Shortage of diesel threatens Brazil, former ANP director says

Aurélio Amaral says country should create stocks, or harvest will be harmed


Aurelio Amaral — Foto: Leo Pinheiro/Valor

Aurelio Amaral — Foto: Leo Pinheiro/Valor

Even with the announcements of fuel price increases imposed by Petrobras last Friday, there is a great risk of shortage of diesel in the second half. The warning comes from the former director of the National Petroleum Agency (ANP) and consulting partner at Schmidt Valois Advogados, Aurélio Amaral.

To Valor, the expert, who was director of ANP for four years, including during the truckers strike in 2018, said that the shortage can lead to occasional shortages of fuel in regions that depend more on imports, such as the Central-West. Even after Petrobras announcement on Friday, making diesel and gasoline more expensive, the gap in relation to international prices still remains, according to importers.

This inhibits imports, which account for about 30% of the diesel demand in the country, Mr. Amaral warns. The technician, who was also superintendent of supply of the agency, defended the formation of stocks by Petrobras to help reduce the risks of shortages. But, instead of stockpiling, Brazil gets lost in discussions about prices, Mr. Amaral says.

However, he considers a generalized lack of supply unlikely. But he stressed that the lack of diesel can damage the harvest, since the Central-West, the largest grain producer, is more dependent on imports.

Read the main excerpts of the interview:

Valor: What is the scenario of fuel supply in Brazil?

Aurélio Amaral: We need to keep some stock, because diesel is short in the world. It is necessary to pay so that Petrobras has the capacity to import and keep stocks. We also need to maintain some kind of parity [with international prices], at least for now in this current model, so that other players are encouraged to import and to supply part of the fuel that is not produced in the country. To mitigate prices to the consumer, it is necessary to have some compensatory policy, which the government so far has not wanted. If nobody gives in on one side or the other, the road ahead is that of a crisis.

Valor: Will Friday’s increase help?

Mr. Amaral: I think that the hike was necessary. The government and Petrobras are currently going through a dilemma: how to balance a mixed capital company, which has a social role, and holds a significant monopoly. According to the current law, and the way the pricing is established, Petrobras board has no choice but to raise the prices. It is a very difficult situation for those who are ahead of the board to find a way to hold prices without having a compensation that ensures they will not be held responsible by regulatory agencies [for possible losses].

Valor: How is the scenario for fuel importers?

Mr. Amaral: Nobody is importing. We are in a complicated situation. We need to bring diesel, because we are approaching the harvest, but the price [of oil] continues to rise, although it has had a small drop. There is a big pressure on the world demand for diesel. We are heading towards something dangerous. It is a complex issue that requires a systemic look and, mainly, harmony between Petrobras and the government, an environment of less tension and conflict. Today, it looks like a war, which is not good for anyone.

Valor: What are the risks?

Mr. Amaral: We are not stockpiling, because almost nobody is importing, so we are heading towards a big risk [of shortages]. It is a risk derived today from the war and the pressure of the embargoes on Russia [oil exporter].

Valor: Is there room for Brazil to start building stocks today?

Mr. Amaral: Only Petrobras is able to build a relevant safety stock today, because it owns the entire infrastructure. But how to do this without passing it on to prices? It is a difficult equation. In this current crisis, I think it is very difficult to have time to think about increasing stocks, while discussing price impacts. It would also be necessary to review the pricing policy and the remuneration policy for Petrobras’s investors. Under the current policy, it would have to pass on the costs of inventories. This is difficult in today’s politicized environment.

Valor: Will there be a shortage of fuel?

Mr. Amaral: I don’t believe in a widespread diesel shortage. But the risk of occasional shortages is great if we don’t move towards creating some stock. Mainly in regions that today depend on imports, like the Central-West, agribusiness regions, where the demand for diesel will be high in the second semester. We are heading towards a very emotional situation. It will be tense.

Valor: How to reduce the impact of high prices?

Mr. Amaral: I don’t see a way out that doesn’t involve compensation. But this has fiscal impacts on the federal budget, and can affect congressional earmarks in an election year, the government does not want it. It is not a simple discussion, it is complex. The resources have to come from somewhere. It requires cold blood and more calm, not this atmosphere of tension. If it stays just on Petrobras’ account, it would also be necessary to change the remuneration to shareholders, the dividends, it would be necessary to look at the management rules for publicly traded companies. If Petrobras simply does not pass on the prices, it will be subject to losses.

Valor: What do you think of the proposals made so far?

Mr. Amaral: The way the [sales tax] ICMS reduction was proposed, there is no compensation. With the increase in oil prices and the passing on of margins [the tax reduction] will have, in my opinion, an insignificant impact in terms of prices.

Valor: Will the sale of Petrobras’ refineries solve the discussion?

Mr. Amaral: I have always been in favor of divestments, I think they are welcome to create a competitive market. But they must be done with regulatory monitoring to mitigate competitive effects and avoid abuse of economic power in regions where refineries are dominant. It should be done in the medium to long term. This requires a smooth transition, in order to stimulate other investments. We stopped this process in the middle. We didn’t manage to divest all the refineries in order to start a competitive market. Petrobras continues to have a large monopoly.

Valor: What measures are needed for more competition?

Mr. Amaral: Refining was always thought of with Petrobras, in the Brazilian system as a whole. To take this system that was created to act in an integrated way and dismember it, it is necessary to create alternatives. If you simply sell the refinery, you will transfer the monopoly from the public to the private agent. It is necessary to have measures to create import competition. Brazil cannot, by law, have price control. But how to make this transition without some accompaniment? It is complex.

*By Gabriela Ruddy — Rio de Janeiro

Source: Valor International

Brazil will “dance” with U.S., China, Guedes says in Davos

Guedes met UBS CEO Colm Kelleher — Foto: Reprodução/Twitter/ME

Guedes met UBS CEO Colm Kelleher — Foto: Reprodução/Twitter/ME

Economy Minister Paulo Guedes said that “everyone is going after Brazil” at the World Economic Forum and that, with the turnaround in world geopolitics, the country will “dance” with the U.S. and China at the same time.

In a conversation with journalists, Mr. Guedes said that Brazil suffered pressure from both the United States and Europe in the wake of the war in Ukraine to stand on one side. But that now “nobody is cursing us” and Brazil is seen as a solution to energy and food crises.

As an example, he said that the new interest in Brazil with a series of bilateral meetings on Tuesday in Davos — with the CEOs of UBS, Mittal, Alibaba, Sem Merck, Claure Capital, YouTube, Canada Pension Plan Investment (CPP), as well as lunch with investors promoted by Itaú Unibanco.

“There is demand from 30 of the largest companies in the world, but we can’t supply everyone,” said the minister.

In the World Economic Forum, Brazil is almost absent from the agenda, without any specific debate. The public manifestations of most of the authorities present are about the size of a possible recession in the European Union, in the United Kingdom, and perhaps in the U.S. after next year. In other words, little is said about Brazil, except in restricted circles that know more about the country.

According to the minister, “people do not understand: the world has changed and Brazil’s position has improved.” He says that “Brazil has lost 30 years, it has not connected (with global value chains). China got out of poverty, Thailand, everyone went up, and Brazil was left hopping.”

The minister adds that with the crises caused by the pandemic and the war in Ukraine, other countries got into difficulties, but not Brazil. And so, in his vision, the country can redesign its production chains with new axes, such as renewable energy and semiconductors.

In this scenario, said Mr. Guedes, the pressures came on Brazil. He said that the Europeans asked Brazil if the country was on their side or on Russia’s, if it was with the Brics or with the OECD.

On the one hand, the U.S. Treasury Secretary Janet Yellen made it clear that Washington would redesign investment criteria and that the world will never be the same. In other words, the U.S. needs closer supply chains and reliable partners.

The way Brazil is going to stand, according to the minister, is to be “the guy that is going to give food and energy security to Europe. And the U.S., which Brazil is close to and a friend of, will not need to go to China.”

As for China, “the Chinese and the Americans had a synergy that lasted 30 years, then China grew and they started fighting. We are going to dance with both of them.

Furthermore, Brazil wants to accelerate its integration into the OECD. He said he has established a good relationship with Mathias Cormann, Secretary-General of the OECD, who will visit Brazil in the near future.

Source: Valor International

Brazil, Paraguay agree on conclusion of bridge linking the two

Paraguay And Brazil Two Flags Together Realations Textile Cloth Fabric  Texture Stock Photo - Download Image Now - iStock

Brazil’s President Jair Bolsonaro met with his Paraguayan counterpart Mario Abdo Benítez in Brasília. Among the topics discussed are the construction of the second bridge linking the two countries, a revision of the treaty on the construction of the Itaipu Dam, efforts against organized crime in the border area, and the use of the hydroelectric power plant lake for commercial fish production.

“During this service visit, the noble president of Paraguay came to discuss a series of topics with us. For instance, we’ll be concluding the second bridge with Paraguay by mid next year, hopefully,” Bolsonaro said.

The bridge, whose construction is being financed as part of a partnership between company Itaipu Binacional and the government of the Brazilian state of Paraná, will link Foz do Iguaçu to the Paraguayan city of Presidente Franco. As it stands today, the only existing bridge between the two countries is Friendship Bridge, connecting Foz do Iguaçu to Ciudad del Leste.

Also according to Bolsonaro, the two presidents should follow a new agenda, this time to sign another order of service for the construction of a third bridge between the two countries, this time over River Paraguay, linking the cities of Porto Murtinho, Mato Grosso do Sul state, to Carmelo Peralta.

Annex C

Also debated by both leaders were talks about Annex C of the Itaipu Treaty, to expire on 2023. The bilateral agreement was signed by the two countries in 1973 and oversaw the construction of the Itaipu Dam, the world’s biggest hydroelectric plant in energy production. The terms are to be revised two years from now as the two governments will have amortized the debt incurred to finance the project.

The main debate concerns the destination of the funds remaining after the loans are cleared, which may add up to approximately $1 billion a year in revenues.

Bolsonaro also mentioned the progress in negotiations to allow the lake of Itaipu Dam to be used for fish farming, with a focus on tilapia. The topic hinges on assessment by the Paraguayan Parliament.

Organized crime

Also discussed was organized crime in the border area. “I believe that both countries have shown a strong alliance and solid cooperation, which has brought great results in the fight against organized crime. In the case of Paraguay, we expelled a large number of people requested by the Brazilian court system, with the cooperation of the Brazilian government,” Abdo Benítez.

Also in his Wednesday (Nov. 24) address, in which he went over the topics covered with the Brazilian president, Abdo Benítez underscored the deep ties between the two countries and invited his counterpart to an official visit to Paraguay, which has not as yet taken place in his tenure.

“He owes an official visit to the people of Paraguay, my people, a country that likes and respects him. What brings us together today is not just the fact that we’re both presidents, but also our vision, principles, and democratic and libertarian values,” he said.

Source: Agência Brasil

Brazil up in innovation index but still below 2011 rank

Como aplicar Gestão da inovação em Grandes Empresas

Brazil went up five positions in the Global Innovation Index (GII), now ranking 57th among 132 countries compared to 2020. But its performance remains poor, 10 places below the one achieved in 2011.

The index is published by the World Intellectual Property Organization (WIPO) in partnership with the Portulans Institute and some national industry confederations, including the Brazilian CNI.

The ranking is the result of an average of five pillars — institutions, human capital and research, infrastructure, market sophistication and business sophistication — distributed in 81 indicators.

For the National Confederation of Industry (CNI), the Brazilian ranking is incompatible with the fact that the country was the 12th largest economy in the world in 2020.

“Brazil has not yet placed science, research and innovation at the core of its long-term development strategy”, wrote CNI’s president Robson Andrade in the WIPO report. He believes that, for the country to become a truly innovative economy, it needs to be among the top 30 economies.

Amidst the worst health crisis in recent times, Switzerland, Sweden, the USA and the UK remained at the top of the global innovation index. South Korea is now in the fifth place, with a gain of five positions. North America and Europe continue to dominate innovation far over other regions.

China remains the only so-called intermediate economy among the top 30, which is the CNI’s goal. Bulgaria (35th), Malaysia (36th), Turkey (41th), Thailand (41th), Vietnam (44th), Russia (45th), India (46th), Ukraine (49th) and Montenegro (50th) make the top 50.

Brazil lags behind them all, and is fourth among 18 rated economies in Latin America and the Caribbean, surpassed by Chile (53rd), Mexico (55th) and Costa Rica (56th). Among the BRICS countries, Brazil is only ahead of South Africa (61st). China is in 12th place, Russia in 45th and India in 46th.

For Soumitra Dutta, professor of management at Cornell University (USA), the GII shows that, while it is often difficult for emerging countries to improve their innovation systems at a constant level, some middle-income economies manage to perform as well as other developed countries.

Those emerging countries “have managed to complete internal innovation through international technology transfer, designing dynamic technological services that are commercialized abroad and balancing their innovation systems”.

Three of the factors that led Brazil to a better position were the GDP, which, according to the CNI, “gives a false perception of progress due to the use of this relative measure in some indicators”; the inclusion of new indicators in the ranking; and good business performance, reflected in areas such as “high-tech products” and “values received for the use of intellectual property”.

In the “institutions” pillar, Brazil is in the 78th place. In the political environment, it ranks 85th, and in government effectiveness, 86th out of 132 countries. Unsurprisingly, infrastructure is in the 107th position.

Among the main advances in Brazil are indicators of “growth in productivity at work” (58 positions) and total expenditure on software (46 positions).

In CNI’s interpretation, as the calculation of the first considers the last three years’ average in relation to GDP, with 2020 being the last year, the plausible explanation is that, despite the reduction in employees, GDP was drastically reduced, giving the false impression of greater productivity. The second, which uses the previous year as a reference, is explained by the increased investments in software during the pandemic and its relationship with the percentage of GDP, which fell.

Source: Valor international

Brazil among most exposed to China’s slowdown

Explosivo usado no ataque ao Consulado da China é caseiro, diz Polícia do  Rio | CNN Brasil

The concern that a possible default by the Chinese real estate giant Evergrande could result in an abrupt financial contraction in China and cause a sort of repeat of the 2008 financial crisis resulted in a strong wave of risk aversion in Monday’s trading session. In a week making investors anxious already because of interest rate decisions by the U.S. Federal Reserve and other central banks, including the Brazilian one, these fears led to a generalized drop in stock markets and commodity prices around the world, as well as a jump in demand for the dollar and other currencies considered “safe havens,” such as yen and Swiss franc.

In Brazil, where the local scenario already left investors wary, the bias brought in from abroad was enough to bring the benchmark stock index Ibovespa down 2.33% to 108,844 points, the lowest since November 23, 2020. The foreign exchange rate, meanwhile, rose 0.87%, to R$5.33 to the dollar, after reaching R$5.3772 during the trading session, a level not seen since August 20.

The concerns of investors around the world seem to have condensed into one expression: the fear of a “Lehman event,” in reference to the bankruptcy of the U.S.-based bank Lehman Brothers in September 2008, which effectively started the global financial crisis that year.

One of the largest real estate developers in the world, China’s Evergrande has debts of more than $300 billion, and without the Chinese government bailout, it may not be able to honor its commitments. According to the consultancy Capital Economics, the company is not the only highly leveraged Chinese real estate developer, but because of its heavy dependence on short-term debt, it is especially vulnerable to a tightening of credit conditions.

Since the Chinese economy is highly regulated, analysts warn that much of the consequences for the world economy of a possible default by the developer depends on how Beijing will handle the situation.

Alberto Bernal, head of global strategy at XP Investments, believes that it is not in the Chinese government’s interest to let the situation escalate too much. “I doubt that even a Evergrande failing would lead to a Lehman event because that would be too dangerous,” the strategist said. The professional recalled that under the Chinese system, interventions can be put in place “almost immediately” and that for this reason, letting a Lehman event happen would be a deliberate choice by the Chinese government, which has the necessary capacity to contain contagion.

To assess the effects of a firmer slowdown in China on other countries, Wells Fargo ran a regression analysis with data back to 2016. The exercise suggests that Brazil is among the most exposed economies, along with Singapore, South Africa, South Korea, Chile and Russia. “Our analysis indicates that countries heavily reliant on exports, high commodity prices, and which are tightly integrated into China’s financial system should come under the most pressure,” Wells Fargo economists Brendan McKenna and Jessica Guo said.

The study divided the effects into three categories: sensitivity of the local currency, the stock market and exports. Regarding the first one, the Brazilian real is among the most exposed assets, along with the South African rand, the Russian ruble, the Polish zloty and the Mexican and Colombian pesos. These currencies would have sensitivity equal or higher than 0.9 to variations in the yuan – that is, a 1% devaluation of the Chinese currency would result in a depreciation of at least 0.9% of these currencies.

As for the stock market, Wells Fargo found only a “moderate” correlation between Brazil and China. In this case, countries most at risk are Singapore, South Africa and South Korea.

In relation to exports, Wells Fargo places Brazil as a country of moderate sensitivity, since it exports between 2% and 6% of its GDP to China.

Source: Valor international

Brazil-China trade expected to hit all-time high in 2020

Chinese imports of Brazilian products may see a record high in 2020 should it maintain the pace set through August, figures by China’s General Administration of Customs show, in stark contrast to falling global trade due to the covid-19 pandemic. Shipments to China increased by 20.8% in August when compared with the year-earlier month, while Chinese global purchases fell 2.1%. Brazil-China trade may also surpass the $115-billion level seen in 2019, according to China’s official figures. In the year to August, China says it imported $54.5 billion from Brazil and exported $19.9 billion. Brazil is one of the few countries with a trade surplus with China. In addition to farm commodities, Brazil is reportedly selling three times more oil to China, which would be taking advantage of the low prices to strengthen its strategic reserves.

Source: Valor International

Brazil and US sign defense development agreement

The governments of Brazil and the US signed on Sunday an agreement for the development of defense projects, as part of President Jair Bolsonaro’s visit to President Donald Trump in Florida. The deal could give Brazil access to a $100 billion American fund as part of joint development deals with US companies, and expand sales of Brazilian products to the American defense market. On Saturday at his resort in Palm Beach, President Trump, sitting alongside Mr. Bolsonaro during a dinner, said he would not make any promises on imposing new tariffs on Brazilian products. The US president backed out in December from imposing tariffs on Brazilian producers of steel and aluminum. Roberto Abdenur, a former Brazilian ambassador to the US, admitted the defense agreement’s importance and that both countries have been offering moderate concessions but adopted a more critical tone by describing it as another development in the submissive approach of Mr. Bolsonaro to Mr. Trump on such global topics as environment, Middle East tensions and economic embargoes. Brazilian officials also exaggerated the agreement’s profile by describing it as a “strategic alliance,” a strong term that was absent from the joint statement or even from Mr. Trump’s speech.

Source: Valor Econômico

EU removes two Brazilian steel products from restriction list

The European Union (EU) has removed Brazil’s stainless steel and steel profiles from the list of products facing quotas to enter its market. This paved the way for Brazilian producers to compete for new business in the European Common Market. On Thursday, Brussels submitted to the World Trade Organization (WTO) a plan to “adjust” tariff quotas that were adopted last year in the face of increased imports and trade diversion as a result of the US decision to slap surcharges on steel products. In Brazil’s case, the good news is that the safeguard withdrawal for the two products. “It is positive because it frees both products to prospect more market, and even more because in the case of stainless steel is of higher added value,” Marco Polo de Mello Lopes, CEO of the Brazil Steel Institute, said.

Source: Valor Econômico


Brazil and US formalize negotiations for free-trade deal

Brazil and the US formalized their negotiations for a free trade deal. “What was just a thought now is this: we are officially starting negotiations with the US,” said Economy Minister Paulo Guedes after a meeting yesterday with Secretary of Commerce Wilbur Ross, who had previously met with President Jair Bolsonaro. According to Mr. Bolsonaro, Mr. Ross warned him about “traps” in the Mercosur-European Union agreement that could prevent an understanding between Brazil and the US. Brazilian officials say they want to keep negotiations with the US going even after specific issues, like ethanol and wheat trade, are solved. On the other hand, the agreement with the Europeans is seen as a key element to keep the pressure on the US. Valor has learned that all negotiations may bump into political uncertainties, with elections in Argentina this year and in the US in 2020.

Source: Valor Econômico


Brazil’s April Industrial Output Increased 0.3% as Durable Goods Output Rose

Brazil’s industrial production increased in April from the previous month as its factories produced more durable goods for consumers.

Output rose 0.3% in the month and declined 3.9% from a year earlier, the Brazilian Institute of Geography and Statistics, or IBGE, said Tuesday. In March, industrial production declined a revised 1.4% in the month and fell a revised 6.2% from a year earlier. Durable goods production increased 3.4% in the month and production of capital equipment grew 2.9%, the IBGE said.

The small increase in production is partly due to the rise in employment Brazil experienced in the three months through April, according to Pedro Coelho Afonso, chief economist of Sao Paulo-based PCA Capital. Industrial production is nevertheless likely to remain weak in coming months, as companies and investors hold back from spending while they await the outcome of the government’s efforts to overhaul Brazil’s insolvent pension system, he said.

The administration of President Jair Bolsonaro presented its pension proposal to Congress in February and it’s still being debated at committee level in the lower house. The government faces resistance among left-wing lawmakers and government employees who oppose cuts to retirement benefits, and the process is taking longer than analysts expected at the start of the year.

“Until we know for sure what’s happening with the reforms, and it’s getting harder to say, things will be hard to predict,” said Mr. Afonso. “Its really hard to make long- or even medium-term forecasts because of that.”

Output of consumer goods rose 3.1% in the month and production of semi-durable goods increased 2.6%, IBGE said. The biggest negative impact on output, of 9.7%, came from mining and other extractive sectors, as the repercussions of the deadly mining disaster in Brumadinho in January continue to be felt.

That accident killed more than 200 people when a tailings mine collapsed and sent a wave of mining waste sweeping over nearby offices of iron-ore producer Vale SA (VALE, VALE3.BR). The company halted production at several mines near dams similar to the one that collapsed, and authorities ordered the closing of more dams over concerns for their stability.

Vale said the closed operations will cut its iron ore production for this year to close to 300 million metric tons, from its forecast at the start of the year of output of about 400 million tons.