of 11.3 million handsets. In revenue, from May to June, cell phone sales grew 14.1% year-over-year, to R$17 billion. In the first half, revenues reached R$36.7 billion, up 16.8% from the first six months of 2021.
“5G growth is exceptional, up over triple digits in units,” said Mr. Sakis. But he added that since this advance occurs over a still small base of 5G smartphones, it will not make a difference this year.
In addition, 1,261 new companies were founded in the telecoms sector since 2021, up 2.2% year-over-year. Now they add up to 57,805, the study found.
Spending rose despite higher unemployment because money flows increased as well, Mr. Pazzini said. The population sought income alternatives, and new delivery and transportation applications emerged, for instance. Ride-hailing drivers and motorcycle couriers depend on the Internet. The reliance on connections has created demand in the industry.
Mr. Pazzini says the upward trend will continue into 2023. “But it won’t last,” warned Mr. Belli, with FGV.
One of the world’s leading energy consultants, he says it is good to the country to be open to the world
09/26/2022
Daniel Yergin — Foto: Divulgação
Brazil can benefit from a long-term energy outlook that can guarantee revenue even in times of crisis. Achieving this goal depends, however, on having predictable and reliable regulations and policies in order to attract investment.
The view comes from Daniel Yergin, one of the world’s leading energy consultants. Vice-chairman of S&P Global’s board, Mr. Yergin says that, regardless of the outcome of the presidential elections, it is positive for Brazil “to be open to the world.”
Mr. Yergin has published three books – “The Prize” won a Pulitzer Prize in 1992. The most recent, “The New Map”, was released in late 2020 and has not yet been translated into Portuguese. In the book, Mr. Yergin identified that Ukraine could be the issue that would lead to tensions between the West and Russia. On Monday, Mr. Yergin participates, virtually, in Rio Oil and Gas, the largest event of the sector in Latin America.
He said that Brazil needs to pay attention to another issue that he also highlights in “The New Map”: the increased power competition between the United States and China. According to him, the energy market has become more divided and risky after Russia’s invasion of Ukraine and sanctions against Russian energy. “The world will still need oil for a while.”
See below the main excerpts of Mr. Yergin’s interview to Valor.
Valor:What are your conclusions about the current energy crisis?
Daniel Yergin: The global energy crisis started a year ago when markets became tight quickly, and now this crisis has joined a global geopolitical crisis. But it is important to note that there was already a global energy crisis before Russia invaded Ukraine. Prices today are high and what was a globalized market has now become a divided market with more risks. Europe, which was the largest market for Russia’s energy exports, is determined to close the door. Another change is how LNG (liquefied natural gas) has come to be seen as a major strategic asset.
Valor:How does this scenario impact Brazil’s position in the market?
Mr. Yergin: Brazil is an important oil producer, with a location that contributes to global diversification and can benefit from the continuing global demand for oil. But it is important to remember that there will be global competition for attracting investment. Being competitive and reliable will benefit Brazil in the years to come. The world will still need oil for some time to come.
Valor:What does Brazil need to discuss in the energy sector at this time of presidential elections?
Mr. Yergin: I hesitate to give advice in the midst of presidential elections. But I would say that ensuring that Brazil is seen as a predictable and reliable country in terms of regulation and policies will continue to attract investment to the country and keep it competitive. Being “open” to the world is positive. Whoever the president is, Brazil will benefit from establishing itself as a country that looks to the future and thus secures revenues to meet needs even during the inevitable oil market crises.
Valor:What Russia’s role in the energy market will be?
Mr. Yergin: Russia is an energy superpower, but it is wasting political capital and, having lost its most important market, may cease to be one. The country is lacking access to Western technology and investment. And it will still be a superproducer, but production is expected to start to decline. Let’s see what the disruption in the oil market will look like in early December, when sanctions against Russian crude oil go into effect. Where will that oil go? And at what price?
Valor:What has the increased focus on energy security meant for the oil market since the war in Ukraine began?
Mr. Yergin: People had forgotten about energy security. In Europe, it means paying more attention to oil and gas and also to coal. Hydrocarbons supply 82% of global energy.
Valor:What about the effect on renewable energy?
Mr. Yergin: Governments are looking to ensure reliable supply. Renewables will grow fast, which will be a contribution to energy security, but they are also intermittent sources, and reliability is an important requirement. The growth of renewables and electric cars raises new questions about the scale of the minerals that will be needed to serve these markets.
Valor:How important is hydrogen as an energy source?
Mr. Yergin: Hydrogen was barely an industry topic three or four years ago. Now it is being talked about everywhere, both with the aim of using it as a gas in power generation and for heating. Companies are working on it. The European Union says it can have 25% of its energy consumption met by hydrogen by 2050. But it will take three to four years before the dimensions that hydrogen can take as an energy source become clearer. Scale ability still needs to be demonstrated.
Valor:Can hydrogen replace oil and gas in the future?
Mr. Yergin: I think it is less likely that hydrogen will replace oil in the transportation sector. Development funds are focused on electric vehicles. If all plans and scenarios come to fruition, hydrogen could become a major gas for energy purposes. But there is also the possibility of producing hydrogen via natural gas.
For UBS, local market may outperform other emerging markets in coming months
09/26/2022
The Brazilian stock market will not remain immune to the instability that the rise in interest rates in the United States causes in global markets, but it is expected to continue to show a better performance than its peers in the coming months.
In UBS Wealth Management’s view, the securities prices – below the historical average and incompatible with the fundamentals –, the less vulnerability to the global liquidity reduction, and the high dividend yields are likely to help that, compared to other emerging markets, Brazil remains more attractive in the next 12 to 18 months.
For Ronaldo Patah, investment strategist with UBS Wealth Management in Brazil, the uncertainties coming from the monetary tightening cycle conducted by the Federal Reserve prevent a clear trend to be pointed out for the stock market. The scenario suggests a lot of instability since the interest rate hike is not over and asset prices have not been fully adjusted. “I don’t see an unequivocal upward trend in the stock market, but even on bad days, Brazil tends to perform better,” he says. “Brazil has advantages in terms of fundamentals at the moment, such as GDP performance and the level of interest rates.”
Mr. Patah recalls that after years at the bottom of the league, the Brazilian stock market has recovered, and this year has the best performance among the emerging economies. The MSCI Brazil index rose 5.72%, compared to a 26% drop in the MSCI for emerging markets. But, despite that, the reading is that the stock discount remains high: UBS estimates that the Brazilian stock market today trades at a 43% discount compared to the group of emerging markets. When looking at the price-to-earnings ratio (which takes into account the projection for companies’ profits over the next 12 months), the multiple is at 6 times, 2.5 standard deviations below the average of the last ten years.
The Brazilian stock market could also benefit from commodity prices, which are expected to remain high. This scenario helps because more than 38% of its market value comes from companies linked to the segment. High-interest rates help stocks in the financial sector. “Brazilian stocks are being traded at an average dividend yield of 10% to 12%, much better than what other exchanges offer,” he says.
This scenario of tighter local monetary policy and high commodity prices also benefits the exchange rate dynamics. According to Mr. Patah, with UBS, if the world goes through a “soft landing” (soft deceleration of the economy), the fair exchange rate in Brazil is R$5 to the dollar, despite the end of the monetary tightening cycle – which puts the perspective of a reduction of the Selic key rate at some point in the medium. “The resilience of Brazil’s foreign accounts can help the country navigate through a long period of a liquidity shortage,” says UBS.
According to Mr. Patah, there may be a flow of external resources to the stock market after the election. “It is difficult to predict, but the fact is that the global market is still very liquid,” he says.
He says that today, the market has “priced in” the victory of former President Luiz Inácio Lula da Silva (Workers’ Party, PT), and no major change is expected in terms of economic policy. “But it’s still an uncertainty, which means it’s possible that after the two rounds of votes, there will be a change in the prices of the stock market and the exchange rate.”
For Anand Kishore, equity manager with Daycoval Asset, despite the strong volatility expected at least until the end of the year, local assets are ahead of their peers in terms of attractiveness. With this, there are two risks to be monitored in the face of the Fed’s monetary tightening cycle: revisions in the earnings of listed companies with the expected slowdown in global activity and the growth of discount rates in all asset classes.
“If the world’s largest economy slows down, there are global consequences in terms of growth and Ibovespa suffers indirectly from this. There will be earnings revision all over the world and here too, on a smaller scale. Moreover, with the Fed Funds going up, the discount rate gets higher for all assets. But when the U.S. interest rate starts to impact inflation, the domestic monetary tightening will be done. So, even if all markets fall, the local one tends to fall less,” he says.
Mr. Kishore sees more room for assets linked to the domestic economy and banks to advance next year, given the discounted multiples, the end of the interest rate hike, and the resilience of activity. Regarding commodities, and despite seeing support at current levels, the uncertainties in China may weigh on Vale, while Petrobras may have difficulties advancing in case of Mr. Lula da Silva’s victory. The bank projects Ibovespa will reach 150,000 points by the end of 2023.
Santander, in turn, projects Ibovespa at 140,000 points. According to the report signed by analyst Aline Cardoso, the market may price cuts in interest rates earlier than expected, reflecting the drop in inflation. The bank also affirms that there is a 70% probability of a soft landing for Brazil, against 30% of a hard landing (deceleration with a greater chance of recession). Globally, the chances of a hard landing are 40%, against 30% of a soft landing and 30% of stagflation.
Even with the largely positive relative vision among market agents, Fernando Bresciani, investment analyst at Andbank Brazil, gives a warning. “The stock market is a reflection of the external markets. Nothing guarantees, and it seems unlikely, that foreign investors will buy Brazil while the other markets melt down. Besides this, as of the second half of next year, the measures of the new government will take effect. It depends a lot on what is going to be done,” he says.
“But the local activity and environment are better at the moment, the earnings season is expected to be good and with positive guidance, companies are more deleveraged. The moment is positive.”
Companies likely to bring forward promotions; networks focused on home appliances and food will be helped by events
09/26/2022
Retailers reported sluggish sales in the third quarter as segments like food, fashion and home construction failed to improve their results compared with the April-June period. As a result, the companies face mounting pressure to perform better in the fourth quarter.
Commercial actions have been defined, and projections of orders sent to manufacturers suggest an increase of 5% to 25% in sales (in volume) over 2021, depending on the segment. Orders placed can still be revised until November. Figures include, however, the effect of a weak basis of comparison in certain segments, which favors stronger year-over-year growth.
Full-year results are now more dependent on the sales linked to the World Cup, Black Friday and year-end holidays. The companies will focus on this 45-day period to try and end the year on a high note. “This is a still complex backdrop. The third quarter remained complicated, which generates a higher expectation from companies for the next quarter, especially because the pandemic is not helping some sectors” like in previous years, said Marcelo Osanai, head of e-commerce at NielsenIQ|Ebit. Items for home and technology, office, and electronic products, which benefited from the higher demand during the health crisis, face a slowdown this year.
“The World Cup and Black Friday together will help a lot brown goods and food and beverages, but will not help white goods [refrigerators, washing machines], a segment that never does well during World Cup years. In our view, products with high turnover and lower values will gain ground in the coming months,” Mr. Osanai said.
This is an election year in Brazil, but they will be defined by late October at most, which may reduce political tension and improve consumer confidence, executives say. Deflation measured in recent months in some categories and lower unemployment weigh favorably on projections as well. Other positive factors are the expanded cash-transfer program Auxílio Brasil since August and the effect of the low basis of comparison – sales of durable goods, for instance, were very weak in November in the last years.
“Sales have increased somewhat in the third quarter compared with the previous one, depending on the region. But a better scenario is projected in the fourth quarter, no matter who wins the election, in an environment of greater confidence and more money circulating,” said Carlos Corrêa, managing director of Apas, the São Paulo supermarket trade group. The sector is directly benefited by higher cash transfers of R$600 a month.
Last week, Apas raised to 2% from 1.7% the projection of sales growth in São Paulo this year. In retail in general, considering all segments, IDV, the main commerce association, projects increases of 6.7% in September, 6.2% in October, and 6.9% in November over 2021.
Executives and specialists cite the expensive credit as a negative factor that still generates a fear of placing larger orders. In addition, they say, despite recent deflation and higher cash handouts, prices have stalled at high levels.
In this scenario, retailers will seek breathing room by bringing forward Black Friday actions to try and spread the positive effect of this shopping day as much as possible.
For the first time, commercial strategies closed with the manufacturers of technology and electronic items for Black Friday (November 25) will be launched gradually starting in October. For consumers to understand that these are Black Friday promotions, consultants who advised the companies say that the idea is to ensure that these will not be repeated.
The idea of limited-time promotions was used last year in campaigns of large retailers in November 2021. “In conversations with customers in retail, we see a strategy along these lines, to launch actions for Black Friday from October on, following a pre-defined schedule of target products. And they will avoid launching an avalanche of promotions in November,” said Fernando Baialuna, head of retail at GfK in Brazil, a consultancy specializing in durable goods.
According to GfK, there was a 1.1% drop in the volume sold of TVs from January to June over 2021, while smartphones fell 11% and portable devices rose 3%. “I don’t see a risk of World Cup and Black Friday hindering each other. I see one thing helping the other, in a more stable exchange rate scenario, which helps the commercial team to make plans,” he said. “We are likely to see cross-selling, with food and beverage sales, for example, to celebrate the games, linked with strategies to sell TVs or 5G cell phones [with faster video connection].”
Jose Guimaraes — Foto: Divulgação
José Guimarães, CEO of the electronics chain Novo Mundo, said that orders have been placed for the industry in talks aimed at the October-January period. The company expects a growth of 35% to 40% in sales value of brown goods in the fourth quarter – excluding the 12-month inflation, it means an increase by 20% to 25% in volume. The projection for white goods is lower – growth of 3% to 5% in value.
“There is a slightly stronger negotiation to meet Black Friday in October, especially in brown goods, to start taking advantage of sales linked to the World Cup before that. Then we will extend the actions until January,” said the CEO of the chain, with 147 stores.
Mr. Guimarães recalled that large chains such as Casas Bahia and Magazine Luiza strongly reduced stocks in 2022 after having started the year well stocked, and sales this year end up forcing them to buy more in the second half, despite sales are not expected to be strong at the end of the year. “There will be a search for more sales, but with rationality, to prepare for a stronger recovery in 2023,” he said.
Cybelar, a strong retailer in the São Paulo state, may be boosted in the fourth quarter by a recovery in store demand this year. “The third quarter was flat, and it changed little from the pace of the second quarter. For the period after October, there is some better expectation, in part because stores will be 100% ready for a normal foot traffic, which did not happen in 2021,” CEO Ubirajara Pasquotto said.
A third electronics chain heard, with a strong presence in Rio de Janeiro and Minas Gerais, placed orders 5% higher in white goods, by volume, and 20% higher in brown goods for October and November, compared to the previous year. “This has more to do with the fact that we were not as stocked in 2021, and not because we expected strong sales. [Sales in] Rio is likely to grow slower at the end of the year than in the North and Northeast regions,” the chain’s director said.
In the fashion and home retail segment, Grupo Avenida, with operations focused on lower-income classes in the North and Central-West regions, says that any comparison of third or fourth quarters with 2021 is unfair considering that the sector lost sales because of the pandemic. “But if we compare with 2019, we are growing twice as much as the IPCA [Brazil’s official inflation index], because even serving the lower income, we feel a migration of the middle-class to our stores,” said Martijn Winkel, the group’s chief operating and sales officer.
“We plan to hold this pace in the rest of the year, as we have attractive prices for different social classes. This can be affected, of course, by a lack of money, a smaller leftover of funds from mandatory consumer spending, and the chance that this deflation is only a one-off thing. Lack of money prevented us from posting a strong third quarter,” he said.
Tenda Atacado expects a less tense political backdrop, and believes that many companies will bring forward Black Friday sales to generate a positive environment. “What still favors performance – many people forget it – is that this segment posted weak same store sales at the end of 2021, and this [low] basis of comparison will help now,” CEO Marcos Samaha said. The chain increased by 20% to 25% year-over-year the volume of beverages acquired, including beer, in the fourth quarter.
There is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, study shows
09/26/2022
Biomethane production in Brazil — Foto: Barbosa Neto
Brazil could avoid spending $137 billion in diesel imports in a decade if all heavy-duty vehicles running on the fossil fuel used locally-produced biomethane instead.
The calculation was made by the Brazilian Center of Infrastructure (CBIE) at Valor’s request and shows that there is a possibility to replace fossil fuels for renewable ones in Brazil, preventing the emission of methane, which is short-lived but the more harmful gas, and still resulting in benefits to the trade balance.
The consulting company put together three scenarios for the evolution of diesel consumption in Brazil by 2031, based on projections of different economic growth rates. In a more optimistic scenario of GDP growth, demand for diesel exceeds the country’s expected refining capacity, so Brazil would require imports of 35 billion liters in 2031 alone, or 45% of the consumption expected for that year.
In order to completely replace these imports, Brazil would need to expand the production capacity of its biomethane industry to 40 billion liters per year by 2031, or 112.89 million cubic meters of biogas per day. This volume would avoid spending $137 billion on imports from 2021 to 2031.
In the base-case scenario, in which economic growth would be less accelerated, Brazil would have to import 30 billion liters of diesel in 2031. With this, the replacement of fossil fuel by biogas would be $124 billion
This demand is within what the organizations that represent biogas investors project for Brazil’s capacity to produce the renewable fuel. According to calculations by the Brazilian Biogas Association (Abiogás), a complete utilization of the residues from farming and urban sanitation existing today in Brazil would allow the production of up to 120.8 million cubic meters of biogas per day. This is more, therefore, than the demand needed to replace the imports of fossil diesel projected by CBIE for the next decade in the most optimistic scenario for consumption.
The total use of residues, however, is still far from reality. The most likely scenario is that in 2030 Brazil will have the industrial capacity to produce 30 million cubic meters of biomethane per day, according to Abiogás, considering investments already announced for the coming years, those in the pipeline, and the expected ones.
Even considering this more conservative perspective for biomethane production, the volume would already be able to stop the increase in diesel imports by the end of the next decade. According to CBIE, in a scenario of average growth in the next decade, the country would have problems to meet diesel demand starting in 2028, considering that there will not be new investments in refining until then or increases in the import capacity of fossil fuel.
In this hypothesis, there would be a demand for 15.2 million to 29.8 million cubic meters of biomethane per day until 2031. A volume, therefore, that the expected capacity until the end of the decade would be able to meet, considering Abiogás’s projection. In this case, the consumption of biomethane would avoid imports of $7.8 billion of diesel.
The projections took into consideration that diesel today is a blend that includes 10% of biodiesel and should remain that way until 2023 and a progressive increase until 2026.
The potential estimated by CBIE is still distant when compared to the industries that are active in Brazil today. According to Abiogás, the country has today less than 10 units with capacity to deliver 400,000 cubic meters per day. Most are recent investments, such as Adecoagro and Cocal, which use residues from ethanol production to generate biogas.
Besides sugar cane, there is also potential within agribusiness for production in farms, feedlots, and agricultural crops that supply residues for biodigesters, besides urban landfills, where there is greater potential of growth. But new investments have yet to materialize.
Bruno Pascon, a partner at CBIE, believes that new legal frameworks recently approved can favor this leap. This year alone, the solid waste law was regulated, which can unlock investments in landfills, and the decree for the biomethane incentive was published, which granted tax benefits for investments. In his view, the federal fertilizer plan and the Eletrobras Law, which forced the contracting of natural gas thermoelectric plants, can also contribute to promote biomethane (which is chemically equal to natural gas).
“Due to the power of agribusiness, Brazil has everything to also be a world reference in biogas,” he said. According to Mr. Pascon, the fact that Brazil is a “leader” in the production and export of food makes the country a potential leader also in biomethane.
Currently, Germany has the largest installed capacity of biogas in the world, followed by the United States, United Kingdom, Italy and China. From this group, Mr. Pascon said, the ones with more potential to continue growing are the Americans and the Chinese, precisely because of their agricultural production, which leaves residues. “Brazil has just started,” he said.
Monetary authority has said divergence does not mean signaling of monetary policy by committee as a whole
09/22/2022
Central Bank President Roberto Campos Neto — Foto: Billy Boss/Câmara dos Deputados
Dissenting votes in the Central Bank’s Monetary Policy Committee (Copom), such as the ones seen in Wednesday’s meeting, are bound to become more frequent from now on with the independence of the monetary authority, and should no longer be such a rare event.
Since 2016, under Alexandre Tombini, the Central Bank has not recorded dissenting votes. On Wednesday, directors Fernanda Guardado (International Affairs) and Renato Gomes (Organization) wanted to raise interest rates by 25 basis points, while the majority decided to maintain Brazil’s key interest rate Selic at 13.75% per year.
But this does not mean that, previously, there were no divergences among its members. They occurred especially in the most critical periods, as the beginning and the end of the monetary tightening cycle. But they were not expressed in the votes.
An important point: the Central Bank has said that divergence of views and votes does not mean signaling of monetary policy by the committee as a whole. They simply show that policymakers have different opinions. It is important to know these views in order to analyze if one argument or another gains strength in the committee.
In January 2021, for example, at least three members of the Copom defended, in the discussions that took place in that meeting, that the committee should immediately start a cycle of interest rate hikes – the key rate was then at 2% per year. The majority won, but in the following meeting, the interest rates went up, even more than expected by the market.
There was also divergence in the mid-2020s when the Copom discussed how far it could take the key rate down in response to the Coronavirus pandemic. Most directors argued that the room for interest rate cuts was more limited because an emerging economy could not live with interest rates as low as developed countries without increasing risks to financial stability. At least three Copom members thought that interest rates could be lowered further.
There may have been other critical moments of divergence in meetings that were not made explicit in the Copom statements. There were strong rumors in the market, for example, that policymakers diverged in late 2021, when the committee maintained the pace of monetary tightening at 150 basis points.
There are several possible explanations for the lack of divergence in the committee votes. It may be just that its composition has been more homogeneous. It could also be the style of the last presidents – Ilan Goldfajn and the current one, Roberto Campos Neto – in the search for consensus in the decision, despite divergences in the debates.
But it may also be a governance defect of our Central Bank, in which the president had more powers than the other members. Until the independence of the Central Bank, the president of the monetary authority was the one who indicated the other members of the collegiate board to the president of the Republic. So there was a certain hierarchy, with a president of the Central Bank who, at any time, could fire the directors.
The independence of the Central Bank changes this situation, because policymakers have fixed terms of office, regardless of the president of the Republic and the president of the monetary authority.
Today, the Central Bank’s board has greater cohesion because all members were chosen by the current president, Mr. Campos Neto. But in February 2023, the terms of two Copom members, including the monetary policy director, Bruno Serra, will end. In December 2023, two more terms will expire.
The new members will be nominated by the president of the Republic to be elected in October, and in theory may have a less homogeneous vision, when compared to the current team. This increases the chances not only of dissident votes but also of public remarks from members with different views.
This is an additional argument for not seeing dissenting votes as monetary policy hints. They are, in fact, an indication of the committee members’ leaning to one side or the other in the execution of monetary policy, as is the case in other central banks, such as the U.S. Federal Reserve.
U.S. has been blocking appointment of arbitrators of Appellate Body
09/22/2022
SarquisJ. B. Sarquis — Foto: Divulgação/Gustavo Magalhães/MRE
Brazil signaled this week that one of its priorities in the trade area is to make the World Trade Organization (WTO) Dispute Settlement Body operational again by 2024. The country has pending disputes involving exports worth more than $4 billion.
This WTO mechanism has been paralyzed since the middle of the Trump administration. The U.S. has been blocking the appointment of the seven arbitrators of the Appellate Body, a kind of supreme court of international trade. It claims that the judges have made decisions instead of the countries and that a change in the mechanism is needed.
However, the U.S. says it is now open to resolving the issue by the WTO ministerial conference in two years. The fact is that in an environment of the growing rivalry between the U.S. and China and persistent tensions among developed and emerging nations, reactivating the dispute settlement system at the WTO is one of the strong challenges.
This week in Bali, Indonesia, the chief U.S. trade representative, Katherine Tai, set up a meeting with representatives from Brazil, Argentina, India, Indonesia, South Africa, and Cambodia to accelerate negotiations on the issue. In Washington’s view, the system at the WTO has become a venue for litigation rather than a forum for resolving disputes. And now it says it wants a system that “better helps members resolve a dispute efficiently and cost-effectively.”
Brazil’s representative at the Bali meeting, Ambassador Sarquis J. B. Sarquis, who is also secretary for Foreign Trade and Economic Affairs, said the country has been working with the U.S. and other WTO members “in a spirit of cooperation and flexibility” and “with a sense of priority” to reactivate the dispute settlement body.
“The dispute settlement system is a central pillar of the WTO,” he added. “It can be reformed based on lessons learned and new challenges.”
For Mr. Sarquis, there is a growing consensus that a reform tends, on the one hand, to make the system more streamlined, more inclusive, and less costly. On the other hand, the overhaul tends to maintain the legal nature of the decisions, their binding effect, and their consistency over time in different cases, so that they reflect fundamental principles, including economic reform, to which all members have committed themselves in WTO agreements.
“For a large majority of members, this reform would continue to include the current structure, based on two levels — as a panel and as an appellate body,” said the Brazilian representative.
In an example of the priority for Brazil, a study by the National Confederation of Industry (CNI) calculated that the country has pending disputes in the WTO involving sectors such as sugar, beef, and steel products that impact at least $4.4 billion in exports.
Brazil has two pending cases at the WTO against Indonesia (chicken) and India (sugar). In both, the country won in the panel (investigation committee), which is the first instance. But those countries have put the disputes in limbo by formally appealing the decisions at a stalled Appellate Body.
In the cases of tariff barriers on beef against Indonesia and steel products against the U.S., Brazil did not request a panel. But it is a fact that, if Brasília decided to trigger the WTO dispute mechanism, the two cases would have little chance of having an effective outcome, since Indonesia and the U.S. would probably appeal in case Brazil wins.
A Provisional Measure signed by President Jair Bolsonaro gave the country an arsenal to apply unilateral retaliation against countries that have been found guilty of illegal measures on Brazilian exports but use tricks to maintain restrictions. But he has not yet used this retaliation, which could begin precisely against India and Indonesia.
There are other complaints from Brazil in the WTO, or “potential” panels on the radar. One, against Thailand, involves barriers to sugar. For the moment, negotiators say the case is being well handled without the need for a panel. The other dispute, against the European Union, involves barriers to chicken.
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