Arquivos fertilizers - Murray Advogados

Daniel Zilberknop — Foto: Claudio Belli/Valor

Unigel, one of Brazil’s most traditional petrochemical companies, is focusing on agribusiness after Russia invaded Ukraine. Months after restarting the operation of two fertilizer plants leased from oil giant Petrobras, which contributed to 2021 being the best year ever, the company will expand local production of strategic inputs for nitrogen fertilizers and chemicals that are currently 100% imported.

“In the medium term, we have growth plans in all three fields: agribusiness, acrylics and styrenics. But today the major focus is on agriculture because we can see Brazil’s reliance on imported fertilizers. This exposure makes us want to invest more,” said Daniel Zilberknop, Unigel’s chief financial officer.

The company, which is the largest producer of acrylics and styrenics in Latin America, could be exposed to the risks of shortages generated by the war. By leasing Petrobras’s fertilizer units in Bahia and Sergipe, which were previously idle, Unigel became the only local producer of ammonia, used in fertilizers and in the acrylic chain. Before, this raw material had to be 100% imported, and Russia accounts for 23% of the global supply.

Unigel Agro will complete the business portfolio and integrate the company’s other operations, first in the case of ammonia and now in sulfuric acid, Mr. Zilberknop said. There will be more developments ahead, and green hydrogen and green ammonia are on the company’s radar.

At this moment, the company is investing $100 million in a new plant for the product in Camaçari, Bahia, which will be used to reactivate an ammonium sulfate plant (a nitrogen fertilizer), which came in the package of assets leased from Petrobras – sulfuric acid is used in the production of both fertilizers and acrylics, and the steam generated in the production process is used as energy in the styrenics operation.

To reactivate the nitrogen fertilizer plants, the company had already disbursed about $100 million. “Before, we navigated more the petrochemical cycle. With Unigel Agro, the scale has also changed. We intend to expand into agribusiness production, further integrating our business,” the executive said.

Last year, while the stronger petrochemical spreads boosted performance in the first half, the full operation of the nitrogen fertilizer plants has driven the results at a time of weaker spreads – in the year, the results in acrylics and styrenics also grew compared to previous years, with a greater focus on operational efficiency.

Unigel ended 2021 with gross revenue of R$8.49 billion, more than double what was reported in the previous year, and EBITDA of R$1.7 billion, a more than threefold increase. The net income reached R$882 million and the cash generated by operational activities more than doubled to R$1.1 billion.

After a ramp-up in the nitrogen fertilizer plants in August, Unigel became the largest nitrogen fertilizer manufacturer in the country. The business had a relevant contribution in the results in 2021, accounting for 25% of the gross revenue and 33% of the adjusted EBIDTA.

Today, Unigel Agro’s installed capacity is 925,000 tonnes per year of ammonia, 1.125 million tonnes of urea, 670,000 tonnes of ammonium sulfate and 220,000 tonnes of Arla, used to reduce emissions from large vehicles.

In the executive’s view, the war in Ukraine brings direct consequences for the oil and gas and fertilizer markets but for now is not a reason for concern for Unigel Agro, which uses gas in the production of urea and ammonia.

Considering local supply contracts with Petrobras and Shell, assured demand and raw material hedging, the operation is expected to smoothly navigate the conflict. Russia is the largest exporter of ammonia and urea in the world and one of the biggest players in NPK fertilizers, which caused the prices of these inputs to skyrocket as the country was sanctioned for the invasion of Ukraine.

Unigel ended 2021 with R$849 million in cash reserves and will be able to face the investment in sulfuric acid with the funds generated by its businesses. The company was on its way to selling shares on the stock exchange but suspended the IPO in the second half of last year amid deteriorating market conditions.

“The company is at its best moment and is able to invest in growth with deleveraging,” the executive said. At the end of the year, Unigel’s net debt, of about R$2.1 billion, accounted for 1.2 times the annualized EBITDA, a ratio seen as comfortable by rating agencies.

Source: Valor International

https://valorinternational.globo.com

The National Fertilizer Plan will not receive direct financial contributions from the federal government. Instead, investments in new factories for the expansion of fertilizer production will come essentially from the private sector, although companies are likely to take advantage of fiscal and tax breaks – if these facilities actually get off the drawing board.

The effort was launched on Friday by the Bolsonaro administration amid the turmoil that tripled the international prices of some agricultural inputs because of the pandemic, the energy crisis in some countries and the Russia-Ukraine war, which threatens the supply of inputs from Eastern Europe to Brazil.

“These waves of private-sector investment will guarantee Brazil’s growth in the coming years,” Economy Minister Paulo Guedes told reporters on Friday. “Brazil’s growth cannot be limited to the investment capacity of Petrobras and Eletrobras,” he said, citing behemoth state-owned companies in the oil and power industries.

The government will use direct investments to improve the country’s business environment, Mr. Guedes said. “Eliminate dysfunctional taxes, make industrial research, production and transformation easier. We will create a private-sector complex and draw those investments. The speed of response is much faster.”

The Minister of Mines and Energy, Bento Albuquerque, pointed out that the mineral industry is expected to invest about $40 billion by 2025 in the country. The post-pandemic economic recovery and the rise in fertilizer prices are also expected to make private-sector business for production in Brazil more attractive. “With this crisis, several projects are being put back into operation, such as hibernated nitrogen plants that are now economically viable. And this is also due to the 22% increase in natural gas production in the last three years,” he said.

“The increase in production is already a fact,” Mr. Guedes added, saying that “interventionist administrations” would act differently, focusing on public investments. President Jair Bolsonaro made fun of it, saying he will not create “Adubobras,” or a Brazilian state-owned company to produce fertilizers. He also said that the climate is “favorable” for the Chamber of Deputies to pass in a few weeks a bill to allow mineral exploration and other economic activities on indigenous lands.

Mr. Guedes acknowledged that food prices are likely to increase in the medium term with the indirect impact of the rise in global costs of fertilizers and grains. He is also following the unfolding of the war, which may require additional tax efforts. The minister argued that tax adjustments could reindustrialize the country, and cited the possibility of eliminating the Tax on Industrialized Products (IPI) to encourage domestic production of fertilizers.

The Economy minister also cited facilities for imports of machinery and equipment used in the production of fertilizers and the creation of tax credits from the purchase of imported inputs. “We are convinced that indirect taxes are destroying the domestic industry. The idea is to reduce the taxes that caused a decline of manufacturing in Brazil,” he said.

One concern at the moment is in cutting taxes on Brazilian fertilizers. Sales tax ICMS on these inputs are being adjusted after approval by the National Council of Finance Policy (Confaz) last year. By 2025, domestic production will gradually drop to a 4% tax from 8%, while imported products, currently exempt, will pay 4%. Luis Eduardo Rangel, a director of the executive secretariat of the Ministry of Agriculture, said that fair taxation is the starting point to make the Brazilian fertilizer industry competitive again.

According to Mr. Rangel, with the rebalancing of tax rates, it will be possible to increase the domestic production by 35% by 2025 and regain 10% of domestic autonomy. Bernardo Silva, head of the National Union of the Fertilizer Raw Material Industry (Sinprifert), said that the growth projected in the short term is not irrelevant and will help reduce the “risk” the country faces today.

The fertilizer plan, in his view, is a “good, optimistic and bold” message. Even so, the Brazil cost remains high with obstacles such as environmental permit, transportation, logistics, energy and natural gas. “We need a positive message because the industry needs heavy investments. A nitrogen plant requires investments of $1.5 billion, and needs a long time to mature. We look up to 50 years ahead. We need institutional stability and security for this,” he said.

Agriculture Minister Tereza Cristina said that it will be necessary to administer the “dose very well” to know the best time to rebalance the ICMS rates on domestic and imported products. “If the war gets worse, we have to zero taxes,” Mr. Guedes said.

Source: Valor International

https://valorinternational.globo.com

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