Hybrid, plug-in, or electric: Which car will Brazilians drive?

Automakers’ failure to make a decision about local production reveals a divided industry and government’s omission in the debate

08/15/2022

Caoa Chery’s plant: carmaker is betting on ethanol hybrid car — Foto: Reprodução

Caoa Chery’s plant: carmaker is betting on ethanol hybrid car — Foto: Reprodução

Carmakers have very clear global decarbonization targets. Most of them already have a date when they will stop producing internal combustion engine cars, and the electrification of cars is becoming increasingly common in many parts of the world. In Brazil, however, every time executives refer to the subject, the details and deadlines are unclear.

Of the 13 car manufacturers with plants in Brazil, two – Toyota and CAOA Chery – already produce hybrids locally. CAOA Chery, one of the smallest in the country, made the decision quite recent. Two others, precisely the largest ones in the sector – Volkswagen and Stellantis – have unveiled their intention to produce ethanol hybrid cars in the country, but they have not yet set dates.

General Motors is completely against hybrid cars but does not reveal future plans to decarbonize the local production, which, according to the U.S.-based company’s view, should follow the trend of fully electric cars. Currently, all fully electric cars sold in Brazil are imported.

The issue is even less solved in other automakers. What prevails, for the most part, is the discourse around global targets, which makes it difficult to predict what will happen in Brazil. In other words, the leaders of the automakers avoid the obvious question: how long will they resist, in Brazil, producing only combustion cars?

Both hybrid and electric cars have the capacity to draw consumer interest. But since the prices of these vehicles are still high for the Brazilian standard, the companies that most explore this market are those that only sell imported models.

Luxury brands, such as Porsche and Volvo, have firmly entered the hybrid, plug-in hybrid, and electric segments. And they offer affluent customers the latest launches from Europe. In this range, especially the fully electric ones, prices start at R$300,000. CAOA Chery and Renault have more affordable compact electric cars, starting at R$145,000.

Although hybrid and electric cars coexist in harmony in the Brazilian market, behind the scenes in the sector a kind of fight between one and the other has arisen. Hybrid cars have two engines – a combustion engine helps power the electric one. The country already has production, although still low, of hybrid cars powered by ethanol.

Those who advocate the production of this type of vehicle in Brazil say this is the best way for the country to navigate the intermediate phase without jolts before entering fully electrification. This wing of the automotive sector also argues that this is the only way to save the industrial park that automakers and auto parts makers have built in the country over the past 60 years, and the jobs in the plants. In addition, with these vehicles, they say, Brazil’s ethanol could gain a prominent position on the global decarbonization map.

Engineering and product development teams at Stellantis – the super automaker that since the beginning of 2021 has brought together Fiat, Chrysler, Peugeot, and Citroën – around the world have been working to find solutions to meet the company’s goal of reducing CO2 emissions by 50% by 2030. As recently revealed by Antonio Filosa, the company’s CEO for Latin America, the Brazilian team had the mission of developing the ethanol hybrid car. “We are, in the world, the most capable for that,” he said.

On the opposite end, the CEO of General Motors in South America, Santiago Chamorro, is one of the strongest advocates of fully electric cars. This type of car is made with far fewer parts than a combustion car, and batteries are charged in sockets.

Mr. Chamorro believes that Brazil should follow the path of developed countries. “The other technologies are transient,” he told Valor recently. In his view, Brazil will be able to produce electric cars when the price of the batteries is more accessible. Until then, the industry will continue to make cheaper cars with internal combustion engines. This decision has already been made by GM.

Some brands, especially the luxury ones, have invested in installing charging stations in urban centers and some Brazilian highways. Meanwhile, around the world, the development of hydrogen fuel cell vehicles is moving forward, a technology through which electric power is generated in the vehicle itself, without the need for plug-in charging.

The hybrid-versus-electric debate also involves discussions about which of the two offers the greatest advantage in terms of CO2 emissions. Proponents of the ethanol hybrid car claim that the proper measurement is the so-called well-to-wheel system. That is, the calculation must include the carbon footprint from fuel production (the sugar cane plantation in the case of ethanol), refining, and transportation to the vehicle’s exhaust emissions.

This, however, will be a matter for the next federal administration. Cássio Pagliarini, a consultant with Bright Consulting, recalled that the current Brazilian emissions legislation only takes into account the gases that come out of the vehicle’s exhaust.

But starting next year, the Rota 2030 automotive program will establish the need for a new stage of measurements, both in vehicle safety and emissions. This may favor those who advocate the well-to-wheel model. “It is also necessary to measure what causes the greenhouse effect, global warming,” Mr. Pagliarini said.

The automakers that intend to develop ethanol-powered hybrid cars have taken the discussion to the technical staff of the Industry Development Secretariat, which has already given a positive nod in this direction.

Whatever the decision may be, the next federal administration will have to definitely enter this discussion, since in all the countries that have made their choices, the change in the power generation mix for vehicles has been decided by public authorities. The same should happen in Brazil.

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Neighboring countries become escape valve for exports

Country’s balance with South America grows amid decline of total balance of trade

08/15/2022

José Augusto de Castro — Foto: Leo Pinheiro/Valor

José Augusto de Castro — Foto: Leo Pinheiro/Valor

After recovering in 2021 the pre-pandemic level, Brazilian exports to South American countries have advanced this year at a faster pace than the total average and also in relation to imports, in contrast to what happens in the country’s trade balance. As a consequence, the trade surplus in exchanges with neighboring countries reached $7.97 billion from January to July this year, more than double the $3.68 billion seen in the same period in 2021. The country’s total balance of trade fell 10% over the same period.

As a result, the surplus with South American countries from January to July this year equals to 20% of the total, compared with 8.3% in the same months last year, according to data from the Foreign Trade Secretariat (Secex/ME). The sales of Brazilian products to the region totaled $24.85 billion this year and grew by 39.4%. The country’s total shipments increased by 20.1%. The difference was also clear in how fast imports increased – trade with neighbors is up 19.4%, while total foreign purchases climbed 31.6% between January and July.

Brazilian exports to South America fell in 2020 with the outbreak of the Covid-19 pandemic. That year, from January to July, the country exported to neighboring countries $12.02 billion, down 27.2% from $16.5 billion in 2019. In 2021, with the economic recovery in the region, exports totaled $17.82 billion between January and July. The performance of shipments contributed to a surplus slightly above the $7.92 billion of the same period of 2018, which used to be the peak since 1997 (considering the period of the first seven months of the year).

José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), said that the recovery of foreign sales to the South American market is key because the region is typically a consumer of Brazilian manufactured goods, although oil exports to countries like Chile have also driven shipments and the trade surplus in regional trade. A third of the $5.18 billion that Chile absorbed from January to July in Brazilian products was oil, followed by automobiles, which had a 7% share. As for Brazilian imports of South American products, says Mr. Castro, commodities or products with little processing predominate.

Secex data show that of the five main items shipped to neighbors from January to July four were manufactured, all linked to automotive or transportation. Oil led the list, with $9.4 billion, practically tied with the $9.03 billion in cars. The two items were followed by car parts and accessories, vehicles for transporting goods, and tractors. The five products accounted for 28% of Brazil’s exports to other South American countries.

Lia Valls, a researcher at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre), says that the increase in the value of Brazilian exports has been accompanied by an increase in the quantities shipped. According to data collected in the Foreign Trade Indicator (Icomex), the volume exported to Argentina rose 14% from January to July this year compared with the same period last year. Imports dropped 0.7% in volume. Exports to other South American countries increased by 14.3% in volume, while the total imported fell 7.5%, Ms. Valls said.

The main explanation for the increase in exports, said Mr. Castro, with AEB, is that most countries in this region are exporters of commodities, items that saw strong price rises, which generates additional foreign exchange. This, he says, provided these countries with new opportunities to import Brazilian manufactured goods.

At a time of logistical hurdles in global trade, he points out, Brazil’s geographical proximity, the logistical cost adapted to the region, the availability of containers, and the viability of land transport are among the main reasons why trade in the region has been favored.

Mr. Castro says that this is not something homogeneous. According to Secex data, considering trade with all the other countries in the region, Brazil had a deficit with three countries from January to July. The negative balance is explained mainly by the supply of energy-related products. There was a deficit with Bolivia, from which Brazil imports gas, with Paraguay, which supplies electricity, and with Guyana, because of oil. The Guyanese practically appeared on the Brazilian import map this year. Brazil imported $313 million from them from January to July, almost all of it in oil.

Argentina also has a different and specific situation, said Welber Barral, a partner at BMJ Consultoria. Exports of $8.89 billion from January to July this year to Argentina represent a recovery, with an increase of 34% against the same period last year. With a still difficult external situation, however, says Mr. Barral, the country does not have enough available hard currency to allow a very unfavorable trade balance, which may again impact Brazil. Recently, Argentina’s central bank issued new measures that have already been felt by some sectors in which the exporters are smaller and more pulverized, says Mr. Barral.

Abicalçados, which gathers Brazilian manufacturers of the footwear sector, has already spoken about difficulties faced by companies in shipments to Argentina, but the effect of this has not yet appeared clearly in the figures of the two-way trade, the organization says.

The restrictions imposed by the Mercosur partner on Brazilian exports are not something new in the two-way trade, Mr. Barral said. They grew with the import licenses put in place while Cristina Kirchner was the president (2007-2015). And even before the pandemic, he says, Brazilian shipments to Argentina also fell due to the economic crisis in the neighboring country, which still faces high inflation this year.

For Mr. Castro, the more positive scenario of trade with neighbors is likely to provide a surplus with South Americans of $41 billion in 2022. Last year, the positive balance was $34.1 billion. The expected expansion with this group of countries compared with what AEB projects for the total Brazilian balance. After the record surplus of $61.22 billion last year, Mr. Castro estimates a surplus of $54.13 billion at the end of this year.

There is uncertainty, however, about the sustainability of trade performance with the neighborhood in the longer term, he points out. The data and scenarios show that Brazil can occupy more space in the markets of different South American countries. “That depends more on whether Brazil wants to increase its exports and less on whether companies in these countries want to expand their imports.” Despite the good results achieved, one cannot consider this neighboring market as captive, he recalled, because China, to mention the main example, is occupying spaces and displacing Brazil as the main supplier in some countries.

Ms. Valls points out that, in 2022, the positive performance of Brazilian exports to South American neighbors is due to the economic recovery in most countries. Future trade depends on this and other factors, such as the role of trade agreements with some partners and political alignment. The result of the elections in Brazil, she said, can also impact regional foreign policy. In the shorter term, says Ms. Valls, the concern is with the possible economic slowdown ahead.

According to the consensus projections of the August report of the FocusEconomics consulting firm, Colombia’s GDP is estimated to grow 5.8% in 2022 after expanding 10.7% last year. In 2023, a 2.6% increase is projected. Chile’s economy is expected to grow 2% this year after expanding 11.7% in 2021. Next year, it is seen as growing 0.2%.

Mr. Barral recalled that the disruption of international trade, under the impact of the pandemic and then the Russia-Ukraine war, brought common challenges to all Latin American countries, such as price pressure. In the medium term, however, the international context may favor trade with Argentina and the other South American countries. The region, he points out, is one of the few in the world where there is no arms race, which makes it a supplier considered reliable from a political point of view. The movement of reallocation of productive resources in the largest economies is an opportunity for the region in attracting industries, Mr. Barral said.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Cogna in talks to sell stake in medical school arm

Company’s revenue from medical school grew 32% in the second quarter

08/12/2022

Cogna is in talks with investors to sell a minority stake in its medical school arm in order to boost growth, as Ânima did. The rival received an injection of R$1 billion from the private-equity firm DNA Capital for 25% of the education company’s medical school arm last year.

“We have just spun off the medical school arm. The idea is to find a partner for a capital injection and invest in growth. We are talking to several financial groups,” Cogna CEO Roberto Valério said. In the second quarter of 2022, the company’s revenue from the medical school grew 32%.

The company expects that, by the end of this year, the net revenue from the medical school will total R$482 million, and the EBITDA will total R$224 million. “In the first half of the year, we reached 55.5% of the revenue and 53.8% of the EBITDA projected for the year,” Mr. Valério said.

Cogna reported in the second quarter EBITDA of R$355 million, up 11.4% year-over-year. The margin rose 3.1 percentage points, to 30.7%. “It is the fifth consecutive quarter of growth in EBITDA. There is no silver bullet. Results come little by little and are the fruit of our restructuring in 2020 and 2021,” Mr. Valério said, referring to a restructuring that included closing 25% of in-person units to focus on online programs.

The company calculated an adjusted loss of R$36.6 million, compared with an adjusted net profit of R$20 million in the same period of 2021. The group adjusted the indicator in the bottom line due to the sale of the schools division, approved in October last year. The accounting loss reached R$101 million, up 148.5%.

Cash generation after capex rose 309.5% to R$112.5 million.

The revenue was stable at R$1.15 billion. The company ended the first half with 929,300 undergraduate students, up 12% year-over-year. The increase was driven by those programs with more online classes, which closed the period with 592,000 enrolled students, up 13.9%. The group also managed to reduce the dropout rate by 0.3 percentage points and increase enrollment renewals by 12%.

Mr. Valério points out that this performance in the student base is due to the strategy of granting occasional discounts, but not in a generalized way. It is common for students to enter college attracted by the discounted tuition in the first months, and then become defaulters when the full tuition is charged. By drawing students who are not only attracted by discounts, they are less likely to drop out, and the chances of default fall.

Vasta, the group’s basic education arm, which struggled in the first year of the pandemic, also contributed to the result as EBITDA grew 67% in the first half.

*By Beth Koike — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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CBA develops alloy to coat electric vehicle batteries

Benefiting from higher metal prices, company reported operational record in 2Q

08/12/2022

Ricardo Carvalho — Foto: Ana Paula Paiva/Valor

Ricardo Carvalho — Foto: Ana Paula Paiva/Valor

Benefiting from higher prices, Companhia Brasileira de Alumínio (CBA) exceeded analysts’ expectations and reported a record operating result in the second quarter, despite the lower sales volume. One of the major producers of primary aluminum in the country, the company continues to expand capacity and is working on the development of a new alloy, to be used in the coating of electric vehicle batteries.

“Aluminum is in every application in the low-carbon world. It is one of the three metals that are most present in the applications of a greener, more sustainable world,” CBA CEO Ricardo Carvalho said. The name of the client for whom the alloy is being developed and the project schedule were not revealed. But the executive indicated that the challenge is to reach an aluminum sheet with mechanical characteristics suitable for use as a casing for lithium-ion batteries, for electric buses in this case.

For analysts, the convergence of the aluminum business with the low carbon economy is one of the company’s trump cards in the long term. BTG Pactual says that the recent hike in the metal prices will continue to pressure CBA in the stock market, but in the long term, the company still benefits from the energy transition, which will stimulate aluminum consumption.

From April to June, the company reported EBITDA of R$641 million, the highest ever and 73% stronger than a year earlier, and a net income of R$ 511 million, the second-highest ever.

The unprecedented result was sustained mainly by the increase in prices and premiums practiced by the company, which offset by far the advance in costs in the period. “Despite the volatility of aluminum, prices were 20% higher in the year-over-year comparison,” said Mr. Carvalho.

In a report, analysts with Itaú BBA pointed out that EBITDA was 12% above the bank’s estimate and the market consensus, in the wake of the better performance in the cost line and the stronger EBITDA in the energy unit.

As prices advanced to an average of $2,875 per tonne on the LME and premiums were higher in face of higher logistics costs and a tighter market, CBA’s net revenue grew 22% in the quarter, to R$2.33 billion.

According to Mr. Carvalho, the primary aluminum import quota in 2023, established by the government after calculations by the Brazilian industry, is expected to undergo a significant reduction with the resumption of production at Alumar and the increase in the company’s capacity.

“The quota reduction will certainly take place. The number is still to be determined in a work coordinated by Abal [which represents the industry], but the prospect is that there will be a relevant cut,” he said.

Brazil imports about 300,000 tonnes per year of primary aluminum and the resumption of production at Alumar alone practically covers this volume, Mr. Carvalho said, indicating that the quota could even be eliminated next year.

In this scenario, supply and demand are expected to balance in the domestic market. “There may be a need for small imports or exports, but the market will be more balanced,” he added.

According to CBA’s chief financial officer, Luciano Alves, the demand for aluminum in the Brazilian market continues to be affected by the reduction in purchases by the self-build and consumer goods industries, which last year benefited the most from the emergency aid paid by the government. “Home construction activity and consumer goods are still below expectations and, in our view, there will be no significant change,” he said.

As CBA’s production resumption was carried out earlier than expected in all the furnaces of line 3, which may reach full capacity at the beginning of 2023, the aluminum production will reach 380,000 tonnes per year, 30,000 tonnes more than the current volume.

More 50,000 tonnes of primary aluminum will be added in 2025, with the recently approved restart of the furnaces of line 1. This way, the company will reach an annual production capacity of 430,000 tonnes of aluminum, in addition to the more than 120,000 tonnes of recycled material used to obtain final products.

*By Stella Fontes — São Paulo

Source: Valor International https://valorinternational.globo.com/

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Emccamp to invest R$4.5bn in Southeast region in 2 years

Construction company expects to launch 1,871 units in Rio de Janeiro by end of 2022

08/12/2022

André Campos — Foto: Gladyston Rodrigues/Divulgação

André Campos — Foto: Gladyston Rodrigues/Divulgação

Construction company Emccamp Residencial, based in Minas Gerais, which operates mainly in the economic residential development area, will invest R$4.5 billion in two years, of which R$1.5 billion this year, already in progress. The resources will be used to expand the company’s operation in the Southeast region, where it is present in 16 cities.

By the end of the year, Emccamp will launch 1,871 residential and commercial units in Rio de Janeiro. Currently, the total potential sales value of Emccamp’s land bank in Rio de Janeiro is R$869 million.

“The company is very excited about Rio, where we have already delivered more than 30,000 apartments. The goal is to launch R$1 billion in real estate per year in the city,” said Emccamp’s chief commercial officer André Campos. By the end of July, the company had launched R$750 million in real estate.

Emccamp worked mainly with the now-defunct Minha Casa, Minha Vida housing program with the current program, Casa Verde-Amarela. But the construction company has been launching properties with higher prices, which can be financed by the Brazilian Savings and Loan System (SBPE). The new condos offer more sophisticated services, such as coworking spaces, jogging tracks, beach tennis courts, and open-air cinemas.

“The Casa Verde e Amarela housing program is completely out of scope in Rio de Janeiro. In the other states there is little,” said Mr. Campos. According to Secovi RJ, the employer union of the real estate industry in Rio de Janeiro, residential property sales in the state fell by 11% in the first half, compared to the same period in 2021. The sales of non-residential real estate shrank 6.9%. Real estate companies need to invest in innovations to attract consumers affected by the current scenario of inflation and high-interest rates.

Mr. Campos said that Emccamp will also launch projects this year in the metropolitan region of São Paulo, Belo Horizonte, and Contagem (Minas Gerais).

Founded in 1977 by Régis Pinheiro de Campos, the construction company is controlled by its founder, with a 42% stake. Other partners are Eduardo Campos (22.8%), Eduardo Filho (8.6%), André Campos (8.6%), and other minority shareholders, all from the founder’s family.

In May 2021, Emccamp was registered with the Brazilian Securities and Exchange Commission (CVM) to issue securities in category B. “We went public because we understand that it is part of the process of a mature company. But as the moment was not adequate because of the pandemic, we decided to wait for the best window of opportunity to make the IPO,” said Mr. Campos. According to the executive, there is no deadline for this.

Mr. Campos said that the company has always carried out projects with its own resources. But to support part of the accelerated growth, it issued naked debentures in August 2021, in the total amount of R$150 million, maturing in 2024. The Standard and Poor’s Global rating agency (S&P) attributed the A+ risk rating to Emccamp.

In the first quarter, Emccamp reached the mark of 10,135 units produced simultaneously, with a projected total potential sales value of R$2.2 billion. In the quarter, 700 units were delivered in São Paulo, with a total potential sales value of R$97.3 million. Net revenue increased 37.2%, to R$164.1 million. EBITDA totaled R$16.7 million, up 9.7%. Net income grew 45.1%, to R$8.1 million. The net margin fell 7.4 percentage points, to 5%.

The land bank totaled R$5.45 billion. Mr. Campos said that the land bank is currently at R$6 billion. “We have a land bank for two to three years of developments,” he said.

For the year, Emccamp expects to reach a revenue of R$800 million, rising to R$1.2 billion in 2023. In 2021, revenue was R$724.8 million, and profit, was R$19.6 million.

*By Cibelle Bouças — Belo Horizonte

Source: Valor International

https://valorinternational.globo.com/

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Lack of wood may slow pulp expansion in Brazil

CEOs also talked about environmental targets at a conference

08/11/2022

Cristiano Teixeira, chief operating officer at Klabin — Foto: Ana Paula Paiva/Valor

Cristiano Teixeira, chief operating officer at Klabin — Foto: Ana Paula Paiva/Valor

Limited wood supply and rising input prices are expected to restrain announcements of new pulp mills in Brazil over the next seven years, which corresponds to the eucalyptus cutting cycle, said industry executives attending the Fastmarkets RISI Latin American conference held Tuesday in São Paulo.

“It is very difficult to foresee new projects happening in Brazil in the short term because of lack of wood,” Suzano CEO Walter Schalka said in a panel with Klabin chief operating officer Cristiano Teixeira, Bracell executive vice-president Per Lindblom, and Eldorado Brasil commercial and logistics head Rodrigo Libaber.

In São Paulo, as Mr. Schalka said, Bracell secured the wood that was still available to feed the expansion of the Lençóis Paulista mill. The company also advanced in Mato Grosso do Sul, where Suzano already operates and is building a new unit, through a total investment of R$19.3 billion, which represents additional demand for inputs.

“From my perspective, there is a shortage of wood in Brazil. We don’t have wood available for competitive short-term projects”, added Mr. Schalka.

At Eldorado, which has a plant in Três Lagoas, in Mato Grosso do Sul state, the perception is the same. Rodrigo Libaber said there will be no wood for new projects in the short term. “More: there will be no wood economically viable in the long term” if planting doesn’t start now, he said. There are areas available in Brazil and the frontiers are “huge,” the executive said. Therefore, there is room for growth in the industry, as long as it is “planned and organized.”

The Eldorado executive also said problems in the global logistics chain are unlikely to be solved in a short period, especially because the logistics cycles in the sector are long and, therefore, it takes time until solutions have some effect. “I don’t believe either that we will have the logistics we had before. There will hardly be a turnaround this year, and things will happen gradually until we reach equilibrium,” he added.

Asked about the commitments assumed by Brazil in the United Nations Conference on Climate Change last year, the COP 26, Klabin’s CEO said it is unclear in which conditions the country will arrive at the next meeting. “I can say that, given today’s figures of emissions and deforestation, we are likely to arrive at COP 27 with low expectations and without delivering what was promised,” said Mr. Teixeira.

According to the executive, the arrival at COP 26 was also marked by low expectations concerning potential efforts of the government, which ended up causing surprise by making unexpected commitments. However, discourse and practice have become disconnected ever since, in his view. “The carbon credit market could be the half-full glass, but the bill that was being discussed with different sectors ended up being run over by a decree,” he said.

Mr. Teixeira also said that it is part of Klabin’s strategic vision to evaluate potential acquisitions or mergers in the corrugated packaging market, and the company will keep this view. “If an opportunity for [paper] integration arises, Klabin will certainly look at it closely. Recently, it has preferred organic growth,” he added.

*By Stella Fontes — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Agriculture to drive stronger growth in 2022

However, states reliant on industry and services may see moderate advance

08/11/2022

Camila Saito — Foto: Divulgação

Camila Saito — Foto: Divulgação

States in Brazil’s Central-West region are expected to see the highest economic growth this year driven by agriculture. After a drought last year, agricultural production accelerated with record soybean and corn crops. On the other hand, states reliant on industry and services like São Paulo may face moderate growth, in line with the national average, while those in the South region may witness contraction, projections by Tendências Consultoria show.

According to the study carried out by the consultancy, the GDP of Mato Grosso will probably grow the most among Brazilian states, with an expansion of 5.6% this year, well above last year’s 3.1%. Mato Grosso do Sul comes next, with 4.6% growth, also above the 2021 growth of 3.6%.

“In Mato Grosso, the projection is explained by record soybean and corn crops and better performance for meat slaughtering, resulting from external demand for animal protein. Besides this, the Mato Grosso industry has been showing expressive performances because of the food and biodiesel sectors,” said Camila Saito, an economist with Tendências and a co-author of the study. “In Mato Grosso do Sul, we will also see a good evolution in agriculture. Even though the soybean harvest has suffered with the drought and may drop, the strong performances [of production] of corn and meat are likely to more than offset that.”

She added that both states are expected to benefit from the favorable scenario for food, pulp and biodiesel production.

Mato Grosso and Mato Grosso do Sul have low industrial density and high agribusiness density, which explains those projections, said Fabio Silveira, a partner at MacroSector Consultores. He argues that besides the primary sector activity, farming and cattle raising make industry and services move forward in those states. “It is agribusiness in the broadest sense that drives these states,” he said.

The weight of agribusiness in the industrial and logistics chains of these states exceeds 50%, said Sergio Vale, chief economist of MB Associados. “The growth of agribusiness therefore ends up helping the economy as a whole,” he said.

Mr. Vale argues that the favorable situation of strong price increases and a very favorable exchange rate for exports will lead these states to grow above the country’s average.

The positive effect of agribusiness for growth also benefits nearby states, such as Piauí and Maranhão. “We can’t say that this is a new [agricultural] frontier, because this has been happening for 20 years, but these states where North and Northeast meet have strong grain production that helps GDP growth,” he said.

Piauí is expected to boast the third-largest growth among Brazilian states, with an expansion of 3.7% this year, compared to 4.6% the previous year. Maranhão is likely to expand 3.1%, compared with 4% last year. Tocantins is seen as growing 2.7%.

According to Ms. Saito, Maranhão and Piauí have benefited from international prices since 2020, which stimulated the expansion of the planted area. A crop failure in the South region has also contributed indirectly as it stimulated production in the North and Northeast regions.

“Added to this is the increase in the total income bill after government cash transfers. The implementation of the Auxílio Brasil and the increase in the value of the handout may benefit more the states in those regions,” Mr. Vale said.

The Tendências survey also shows that parts of the South region may see a contraction because of the grain crop due to drought, and the low industrial production of pro-cyclical sectors, such as machinery and equipment, and metallurgy, said Lucas Assis, co-author of the study.

Santa Catarina is expected to contract 0.1%, after advancing 6.6% in 2021. Rio Grande do Sul’s GDP, in turn, is likely to fall 1% this year after expanding 8.6% in the previous one. Last year, the state was one of the positive highlights due to agriculture’s strong recovery after a crop failure in 2020 and good evolution in industry, Mr. Assis said.

Mr. Vale says that, depending on the La Niña weather phenomenon, the following harvests may be affected, while the GDP growth of southern states may disappoint again.

São Paulo is seen as growing 1.6% this year after a 4.4% expansion in 2021. Rio de Janeiro will probably grow more this year, with an acceleration of 2.1%.

“São Paulo’s growth may be slightly below the national average [1.7%], due to a weaker industrial performance, especially in sectors such as automotive and capital goods, which feel the effects of production cost pressures and shortage of inputs, resulting from the imbalance of global chains,” Ms. Saito said.

The higher growth forecasted for Rio is due to the oil sector, with highlight to the Carioca and Guanabara rigs (each one with capacity to process 180,000 barrels per day), and the expectation of the inauguration of the new Peregrino II unit (with capacity for 60,000 barrels per day).

Rising oil prices in the international market indicate a promising near future, says Ms. Saito, since such a scenario tends to stimulate investments in mature fields and the resumption of fields that were inactive.

As for 2023, the scenario is positive for producers of soy, corn, cotton, meat, biofuel, and pulp, which benefits states like Mato Grosso and Mato Grosso do Sul, she said. Pará is seen as recovering iron ore production with the expansion of Vale’s S11D complex, while Rio Grande do Sul is likely to take advantage of the soybean harvest.

States in the Southeast region, however, are expected to face more problems. “Exchange rate and price will still be favorable for agriculture-producing states, to the detriment of others that will suffer with growing interest rates,” Mr. Vale said.

*By Marsílea Gombata — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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Logistics crisis offers reprieve despite freight rates stubbornly high

Problems such as the lack of containers have eased in recent weeks in Brazil

08/11/2022

Problems such as lack of containers and delays in ship calls have eased in recent weeks on the Brazilian coast, even at peak times — Foto: Divulgação/Claudio Neves/Portos do Paraná

Problems such as lack of containers and delays in ship calls have eased in recent weeks on the Brazilian coast, even at peak times — Foto: Divulgação/Claudio Neves/Portos do Paraná

The logistical chaos triggered by the pandemic is not over, but the situation is starting to improve, analysts and companies say. Although freight rates remain high, problems such as the lack of containers and delays in ship schedules have eased in recent weeks in Brazil despite the peak season for global trade.

In the Brazil-Asia route, the nominal capacity of the two-way trade is expected to reach in August its highest level since the beginning of 2021, according to data from consultancy Solve Shipping.

“Logistics are beginning to return to normal. Blank sailings [call cancellations] have dropped a lot, we have seen a number of extra loaders [additional vessels], and routes are returning to regular scheduling. The strange thing is that this is happening in the peak season,” said Leandro Barreto, a partner at the consultancy.

At the height of the global logistics crisis, in addition to the skyrocketing price of freight rates, Brazilian importers and exporters struggled amid the lack of space in ships and containers, which often delayed operations or made them impossible.

A factor that has reduced such pressure is the economic slowdown in Europe and the United States, which ends up expanding the supply of capacity of ships and containers on the Brazilian coast, said Luigi Ferrini, the regional sales and customer service senior vice president at the shipping company Hapag-Lloyd. “In 2020 and 2021, much of the capacity was being allocated to other global routes,” he said.

Maersk projects that global container demand will be flat in 2022, but already sees a greater risk of a downturn caused by global inflation and a potential recession, according to a recent quarterly report.

This reduction in domestic demand, however, is not yet perceived in Brazil, said Rafael Dantas, sales director at the importer Asia Shipping. “The market has shrunk between March and May before rising again in June and July. Today, imports are heated,” he said.

Despite the strong demand, the lack of capacity has not been a problem, Mr. Dantas said. However, container freight rates remain high – a scenario that, in his view, will not change any time soon. “This new price reality is here to stay.”

Last month, the average import freight rate from Asia was $10,550 per 40-foot container, while the rate for refrigerated containers was $8,000. In January 2020, the rates were $2,050 and $3,100, respectively, according to data by Solve Shipping, published by the Nacional Confederation of Industry (CNI).

In exports, the highest freight rates are those of the routes to the United States. In July, the average price to the East Coast reached $10,600 per 40-foot container. In addition, the reefer container market remains under pressure. On the route to Asia, the rate is $6600, while the price to the Mediterranean and the Middle East is at $6800.

Maersk expects some normalization in the second half of the year, although the forecast remains a question mark. The company said in a note, however, that “normalization does not mean returning to pre-covid freight levels.” The company highlighted the substantial rise in fuel prices and time charter rates in the last two years.

Analysts believe it is too early to say that the crisis is over. The prevailing perception is that any increase in demand or logistical hurdle can bring problems back. One example is the fruit crop in the Northeast region, whose harvest will start soon and increase substantially the demand for reefer containers, said Mr. Ferrini, with Hapag-Lloyd.

In addition, with the war in Ukraine and the growing demand for inputs and food around the world, Brazilian exports are expected to rise, the executive said. Therefore, if during the peak of the pandemic the Asia-Brazil route was in great demand, now the pressure is likely to reverse course.

In addition, he notes that congestion in ports in Europe and the United States still persists, in some cases caused by strikes of workers in the sector.

Mr. Barreto also considers the tension between China and Taiwan as a point of attention to watch. “It is increasingly clear that any extraordinary event generates an impact. The entire logistics infrastructure is operating at the limit, so the tolerance to any event is zero,” he said.

*By Taís Hirata — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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States’ investment increased threefold in first half

Expansion was driven by fiscal situation favored by extraordinary factors

08/10/2022

State governments have increased nearly threefold investments in the first half of this year, in real terms, driven by this year’s elections and a fiscal situation favored by extraordinary factors. The 26 states and the Federal District jointly invested R$31.4 billion between January and June 2022. In the same months last year, they injected R$11.8 billion. In 2018, also an election year, they invested R$13.48 billion, according to figures adjusted by inflation. Current revenues, which include collections and transfers from the federal government, rose 7.3% year-over-year, in real terms, in the first half of the year, and 21.7% compared with 2018.

Representatives of states and experts in public accounts say the situation of revenues is still influenced by cyclical and non-recurring factors. The picture is likely to begin to change in the second half.

Changes on how states calculate sales tax ICMS levied on fuels, electricity, and telecommunications are expected to at least slow down the increase in the collection of the main state tax. Besides this, expenditure pressures, such as salary adjustments granted during the first months of the year, are seen as weighing more heavily in the second half. Even so, in general, specialists say the result of 2022 is expected to be positive given the good performance of the first half and previous periods. As for the fiscal situation in 2023, they still see many uncertainties.

A set of cyclical factors, which included extra transfers from the federal government due to the pandemic and higher revenue driven by the recovery of the economy, inflation, and high commodity prices, played a role, said Ursula Dias Peres, a professor of public policy at the University of São Paulo (USP) and a researcher for the Solidary Research Network. These factors provided the states with more funds in 2022 than at the end of the previous terms in 2018, when the Brazilian economy was coming out of a recession.

“There are two distinct periods,” she said. Part of what caused the most recent increase in revenues helped the states in the first half of 2022 and, for this reason, despite recent measures to reduce ICMS rates in key sectors, states may end the year with a better relative collection than in 2018 or 2021.

Besides revenues, what helps explain such an increase in investments this year was the space opened by the restrictions on salary adjustments for public servants resulting from Complementary Law 173/20, she said. The suspension of debt payments in 2020 also helped generate some leeway and contributed to the current fiscal picture, although the situation among states is heterogeneous, Ms. Dias Peres said.

All 27 federal entities increased investments in the first half of 2022 year-over-year in real terms. In 19 of them, investment at least doubled. The total expenses of the states grew much less than the investments. In the first half, they increased 5.8% in real terms in relation to the same period last year. Current expenses, which are linked to regular and payroll expenses, rose by 2.4%.

Manoel Pires — Foto: Wenderson Araujo/Valor

Manoel Pires — Foto: Wenderson Araujo/Valor

The level of growth in total spending, above the expected GDP growth for this year, shows that states, although with divergent performances, expanded combined demand during the first half, said Manoel Pires, a researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (FGV/Ibre). In the analysis of spending, he highlighted the “impressive” growth of investments, which reflects the good performance of revenues, and the elections. The result also reinforces the idea that these amounts were significantly subdued before, he said.

Spending on salaries is expected to put more pressure on states since they were adjusted earlier this year, said George Santoro, finance secretary of Alagoas. The greatest pressure is expected to be felt in the second half, he said, when collection is likely to fall due to the changes in ICMS collection. Alagoas is expected to maintain investments of R$1.8 billion foreseen for 2022, but a larger portion is likely to be financed by credit operations, not by own funds.

São Paulo’s Secretary of Finance and Planning Felipe Salto says that even with the impacts of the new ICMS changes, tax collection in the state is expected to reach R$201.9 billion in 2022, compared with R$195.4 billion foreseen in this year’s budget law. The “good fiscal indicators” and a cash flow of nearly R$35 billion give the state “a certain comfort,” he said. Investments are seen above R$20 billion in 2022, which would be one of the highest levels ever, he said.

But Mr. Salto is not so upbeat. He recalled that the compensation to states for ICMS losses is still being discussed. And, in his view, “the unbalance in the federation pact caused by the federal government’s attempt to interfere in the states is worrisome. There is no guarantee for increased spending, as the federal government seems to suggest.”

The secretary also points out that there is a “clear” slowdown in revenues. In the 12 months through March, the collection of ICMS increased 14.5% year-over-year. In the 12 months through June, it decelerated to 8.9%, and in the 12 months through July, to 6.9%. In July, collection dropped 0.7% year-over-year in real terms. In March, also in a year-over-year comparison, the increase was 8.2% in real terms.

Estimates for tax collection next year are not yet closed, Mr. Salto said, but the scenario will be “much more adverse” with the perspective that the Brazilian economy will slow down compared with 2022. In 2023, we will have lower inflation rates, but the interest rate “will take time to return to civilized levels,” he said. Nominal revenue will grow less and increase pressure, with a performance “that may be quite different from what we had in the last two years.” In São Paulo, according to the most recent collection figures, inflation contributed with about 40% of the revenue increase, while 60% were structural factors, Mr. Salto said.

In 2023, Mr. Pires said, with the possibility of a collection impacted by changes in ICMS, the sensation that state governments will boast fiscal space can change a lot. The data show that the current fiscal situation has mainly benefited investments.

Christiane Schmidt, treasury secretary of Goiás, also highlights the cyclical nature that led to the most recent increase in tax collection, and says the big challenge will come in 2023. Part of the positive fiscal result of 2021 in Goiás is expected to be used in 2022. “What happens from 2023 on?” Next year, she says, mandatory expenses, including salary adjustments, are expected to weigh, although still cushioned by spending limitations on states.

The secretary says that for now, one of the focal points this year is to comply with the spending cap rule put in place by Complementary Law 156/16, established in exchange for renegotiation of debt with the federal government. The drop in revenue with the change in ICMS collection can give rise to spending beyond the constitutional minimum limits to health and education, which makes compliance with the ceiling more difficult, she said. In addition, the inflation rate, previously estimated at 9% in 2022, may stand at 7.5%, which would reduce the margin for increased spending.

For Ms. Dias Peres, the performance of state accounts in the next term is uncertain. On the revenue side, the most obvious question marks are the recent changes in ICMS tax rates levied on fuels, electricity and telecommunications. “It was a structural adjustment for a cyclical problem driven by international prices, exchange rates, and inflation.” In her view, it is not yet clear how the new state administrations will deal with this. Another factor expected to weigh on revenues is the reduction in the Industrialized Products Tax (IPI), a tax collected by the federal government, but whose collection helps finance the federal government’s transfers to state governments and municipalities.

In the expenses front, there should be the effect of adjustments for public servants, in some places already scheduled for next year. Besides this, she points out, the current investments are also expected to give rise to an increase in current expenses, due to maintenance and personnel. Equipment in the health sector, she highlights, generates annual expenses corresponding to 90% of the amount invested.

*By Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/

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Bus manufacturers to recover from Covid only in 2024

Market is expected to grow in 2022, but volume will still be lower than before pandemic

08/10/2022

Fabiano Todeschini — Foto: Nilani Goettems/Valor

Fabiano Todeschini — Foto: Nilani Goettems/Valor

The bus industry is going through an unusual moment. As soon as it hit Brazil, the pandemic emptied public transportation in cities and roads. Mass vaccination then brought the hope of a return to normality. But the recovery of sales has been slower than industrial players expected. The companies that operate the lines have not yet recovered from the impact of the health crisis. In addition, semiconductor shortages are affecting production. And even if chip supplies normalize, as predicted, demand is likely to fall in 2023. A new emissions law, effective as of January, will cause bus prices to rise due to the cost of the technology needed to reduce emissions.

The expected expansion of 23.5% of the domestic market in 2022, according to the latest projection of the automakers’ association, Anfavea, is not a reason for celebration, since the last two years were very bad. If this forecast of 17,300 vehicles is confirmed, the Brazilian bus market will return this year to what it was in 2015, the first of four consecutive years of crisis in the sector before a recovery interrupted by the pandemic. Some executives reckon that only in 2024 will sales return to the level of 2019, the year that became a reference for the industry. In 2019, nearly 21,000 units were sold.

The urban segment is the one that brings the most uncertainty. “Municipalities are having cash flow problems because they had to direct funds to public health and need to decide if they will be able to subsidy fares,” said Fabiano Todeschini, CEO of Volvo’s bus division in Latin America. “The urban bus suffered a lot because the pandemic took half of the people off the streets. That’s why we still see bad numbers,” said Danilo Fetzner, head of Iveco’s bus division in Latin America.

With the exception of large urban centers such as Rio de Janeiro and São Paulo, which need to renew the fleet more often due to the number of inhabitants, in smaller cities, in addition to emptier public coffers and struggling operators, it is not yet clear how many of those who leave for work every day will return to buses, how often, and whether they will continue to use public transportation. “Remote work is a new reality and it hits those who survive on fares,” Mr. Fetzner said. In addition to the pandemic, unemployment has also driven people off the buses in the last two years. That’s why industry executives are keeping a close eye on the recent advance in employment levels.

The coach bus industry has suffered, too. “Operators are still bruised from the pandemic and will first get companies back on their feet and then go shopping,” Mr. Todeschini said. The recovery of tourism has been gradual. There is also a great expectation that the increase in airfare prices and the reduction in the offer of flights will cause the migration of part of those who used to travel by plane to buses, said Ricardo Portolan, Marcopolo’s head of commercial operations for the domestic market.

Marcopolo, a traditional bus body maker, saw a stronger demand in June and July. Mr. Portolan said the company was unable to make more bus bodies due to the delay in the arrival of chassis produced by assemblers affected by the shortage of semiconductors. In his view, the demand will grow significantly. “We expect the road segment to be much stronger in 2023,” he said. According to him, due to the shortage of semiconductors, the waiting time for making bus bodies, which used to be around 60 days, increased to 90 or even 120 days.

The prevailing view among executives, however, is that many companies that bought buses this year, especially in the coach segment, did so in an attempt to escape the price increase that will come from the entry into force of the so-called Euro 6, a legislation that forces the industry to reduce the level of emissions of trucks and buses produced as of January.

“Clients are bringing forward purchases to protect themselves from increases. That’s why demand this year will be stronger than in 2021, but will slow down again in 2023,” Mr. Fetzner said. In his view, after a year of the new administration and a “higher cost accommodation with Euro 6,” the market will look better in 2024. The industry does not reveal how much prices will rise. Some estimate a minimum 15% hike because of the new technology alone.

Two segments, however, helped the industry to offset the difficulties – chartering and the Caminho da Escola program. As for chartering, the need for social distance was precisely what made demand increase. Companies in the industrial sector that provide transportation for workers, who worked in person the whole time, had to double their fleet to ensure distance between the occupants of the buses. It used to be one person per row. With the normalization of this transport, now, many vehicles – in this case, second-hand ones – were sold to short-distance road transport companies or to urban transport companies in metropolitan regions.

Created in 2009, Caminho da Escola is a federal social program aimed at transporting students from rural areas. It has remained independent of the federal administrations since then. The program uses funds from the National Fund for Education Development (FNDE), which has maintained the routine of calls for bids.

Exports have also helped the sector. Urban transportation systems in Santiago and Bogotá have been supplied, in large part, by the Brazilian industry. And demand tends to increase with the forecast of new bids. Volvo, for example, sends 60% of its Brazilian production abroad.

*By Marli Olmos — São Paulo

Source: Valor International

https://valorinternational.globo.com/
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