BRAZIL ANTICIPATES A BUMPER YEAR

Alcoa plans to re-open its smelter in Sao Luis, to help with the increased demand. Brazil anticipates a bumper year

Patrick Knight

Developments worldwide favour Brazilian commodities

With concern about the impact global warming will have on the health of the planet rising sharply in the wake of the climate conference in Glasgow, the majority of the commodities Brazil exports to the world, are likely to be affected, most of them positively, writes Patrick Knight.

Brazil anticipates a 2021/22 grains crop of 289mt (million tonnes), which would be 14% more than in 2020/21. This is mainly explained by an area increase of 3.6%, taking the total area planted to grains to 71.5 million hectares. Yields should also be up by 10% in 2022, to average four tonnes per hectare. This increase is mainly due to the weather during the 2021/22 planting season being more favourable this season than last, which was extremely dry. This year’s soya crop is expected to come in at about 141mt. The price received by Brazilian farmers for their beans has increased by up to 47% in recent months. This has been partly because of the substantial rise in the price of fertilizer, the great majority of which is imported. The sharp fall in the value of the Brazilian currency, the Real, against the US dollar, means farmers have had to pay much more for their fertilizer. The price of urea has increased by 70% in the past year, that of phosphates is up by 75%, while that of potassium is up by 150%. The price of farm chemicals, notably pesticides and herbicides, is up by 120%. The high price of fertilizer will prejudice the profitability of the soya sector this year. A total of 21 million hectares are due to be planted to maize 2021/22 and a crop of 116mt is expected this year, 33% more than in 2021. Eighty-six per cent of the maize will come from the second crop. This is the grain planted after the early soya crop has been harvested. Again, the high cost of fertilizer is expected to prejudice the profitability of maize.

THE ALUMINIUM COMPLEX Alcoa’s smelter in Sao Luis, Maranhao state, which was shut down in 2015, is scheduled to re-open early this year. Refurbishment there will cost Alcoa US$75 million. In an initial phase, 268,000 tonnes will be made this year by Alcoa. This compares with the 450,000 tonnes which was made at the Sao Luis plant before much of it was shut down six years ago. Since 2015, 788,000 tonnes of Brazil’s primary aluminium capacity has been mothballed. The Industry’s trade association, Abal, expects that 450,000 tonnes of this capacity will eventually come back on stream, spurred by soaring metal prices. The industry is now making about 910,000 tonnes of primary each year. In 2020, 2.42mt of primary aluminium was used in Brazil. When the Sao Luis mill starts up again, Alcoa’s share of the primary made in Brazil will have increased to 60%. The fate of the remaining mothballed capacity will depend on market forces, as well as on the condition of the mothballed equipment.

Alcoa suggests that its remaining capacity could come back on stream by 2024. If this does happen, Brazil could soon have returned to self-sufficiency in primary aluminium. As Abal points out, Brazil has major reserves of high quality bauxite and adequate supplies of alumina. The Brazilian Aluminium Company, CBA, Brazil’s leading integrated aluminium producer, aims to soon be producing 100% green energy at its mills.

CBA says it is now investing in wind and solar energy, while at the same time selling much of its hydro capacity. CBA also plans to greatly increase the amount of re-cycled aluminium it uses. To this end CBA has spent $20 million buying the facilities of the Alux company. CBA now incorporates 30% of re-cycled aluminium into the total of primary it makes. The company plans for the amount of re-cycled aluminium it uses to have risen to 40% of the total in the near future. If re-cycled aluminium is used to make the primary product, only 5% as much energy is needed as when alumina is used. The CBA company plans to spend $400 millions on modernizing all its facilities by 2025. This will result in its

output of primary, which now totals 350,000 tonnes, being increased by 80,000 tonnes. The company also plans to reduce the total amount of energy it uses by 40% by 2025. CBA now produces 2.66 tonnes of carbon for each tonne of metal it makes. The company plans to reduce this amount to 2.18 tonnes, again by 2025.

The current high world price of aluminium, which at the end of 2021, touched $3,000 a tonne, is greatly encouraging the industry in Brazil, says ABAL. Many new uses for aluminium are appearing, as many countries seek to greatly increase the use of electricity. The extra electricity will be for industrial uses, such as for building new pylons for transmission purposes. It will also be needed for new wind turbines, and solar panels. Much more aluminium will be needed for making the batteries which will be needed in the fast-growing fleet of electric cars. While only about 500 battery-powered cars had been sold in the US in 2010, more than three million such vehicles were sold in the US in 2020. In addition to cars, more than 11 million electrically powered light trucks were sold in the US in 2020. The fact that the UK is to ban sales of all cars powered by gasolene and diesel by 2030, will create a huge new market for aluminium in that country. About 1.5 million cars are made each year in the UK, while several other countries in Europe also plan to ban the sale of fossil fuel burning engines in the near future. The US is lagging behind, as fossil fuel burning engines are only to be banned there after 2040, a decade after Britain. Motor industry sources also point out that because batteries are so heavy, car manufacturers are planning to use much more aluminum in bodywork, rather than steel. The fact that China has now become a net-importer of primary aluminium, rather than being a major exporter of the metal, is also helping prices of aluminium to rise.

AGRIBUSINESS ADDRESSES EMISSIONS Much of Brazil’s agriculture, notably forestry and cattle raising, are major producers both of CO2 and methane. At last November’s COP-26 meetings at Glasgow, to which Brazil sent one of the largest delegations of officials, the Brazilian government committed itself to reducing emissions of all types of carbon by 30% by 2030. Brazil’s current government is led by climate change sceptic Jair Bolsonaro, who has encouraged the clearance of the Amazon rainforest. Bolsonaro claims that such clearances are necessary, if Brazil’s economy is to continue to grow. This attitude has led many in the country and elsewhere to worry that the COP-26 targets undertaken by Brazil in Glasgow will prove unattainable.

On the other hand, leaders of three of the country’s leading agribusiness sectors, cattle raising, grains planting and forestry, have been steadily taking steps to ensure that Brazil’s carbon footprint is in fact limited. All these industries rely to a considerable extent on exports, each being the world’s leading exporter in its sectors. Because of the importance of exports, leaders of the three industries are very aware that customers in many countries are concerned about the impact both producing beef, as well as pulp and paper are having on global warming.

PRESERVING THE RAINFOREST Over the years, laws and regulations which limit the proportion of any land holding in the Amazon region which can be cleared of its forest cover have been introduced. At the same time, members of the soya exporting industry, led by its trade association, ABIOVE, the Association of Grain Exporting Companies, has undertaken not to purchase grains grown on any land which has been cleared illegally.

It is reported that about 10.5 million square kilometres of forest in Brazilian Amazonia were illegally cleared in 2020, the largest amount for a decade. Any hope that progress is being made in reducing illegal clearances, were frustrated by the fact that 877km2 of virgin forest were cleared in October last year. This was the largest amount ever recorded in a single month.

Efforts by companies in Brazil to ensure that forest clearances are reduced, are also being reflected in actions taken by some of the European companies which import soya. Three of Britain’s largest supermarkets: Tesco, Sainsbury and Morrisons, have undertaken not to import any soya grown on land in Brazil where forests have been cleared illegally. Between them, these companies import about 2mt of soya from Brazil each year.

INCREASED DEMAND FOR BEEF Similar restrictions are to be imposed by several French wholesalers. Largely because of technological advances, notably genetic improvements, the number of cattle grazing on each hectare of land in Brazil has increased steadily over the years. An increasing proportion of Brazil’s 200 million-strong herd of cattle are now sent for slaughter at 24 months, rather than the previous average of 36 months. The amount of beef being exported from Brazil has also been increasing steadily. This is largely because of changes in consumption patterns in China, where many more people now live in cities and are eating more protein.

The production of beef in Brazil has been able to keep pace with the increased demand for meat exports, without the need to clear more forest. As the density of animals per hectare rises, the requirement for new land falls. With fewer animals per hectare, more land has become available for planting grains, notably soya and maize.

The World Wildlife Fund, the WWF, has found that the clearance of 100 million hectares of land in Amazonia, would cost about US $50 billion to achieve. The WWF study concludes that the cost of improving the land would be significantly less than the value of the extra cattle, or crops, which would be produced. The WWF study also suggests that such a formula would allow 14% more cattle to be grazed on land in Amazonia than is now the case. The cattle herd in Amazonia, which now totals about 160 million head, could rise to 180–250 million head in the next few years, with no need for extra land. The Brazilian beef industry now plans to increase its exports

from the current 8.6mt a year, to 9.7mt by 2020. The WWF study has found that at least 700 large institutional investors are interested in investing in the Amazon region. Between them, these investors have several trillion US dollars available, the WWF has found.

PULP & PAPER TO REDUCE EMISSIONS Overwhelmingly concentrated in the south of the country, Brazil’s vibrant forestry industry does not have to concern itself with problems associated with the Amazon. But in the same way as the cattle and soya industries have done, Brazil’s pulp and paper producers have also committed to reducing their carbon emissions by 30% by 2030.

With demand from China for Brazil’s mainly short-fibred pulp growing strongly, the giant Suzano company, which now makes about 11mt a year, has started work on what will be one of the world’s largest mills. This is the 2.55mt-capacity Ribas do Rio Pardo mill, located in the state of Mato Grosso do Sul. The new mill, which is due to start production in 2024, will be entirely self-sufficient in energy. It will also produce a surplus of about 180MWs of electricity, sufficient to power 2.3 million homes. The Rio Pardo mill will also be entirely selfsufficient in wood, all of which will be grown within a radius of 65km of the plant. The new mill will cost about US$ 4.1 billions to complete, and the pulp will cost an average of $550 per tonne to make, one of the lowest costs in the world. Pulp for export will be taken to Suzano facilities at the port of Santos, the first stage by road, the rest by rail. The mill will be staffed by 3,000 full time workers, while about 10,000 workers will be employed during the construction phase.

HIGH CRUDE PRICES GOOD NEWS FOR BRAZILIAN SUGAR CANE With the world price of crude oil touching US$80 per barrel in the last months of 2021, and feared to reach up to US$100 in the near future, Brazil’s sugar industry is expected to maximize the amount of cane which is distilled into ethanol in the coming year. It is anticipated that about 1.5% less gasoline will be sold in Brazil in 2020 as was in 2021. This because many motorists are switching from gasoline to ethanol, which they do when ethanol costs about 70% of the gasoline price.

In addition to the 26 billion litres of ethanol which will be made from the 550mt of sugar cane expected to be harvested in Brazil this year, between five and eight billion litres of ethanol is expected to be distilled from maize this year. This follows the start up of nine brand new distilleries specializing in processing maize in the past few months.

About 50mt less sugar cane is expected to be harvested this year than was in 2021. This reduction was mainly the result of the extremely dry weather which affected cane fields last year. But there were about 12,000 fires in cane fields last year, also caused by the dry conditions. Another problem for the sugar industry this year, has been the soaring price of fertilizer. This has been compounded by the weakness of the Brazilian currency, the Real. The benefit side of the sharp depreciation of the Real, means that the relative shortage of cane on the world market will result in the world sugar price remaining high for the next three to four years, according the trading company Czarnikow.

Brazil is expected to make about 32mt of sugar this year, the majority for export. Dry weather resulted in Brazil’s 2020 cane crop being the smallest for ten years. But because both India and the United Kingdom have sharply increased the amount of ethanol being blended with gasolene, the price of Brazilian ethanol increased by 68% during 2020. The fact that the Indian government plans to phase out subsidies for cane farmers, is expected to result in many small farmers in India abandoning the crop.

IRON ORE PRICES UNLIKELY TO REACH MID-2020 PEAK

Nobody expects the extremely high iron ore prices of mid 2020, which peaked at well over $200 per tonne in mid-year, to be repeated for some time. Last year’s high prices were largely explained by the recovery of demand for manufactured goods, many of them made in China. This recovery in demand was encouraged by the easing of the Covid-19 pandemic in many countries.

Brazil’s miners should continue to fare rather better than the average oreproducing country. Increasing concern about global warming, is causing many steel makers to prefer the top quality ore produced in Brazil. With an ore content of 65% per tonne of rock, Brazilian ore is considerably less polluting than the average type. Vale reports that ore from its Carajas mines can command a premium of about $36 per tonne. This should go some way towards compensating for the fact that the cost of transporting a tonne of ore between Brazil and China rose from US $17.5 per tonne in September 2021, to $36 per tonne in September this year. About 300mt of ore were exported from Brazil January to September 2021, 35mt more than in the same period of 2020. There has been a sharp fall in the amount of pellets shipped in the past 12 months. While 11.8mt of pellets was shipped in January to September 2020, the amount fell to 8.5mt in the same period this year. The Vale company exported 204mt of ore between January and September this year, while Anglo American shipped 17.5mt in the same period. A total of 131mt of the ore shipped by Vale left from the port of Ponta da Madeira, in Maranhao state. DCi