RioGaleão expands in cargo handling, cuts deal with United Airlines

Cargo handling is helping company to go through a critical period

09/13/2022

Patrick Fehring and Leandro Lopes — Foto: Leo Pinheiro/Valor

Patrick Fehring and Leandro Lopes — Foto: Leo Pinheiro/Valor

Just like the airline industry, RioGaleão, the concessionaire that runs Rio de Janeiro’s international airport, also went through turbulent times in the last two years, especially with the sharp drop in the number of flights at the height of the pandemic. The effects of the health crisis led the company controlled by Singaporean owners to announce in February that it would return the airport to the federal government. This is a long process likely to be concluded in 2023. In the meantime, the concessionaire continues to operate the airport terminal, one of the main ones in the country. The pandemic, however, allowed RioGaleão a turning point in the cargo business, helping the company to get through this most critical period.

In July, RioGaleão signed a contract with United Airlines for use by the American company of a new aircraft maintenance center. The agreement will allow United to operate, for 17 years, the hangar previously occupied in Galeão by the maintenance and engineering arm of TAP Air Portugal.

The Portuguese airline’s subsidiary is leaving a space of more than 60,000 square meters, which will receive investments of R$70 million by United in adaptations and modernization. The new center will be responsible for the maintenance of all the U.S. airline’s aircraft, most of which were made by Boeing and Airbus. United, which has a daily route between Rio and Houston, is expected to take over the activities in Galeão in the second half of the year.

“United has now a 17-year bond with Rio de Janeiro,” said Alexandre Monteiro, CEO of RioGaleão. United told Valor that the partnership includes the lease of a hangar for the United Tech Ops team, as the airline’s maintenance, repair and overhaul division is called. According to the U.S. company, the maintenance team at Galeão will be able to make better use of ground time to perform maintenance services on the company’s aircraft.

When it comes to the airport, the most common image is of people arriving and departing, but RioGaleão has made the cargo terminal a key business for the company’s finances and for the state of Rio. Considered one of the country’s main logistics hubs, Galeão handles 80% of all domestic air cargo that arrives in Rio through the airport. The terminal also receives 25% of the cargo imported by the state.

RioGaleão is controlled by Singapore’s Changi Airports, which holds a 51% stake in the concessionaire, and Infraero, with the remaining 49%. Changi entered the deal together with Odebrecht, as minority shareholders, by purchasing the airport for R$19 billion, a premium of almost 300% in relation to the initial price in an auction held in November 2013. Changi took over Galeão in 2017, when Odebrecht, entangled in the Car Wash scandal, left the business. In February, RioGaleão asked the federal government to launch a new auction for the airport.

“Galeão has a strategic position in Rio de Janeiro,” Mr. Monteiro said, highlighting the airport’s location, close to the country’s main highways: Via Dutra and BR-101. In the first half of this year, the executive said, the terminal handled $4.3 billion of imported cargo, and if this pace is maintained, the company will close the year with record handling since the beginning of the concession, in 2014. The company closed last year with $8.5 billion in imported cargo handled at the terminal, which competes for the market with Viracopos, in Campinas, and Cumbica, in Guarulhos, both in the São Paulo state.

The company estimates an average reduction of 63% in the time to release imported cargo and has accounted for $60 billion in cargo handling since RioGaleão took over the operations, said Leandro Lopes, RioGaleão’s commercial and cargo business development manager. Patrick Fehring, the company’s head of airline business, added that imported cargo handling accounts for 55% of the company’s revenues, up from 21% in 2019, before the pandemic, and 43% in 2021.

Next year, RioGaleão will start operating a new 30,000-square-meter shed, the result of a partnership with the real estate investment company Hire Capital.

The cargo terminal will anchor United’s activities, since parts and equipment for the aircraft will pass through there. The unit has in the air transport industry one of its main service activities, together with the oil and gas, pharmaceutical and chemical sectors – among other activities, mostly with higher added value volumes. This category also includes equipment, musical instruments and materials for Rock in Rio.

Pharmaceutical and chemical products, in fact, meant a high volume of cargo handled. Several batches of Active Pharmaceutical Ingredient (API), a necessary input for the production of the Covid-19 vaccine, came through the terminal, taking advantage of the available structure, with thermal chambers with temperatures between 2 and 8 degrees, Mr. Lopes said. The terminal also started to receive products destined for agribusiness when activities resumed.

The demand for flights and, consequently, passenger traffic in the airports is still an unknown factor for the segment, not only for the company. At the same time, RioGaleão is losing ground as most domestic flights depart or are destined for the neighboring airport Santos Dumont. As Galeão receives international flights and hosts fewer domestic routes, the hub concept is compromised, making the airport less profitable.

*By Fabio Couto — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Companies’ credit ratings little impacted by interest rate hikes

Number of downgrades or negative moves in ratings is quite small, survey by Fitch and Moody’s shows

09/13/2022

Aeris’s plant in Pecém, Ceará: manufacturer of equipment for power generation is among companies downgraded recently — Foto: Divulgação

Aeris’s plant in Pecém, Ceará: manufacturer of equipment for power generation is among companies downgraded recently — Foto: Divulgação

The interest rate hikes aimed at curbing inflation have punished consumers and companies in recent months, increasing default rates and causing lenders to impose stricter conditions to extend credit. This more negative scenario, however, has had little impact on the credit ratings of most companies.

The number of downgrades or negative moves in companies’ ratings has been quite small, a survey by credit rating agencies Fitch and Moody’s shows. Fitch downgraded five companies in the last two years – the period when the Brazilian Central Bank conducted the monetary tightening cycle – including four in 2021 (Eldorado, Andrade Gutierrez Engenharia, General Shopping and USJ) and only one this year (Hidrovias do Brasil), considering the global scale assessment of the debt issued by non-financial companies in the Brazilian market.

In addition, nine companies were downgraded according to the local scale, including five in 2021 (Restoque, Smartfit, Anima, AES Tietê and Inbrands) and four this year (Aeris, Le Buscuit, Restoque and Espaçolaser).

For comparison purposes, between 2015 and 2016, the period in which Brazil’s key interest rate Selic was raised to 14% per year, the number of downgrades totaled 49 under the global scale credit rating, and 94 by the local scale rating. In all cases, Fitch excludes rating actions that followed variations in sovereign credit ratings, like actions driven by the change in Brazil’s risk rating.

Moody’s, on the other hand, analyzed the rating actions related to the debt of Brazilian non-financial companies issued abroad. And found that, between 2021 and 2022, there were 5 downgrades or outlook changes to negative, compared with 154 between 2015 and 2016. In this case, the agency also accounts for changes caused by sovereign rating downgrades.

Ricardo Carvalho, the managing director of Fitch Ratings, sees a historical correlation between interest rates and companies’ risk ratings. But in this cycle, although the Selic has returned to levels close to those seen between 2015 and 2016, a record period in terms of downgrades, the impact is very low. This can be explained mainly by the difference in the prospective scenarios that companies work with today and those envisioned seven years ago. “The business environment in 2015 and 2016 was very hostile, similar to what companies experienced in 2020, when the pandemic hit,” he said. “The difference is that, at that time, companies incorporated a scenario of a continuous cash generation cycle, which was dashed, and had to deal with an intense decline in activity indicators and rising interest rates.”

As a result, companies started 2015 more leveraged, with plans for a lot of capital expenditure based on a scenario of economic growth, Mr. Carvalho said. The country’s economic and political crisis – a backdrop that included the now questioned anti-corruption task force Car Wash, the country’s loss of investment grade, and the consequent impeachment of then-president Dilma Rousseff – dashed expectations and hurt companies in a more generalized way, the executive said. Rising interest rates, therefore, had a much more perverse effect on the health of companies.

Today, companies operate under a sluggish growth perspective, which translates into more modest investment plans and, consequently, lower leverage ratios. “Cash generation is expected to recover gradually. Nobody expects a fabulous recovery,” he said.

The companies’ leverage ratios, which went through a period of more intense adjustments during the pandemic, are also more conservative. Credit ratings already consider the current condition of these earnings reports, which reduces the need for rating changes.

But this does not mean that companies are doing great, Mr. Carvalho said. “We don’t have an investment cycle today, companies have idle capacity, and many have yet to recover the level of demand seen in 2019, especially those that depend on domestic demand,” he said. “We are far from a favorable environment in Brazil.”

Interest rates are not the main factor influencing the rating of companies, but it is still possible to see a direct correlation between the Selic and rating actions, said Marianna Waltz, managing director of Moody’s. After all, high interest rates and the prospect of sluggish GDP growth impact companies’ EBITDA and cash generation. “Most will generate less EBITDA this year,” she said. On the other hand, companies face the cycle of high interest rates with stronger results and better leverage ratios. This is because these companies made a strong adjustment during the pandemic, making them leaner and more liquid. “All the companies had to make very severe adjustments, restructured their balance sheets, debt, and headcount,” she said. “So we don’t expect negative changes in the ratings.”

The fact that Brazil has moved first to raise interest rates and that companies are well positioned greatly reduces the risk of default among companies, Ms. Waltz said. According to her, Moody’s expected default measure for Latin American companies, excluding Argentina, is currently at 1.2%, which suggests a risk of default within the group of companies covered by the agency. In March, the index was 2.2%. Given that Brazil hosts 100 of the 150 companies analyzed, it is possible to say that the situation of local companies has great weight in the indicator. The global index is much higher, of 3.7%.

Mr. Carvalho, with Fitch, recalled that the corporate debt market is much stronger and more active than seven years ago, which contributes to mitigating the impact of rising interest rates on companies’ risk. As a result, companies had access to liquidity and were able to extend the term of their debts, even in a contractionary interest rate scenario. “We thought that liquidity would shrink as of June, but this did not happen,” he said. As a result, the volume of debentures issued this year, up to July, already totals R$158 billion.

This large debt offer will mean, over time, higher leverage ratios, but this will still happen very gradually given the low investment scenario. According to the executive, the risk from now on is that interest rates remain high for a “longer than reasonable period.” “The big concern is the time frame of interest rates,” Mr. Carvalho said.

*By Lucinda Pinto — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Brazil’s corn exports speed up with an eye on China, Europe

New projection for U.S. crop reinforces estimate for strong corn exports this year

09/12/2022

Brazilian corn exports gained an even more favorable scenario after Pro Farmer crop tour – which monitored the main producing regions in the United States – pointed out a new drop in American production, which now is projected at 349.5 million tonnes in the 2022/23 season, 15 million tonnes less than the volume forecast by the U.S. Department of Agriculture in the August report.

According to Flávio Roberto de França Júnior, grain coordinator at Datagro, the new projection for the U.S. crop reinforces the estimate for a heated corn export in Brazil this year, projected at 40 million tonnes by the consultancy, close to the record of 42.7 million tonnes reached in 2019.

“There is demand from all over, whether it’s the conflict in Ukraine, the drought in the U.S. and Europe, or geopolitical issues that will cause U.S. sanctions on the Chinese,” Mr. França Júnior told Valor.

Foreign sales are indeed higher in 2022 as was already expected after last year’s harvest loss in Brazil. According to the Brazilian Association of Grain Exporters (Anec), in the 12 months through August, corn exports totaled 19.1 million tonnes. In the full year 2021, Brazil’s shipments totaled 20.6 million.

“Unlike soybeans, which have demand but no supply from Brazil [because of adverse weather in the South region], corn has availability and a surplus to export, and will maintain a favorable pace of shipments by the end of the year,” the analyst said.

At the beginning of August, Brazil and China signed a sanitary agreement that allows the sale of Brazilian corn to the Asian country this year, and not in 2023, as previously unveiled by the Ministry of Agriculture. Thus, Brazil gained a way out with the potential for strong demand. According to the USDA, China is expected to import 18 million tonnes in the 2022/23 harvest.

“We have a worldwide shortage of corn and an important new fact in this scenario: the release of exports to China. We cannot say how much they [the Chinese] will buy from Brazil, but they typically import large volumes,” Mr. França Júnior said.

André Pessôa, CEO of Agroconsult, also expects a larger volume leaving Brazil after the agreement with China. “We export to Asia, the Middle East, Latin America, and Europe. China will be another great engine for Brazilian sales, especially at a time when the U.S. and Ukraine are reducing their production,” said Mr. Pessôa, who projects Brazilian exports at 40 million tonnes this year.

But Paulo Molinari, an analyst at Safras & Mercado, is not so upbeat about Brazilian sales to the Asian country. He believes volumes will not be so large this year, and perhaps not even in 2023.

“The agreement signed for corn imports works as a protection for the first ship that takes the grains, ensuring that the Brazilian product will not be contaminated when it arrives in China. But this doesn’t mean that they [the Chinese] will buy now, because they are 30 days away from a 270 million tonnes harvest. The need for imports may come only in the first half of next year, after the end of the export season in Brazil,” Mr. Molinari said.

Still, the analyst expects a red-hot demand for Brazilian corn by the end of the year, especially from Europe, where crops have been suffering from the heat wave. “Europe has a harvest loss of 15 million to 20 million tonnes. Part of this demand will be supplied by wheat, and part by imports of Brazilian and Argentine corn.”

The estimate of Safras & Mercado indicates that Brazil will export 37 million tonnes, an amount that can grow as the demand increases and the exchange rate reaches a favorable level for foreign sales. “It could exceed 40 million tonnes. But for this to materialize, the country needs to ship on average 3.5 million tonnes per month in the last four months of the year. The exchange rate of R$5.2 to the dollar stimulates sales. We will have demand, but it is not possible to predict what the exchange rate will look like considering market volatility,” the Safras analyst said.

*By Paulo Santos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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BN Engenharia diversifies businesses, joins heavy construction

First infrastructure project is expected to be in the electric sector

09/12/2022

João Antonio Mattei — Foto: Divulgação

João Antonio Mattei — Foto: Divulgação

BN Engenharia, Bueno Netto group’s construction company, is getting ready to enter the infrastructure sector. João Antonio Mattei, the company’s managing director, says the company is expected to work mainly in basic sanitation, logistics and energy. The first works are expected to be for the electric sector, the executive said.

The company plans to operate in private works and in PPPs (Public Private Partnerships). According to the company, there is no fear that the result of the presidential election will weaken the number of contracts in infrastructure made by the private sector. In 2021, 68.8% of the investments in the area were made by the private sector, according to consulting firm Inter.B.

BN is structuring the team to work in infrastructure projects, and has hired the engineer Lucas Guimarães, former Cesbe’s country manager in Peru, to head the new business development sector.

Currently, the company works with residential and corporate buildings, as well as hospitals and distribution centers, among other projects. Last year, BN grossed R$630 million, and Mr. Mattei expects revenue to reach R$700 million this year. According to him, the company already has a portfolio of projects to exceed this amount by 2023.

About half of the revenue comes from work for Benx, Bueno Netto group’s developer. BN and Benx have operated separately since 2011. Mr. Mattei points out, however, that the construction company does not do all the construction work for the developer: nearly 25% of the projects go to other construction companies, because they have a lower budget.

In the residential segment, BN prefers to operate in larger, high-end projects. The company is building Parque Global, a R$900 million project by Benx and Related Brasil in São Paulo’s south region. This amount can double if BN wins the bid to also build the hospital and the shopping mall planned in the development. “We are confident,” says Mr. Mattei.

Mr. Mattei says he had been planning to enter the infrastructure sector since 2019, when he realized there was space left by the large construction companies that were targeted by anti-corruption task force Car Wash.

“The infrastructure sector lacks healthy engineering companies,” he says. BN recently earned the B Corp Certification, awarded to ventures that put in place ESG practices. Three years ago, however, the group’s board did not accept the idea. This position changed at the end of 2020, when BN started planning to enter the heavy construction segment.

The company wanted to buy a construction company with experience in infrastructure, but the project did not go ahead. The search for acquisition left contacts that Mr. Mattei hopes to use in future works. “We can form consortiums,” he said.

*By Ana Luiza Tieghi — São Paulo

https://valorinternational.globo.com/
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With slow return of audiences, movie theaters still face crisis

There are fewer film releases, high liabilities, and logistical hurdles

09/12/2022

There is still no happy ending for movie theaters after the shock caused by the Covid-19 pandemic. And this saga will have more chapters. Last Wednesday, British giant Cineworld filed for protection from creditors in the United States. In Brazil, as companies still try to overcome the challenges posed by the health crisis, new obstacles emerge.

The sector’s perspective is that everything will be back to normal by the end of 2023. But it is necessary to deal with the slower pace of premieres compared to before the pandemic. Other problems include high losses caused by lower revenues, logistical hurdles, long lead times for the delivery of spare parts – for projectors, for example – and tougher negotiations with shopping malls for rented spaces.

The federal government submitted a budget bill late in August which, if approved, extinguishes Condecine. This contribution aimed at the national film industry collected R$973 million in 2021. It is the main source of funds for the promotion of audiovisual production in Brazil.

The potential loss of this money is concerning because one of the biggest barriers to a more consistent return of the audiences at this time is the lean catalog of films, especially the big box office ones.

In 2019, the sector was in a good situation, with an year-over-year growth of 13.5% in box office income, to R$2.8 billion, and an audience of 176 million spectators. In 2021, it reached 29% of that. Now average attendance is half of that of 2019.

“We have 60% of the normal number of films for that period,” said Marcos Barros, who chairs the board of CineSystem and the Brazilian Association of Multiplex Operating Cinema Companies (Abraplex), whose members represent half of Brazilian theaters. In 2021, 308 films were released, 30.6% below 2019, according to Ancine data.

The number of movies is likely to take time to resume the pre-pandemic levels after operations were interrupted during the most critical period of Covid-19, said Marcelo Lima, director of Expocine, an event focused on the audiovisual market that will hold its ninth edition this month. The vast majority of the films were shot by 2019.

Márcio Fraccaroli, director of film distributor Paris Filmes, also highlighted that the film stock “got old.” According to him, the shortage also reflects the lack of public policies for Brazilian filmmaking, which has pushed many production companies to streaming services. “We are in the phase of looking for content,” he said.

This year, the company is expected to distribute 17 to 19 movies, well below the more than 30 average seen before the pandemic. “Next year will still be bad for Brazilian releases, and the domestic audiovisual industry helps to bring the public back. Besides the economic issue, we have this problem. The audience in other Latin American countries, for example, is already at 75% to 80% of that seen in 2019,” he said. In Brazil, the death by Covid of actor and comedian Paulo Gustavo, who used to draw large audiences, was a blow.

Warner Bros, the behemoth that distributes Universal Pictures films, released this year 19 movies in Brazil but foresees more releases until December.

Some people are optimistic about the schedule of premieres in 2023. Juliano Russo, chief commercial and marketing officer of Cinépolis Brasil, cited new superhero movies as a driver. “We are very optimistic with the recovery curve. Next year may surprise and stay close or equal to the audience of 2019,” he said. The Mexican chain arrived in Brazil in 2010 and has 57 theaters and 423 screens. Among the current obstacles, Mr. Russo said, are the longer deadlines to import chocolates and candies.

Patricia Cotta — Foto: Leo Pinheiro/Valor

Patricia Cotta — Foto: Leo Pinheiro/Valor

Patricia Cotta, the marketing manager of the Kinoplex chain, is also confident that 2023 will be a year of blockbuster releases and said that the company has been betting on aggressive pricing strategies to win back the audience and get them back into the habit of going to the movies. It launched, for example, a passport that gives discounts on all sessions, including weekend ones. There were even promotions of two tickets for R$11 (less than $2).

“People are responding very quickly to promotions. This shows that they need to make ends meet to have entertainment.” From January to July, Kinoplex received 5 million people, up 220% from 2021, but still down from the 9 million seen in 2019. The network has 271 theaters in 19 cities.

With an eye on this, some companies have joined forces to offer tickets for R$10 between September 15 to 21. However, it is still necessary to deal with the high cost of operation while revenue does not return to normal levels and financial health continues to be shaken by the period when movie theaters closed. Between 2019 and 2021, 241 theaters closed. There are 3,266 operating now, but more theaters may still close this year.

The groups struggled in recent years. They sold popcorn with delivery and held drive-in movie sessions, but none of this paid off. So, in addition to joining federal programs of reduced working hours and suspension of labor contracts, the sector tapped an emergency line of credit offered by Ancine and the Brazilian Development Bank (BNDES), which totaled R$400 million.

For small companies, loans are non-reimbursable. Larger networks have at least eight years to pay, and interest rates are much lower than market rates, Mr. Barros said. With 160 theaters, Cinesystem took a credit of R$40 million. “Very possibly we will negotiate to extend this term because the audiences have not returned,” he said. The company, which is listed on the stock exchange, ended the second half of this year with revenues of R$59.5 million, 530.5% above 2021, but still 33% below the same period of 2019.

Cinépolis and Cinemark have also tapped this line of credit and took R$35.3 million each in loans. Cinépolis does not disclose financial figures. Cinemark, a public company listed in the United States, posted higher revenues in Brazil in the first half – $87.9 million, up from $9.9 million in the same period last year. The company holds 30% of the Brazilian cinema market, with 626 screens in 86 theaters in 48 cities. The company declined to comment.

*By Raquel Brandão — São Paulo

Source: Valor International

https://valorinternational.globo.com/business
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Cities invest 65% more in first half

With cash reserves strengthened and personnel expenses contained, spending grows driven by health, education

09/12/2022

The municipalities invested a combined R$20.92 billion in the first half of 2022, a real advance of 64.8% compared to the same period in 2021. In comparison with the first half of 2018, the same period in the previous election cycle, investments grew 80.2%, showing an atypical behavior for the second year of the mayors’ mandate.

With this performance, considering also the investments made by the states, the sub-national governments were responsible for R$52.4 billion in investments from January to June this year, more than double the R$24.42 billion invested in the same period last year.

According to specialists, in the case of the municipalities, the numbers show a picture of the first half with investments driven by still restrained personnel expenses and the need to comply with constitutional minimum investments with higher absolute values for education and health.

The municipal revenues also had a favorable evolution in the first half, under the effect of the services sector, with the reopening of the economy, and by the transfers from the federal government and the states, in a reflection of cyclical factors still fattening the federal collection and sales tax ICMS collection. Specialists expect, however, that the second half of 2022 will bring a change in the scenario.

The advance in investments by municipalities was not restricted to a few. In the universe of 4,925 municipalities that submitted data to the National Treasury Secretariat (STN) for all the periods compared, 77% increased investments by more than 10% in the first half of this year compared with the same period in 2021, and 75% did so compared with the same period in 2018. Brazil has 5,570 municipalities. The sample, therefore, represents 88% of the total.

The advance in the combined investments of the municipalities was much higher than the real rise of 10.3% in current expenses compared to last year and 17.8% compared to 2018. Personnel expenses were also relatively flat, with a real increase of 3.6% compared to 2021 and 9.04% compared to 2018.

Kleber Castro — Foto: Leo Pinheiro/Valor

Kleber Castro — Foto: Leo Pinheiro/Valor

According to Kleber Castro, a consultant for the National Front of Mayors (FNP), there is a clear tendency to expand investments this year, although not at the same magnitude indicated from January to June. He explains that investments are not linear expenses and tend to gain steam as the fiscal year progresses, which can make the base of comparison of the first half too low.

Gabriel Leal de Barros, an economist at Ryo Asset, points out that the municipalities’ revenues, which in the first half of the year were favored both by their own collections, with the reopening of the economy and the recovery of services, and by transfers from the federal government and the states, are likely to slow down in the second half of this year. This tends to happen not only because of the expected slowdown in the economy, with effects on tax collection, with commodity price adjustments, but also as a result of ICMS reductions on regulated prices, Mr. Barros said.

Another factor that should also undergo adjustment and helped the revenues of about 900 municipalities in the first half of the year, Mr. Castro said, were the royalties and special participation from oil, which rose in line with the high prices of the commodity.

Complementary law 173/2020, which limited hiring and pay rises to civil servants, left more funds available for investments this year, Mr. Castro said. The restriction imposed by the law lasted until the end of 2021 and pay rises as of the beginning of this year can still have clearer effects on expenses in the second half or as of 2023, he said.

Cash reserves created a favorable scenario for large municipalities like São Paulo and Rio de Janeiro to put investment plans in place, Mr. Castro said.

At the top of the list in absolute values, São Paulo invested R$794.4 million between January and June, up 41.4% year-over-year in real terms. Yet, the amount is 12.9% lower than that of 2018.

Rio de Janeiro comes in second, with investments of R$485.7 million in the first half of the year, up from R$23.1 million last year and R$126.5 million in 2018.

Juliana Damasceno, an economist with Tendências Consultoria, said that the rise in investments may also have been driven by constitutional minimum spending on health and education. With the increase in revenues in 2021, part of the municipalities, says Ms. Damasceno, have not met the minimum for education and have until next year to adjust.

Besides a favorable fiscal situation in 2020 and 2021 that tends to be partly reversed at the end of this year, she said, the heating up of the economy, also influenced by fiscal stimuli, such as the early payment of the 13th salary – a mandatory year-end bonus – for retirees and pensioners and the authorization to withdraw money from Workers’ Severance Fund (FGTS) accounts, may have increased the demand for investments.

With the expected slowdown in activity in the second half of the year and next year, she said, there is uncertainty about the sustainability of this scenario, both in terms of demand and funding sources.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Soybean crop poised to reach 150m tonnes for first time

2022/23 cycle will start to be planted next Sunday; production will grow 25m tonnes if weather cooperates

09/09/2022

Sowing of another Brazilian soybean crop will begin next Sunday, with all the signs of a new record. If the weather cooperates, as the current forecasts indicate, the harvest should be at least 25 million tonnes larger in the 2022/23 season and exceed the 150 million tonnes mark for the first time, with positive effects on the gross value of agricultural production, GDP and the country’s trade balance.

According to estimates released Thursday by the National Supply Company (Conab), the 2021/22 season totaled 125.6 million tonnes of soybeans, 9.1% less than in 2020/21, because of a strong harvest loss in the South region and part of Mato Grosso do Sul caused by drought. And, according to Conab’s first projections for the new cycle, production will now reach 150.4 million tonnes, in a crop area of 42.4 million hectares, 3.5% higher.

Thus, if in the 2021/22 cycle the flagship of agribusiness in the country represented 46.3% of the total grain harvest even with weather damages, in 2022/23 it will account for 48.8%, according to Conab. Private-sector consultants believe, however, that the volume may be even higher, provided that the influence of the La Niña phenomenon is mild. StoneX, for example, reckons that the planted area will grow 3.9% and, with better yields overall, production will reach 153.6 million tonnes.

“La Niña tends to result in drier weather in the South, which penalized the region’s 2021/22 season. However, the atmospheric phenomenon does not necessarily mean harvest losses, as the record result achieved in Rio Grande do Sul in 2020 shows,” the consulting firm said in a recent report. According to StoneX, planting will advance in all regions of Brazil. Mato Grosso will continue to lead production, and Rio Grande do Sul and Paraná will compete for second place.

After the waiting period, which is mandatory to prevent the spread of pests and diseases, the sowing will be released on October 11 in Paraná and Rondônia. In states like Mato Grosso, Mato Grosso do Sul and São Paulo, the green light comes on October 16, and farmers in Goiás will go to the fields on October 25. In Rio Grande do Sul, the waiting period will end only on October 10.

Although production costs have increased significantly, mainly due to higher fertilizer prices, the persistently high soybean prices in the international and domestic markets prop up the projections of higher production. In the Chicago exchange, the main reference for prices in this market, the benchmark second-position future contract is up more than 8% in 12 months, almost 43% in 24 months and around 60% in the last three years.

Sustained by firm global demand, mainly for the production of poultry and pork feed – and especially from China – these high prices are reflected in the gross value of agricultural production of the crop. According to the Ministry of Agriculture, production will reach R$350.6 billion in 2022, down 10.8% from 2021, because of the harvest loss, but the second-best result ever, up 123% from 10 years ago. And, as prices are steady, one can expect an advance proportional to the harvest in 2023.

Brazil is the largest producer and exporter of soybeans. And exports are expected to resume growth next year after a drop caused by lower availability in 2022. According to the Brazilian Association of Vegetable Oil Industries (Abiove), this year shipments of the grain will total 76.8 million tonnes, down 10.8% from 2021. Yet, revenues will grow 16.3% to $44.9 billion. Conab expects shipments of 92 million tonnes in 2023, while revenues are expected to exceed $50 billion.

*By Fernando Lopes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Union seeks to reverse Mercedes layoffs

Automaker announced elimination of 3,600 jobs, including temporary contracts

09/09/2022

When announcing, this week, the plan to outsource part of the activities of the plant in São Bernardo do Campo, São Paulo, Mercedes-Benz hinted at the intention to give preference to nearby suppliers. An attempt for these companies to absorb the automaker’s workers who will lose their jobs. Moisés Selerges, head of the local metalworkers’ union, however, said that the solution is not that simple.

“There are no front axle manufacturers in the ABC region, for example,” Mr. Selerges said shortly after a workers’ meeting, at Mercedes’s doors on Thursday, which decided to paralyze work until Monday in protest against the company’s decision, which intends to eliminate 2,200 jobs linked to the areas that will be outsourced and will not renew the contracts of 1,400 temporary workers.

Mercedes’s outsourcing plan involves logistics, maintenance, tooling, laboratories, and manufacturing of axles and transmissions for medium-sized trucks.

In the negotiations with the company, which will start next Tuesday, the direction of the union intends, according to Mr. Selerges, to fight for the maintenance of jobs inside Mercedes. The leader recalled that, as the company says, the Brazilian market is strategic for the German group.

Mercedes CEO in Brazil, Achim Puchert, said that outsourcing aims to reduce costs and stop successive losses in the country. According to the executive, the Brazilian operation has failed to send dividends to the parent company in Germany since 2011.

“I believe that in these years the company has not delivered the expected results, but in the past, when other plants, like the one in the United States, were making losses, Brazil was sending money to Germany,” he said.

Mr. Selerges foresees a long negotiation and says this kind of subject must be discussed “very calmly.” It is not the time, he says, to talk about dismissal, buyout plan, or outsourcing. “It is time for dialogue to find paths. After all, the leader said, the German automaker’s employees “are proud to work there.”

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Diamante to invest R$5bn in gas-fired thermal power plants

Company announced joint venture with Qatar’s Nebras Power to invest in two projects in Santa Catarina

09/09/2022

Pedro Litsek — Foto: Divulgação

Pedro Litsek — Foto: Divulgação

Diamante Geração de Energia unveiled a joint venture with Nebras Power, an international energy investment company and a subsidiary of Qatar Electricity & Water Company (QWEC), to invest R$5 billion in two natural gas thermoelectric projects in Santa Catarina. Last year, the company had already acquired the 857 MW complex Jorge Lacerda, in Santa Catarina, from Engie Brasil Energia for R$325 million.

The first project foresees the construction of the Norte Catarinense thermoelectric plant, a 600 MW project bought from Engie, with investments of up to R$3 billion. It is expected to be located in Garuva. The second is a 440 MW generation unit, which will be set up inside the Jorge Lacerda thermoelectric plant, with an investment of up to R$2 billion.

Engie CEO Pedro Litsek said that in the joint venture, each party owns 50% of the projects and will jointly explore investments in the gas thermoelectric plants. According to him, the equity in these projects will be divided equally between the companies, with 30% of the total investment being made with their own capital.

“The first [project] is more prepared to participate in auctions, which is the Norte Catarinense thermoelectric. We already have the permit, land, and everything that is needed. The second project is in the final stages of the environmental permit within the Jorge Lacerda complex, and we hope to have this permit by the end of the year,” Mr. Litsek said.

The investment is conditioned on a guarantee of new revenues, should the company win the capacity auctions scheduled for 2023. The construction of the thermoelectric plants is expected to start the following year, and the projects should start operating in 2028.

The second venture, within the Jorge Lacerda complex, which has seven coal-fired generating units, plans to take advantage of the land and infrastructure already installed on the site to install a gas turbine. As an example, Mr. Litsek highlights the transmission and water lines already available.

The executive considers that the project has an important social side. Bill 712/19, which extended for 15 years, starting in 2025, the contracting of coal-fired thermoelectric plants, benefited the Jorge Lacerda thermoelectric complex, by means of an energy contract.

The former owner, Engie Brasil Energia, was considering shutting down the complex if it did not find a buyer, but the coal industry found a way out to make operations viable. The law also provided for the reallocation of the labor force of about 20,000 workers involved in the coal chain to other activities.

“The two projects will allow us to mobilize the manpower we already have to be used in these new ventures,” Mr. Litsek said.

The challenge for Diamante to be competitive in the auction and, in the future, in maintaining the thermal plants, are the gas supply guarantees. The Garuva project is more strategic and can even initiate the operation of the LNG (liquefied natural gas) terminal that is being built in the Port of São Francisco do Sul.

“We are close to the connection point of the New Fortress Energy terminal on the Bolivia-Brazil pipeline, and we see the gas for the Norte Catarinense Thermoelectric coming from this terminal,” Mr. Litsek said.

*By Robson Rodrigues — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Ibema mulls new pulp mill in Paraná

Studies are in an advanced stage and are expected to be submitted for approval later this year

09/08/2022

Nilton Saraiva — Foto: Divulgação

Nilton Saraiva — Foto: Divulgação

Ibema, a cardboard maker that has Suzano as a shareholder, is studying the feasibility of building a new mill to make bleached chemi-thermomechanical pulp, or BCTMP, in Turvo, Paraná. The estimated investment in the unit, which will have a production capacity of up to 160,000 tonnes of raw material per year and is expected to be Brazil’s largest one, was not disclosed, since negotiations with suppliers are still underway.

The studies are in an advanced stage and are expected to be submitted for approval later this year, CEO Nilton Saraiva said. This way, the construction work could start, at the latest, by the second quarter of 2023. “This plant will have Brazil’s most modern BCTMP production process,” he said.

About 40% of the additional BCTMP production will be used by Ibema and 60% will be supplied to Suzano through a long-term contract and at market prices. The new plant will meet the companies’ current demand and support future expansions in cardboard production.

“The BCTMP project will considerably improve the return of the capacity expansion projects that are currently being studied by both companies,” said Fabio Almeida, Suzano’s executive director of paper and packaging, in a note.

The investment will also allow for an increase in both margins and quality of the cardboard paper, which is used in packaging production, produced by Ibema. There will be gains in rigidity and printing, for example.

Ibema’s cardboard output, which is operating at the limit of its capacity, is expected to exceed 150,000 tonnes this year. In 2023, through initiatives to streamline production, the output should reach 160,000 tonnes. The company has plants in Turvo and Embu das Artes, São Paulo.

“The project brings us more control over the supply chain, which is important because of customer service and brings greater competitiveness in terms of costs,” the executive said. Today, the company exports about 25% of its cardboard output despite mounting quality requirements in the international market.

According to Mr. Saraiva, Ibema has already secured the necessary volumes of wood to supply the new plant, considering its own crop and third-party inputs. The mechanical pulp contains 80% eucalyptus and 20% pine.

Looking at the industrial assets, the Turvo plant will specialize in cardboard produced from virgin fiber, while the Embu das Artes plant output will be focused on recycled paper, another strategic market for the company.

In 2019, the company launched Ibema Ritagli, the first post-consumer triplex cardboard in the Brazilian market, with 50% recycled fiber, of which 30% comes from post-consumption. Today, about 7% of total revenue comes from products with post-consumer trimmings. Ibema Impona, in turn, is composed of post-industrial trimmings.

According to Mr. Saraiva, the domestic demand for cardboard is still strong and exports had to be reduced to ensure domestic supply. The domestic market is expected to grow by 2% to 3% in volume.

The demand for cardboard remains steady, especially in the pharmaceutical and delivery segments and in those where plastic is being replaced by more sustainable materials like disposable cups. The demand from end consumers for products with a greater sustainability footprint, such as cards with post-consumption trimming, has also ensured sales growth. “This brings opportunities in circular economy projects,” he said.

*By Stella Fontes — São Paulo

https://valorinternational.globo.com/
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