ECONOMIC & COMMERCIAL REPORT Number 02 | December 2012 Embassy of India BrasĂlia
Brazilian Iron Ore Industry: True as Steel?
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Economic and Commercial Report
Index Editorial Board Economic and Commercial Report Number 01 November 2012
04 Brazilian Economy 07 Investment 09 Industry Watch
Published by Embassy of India Brasília SHIS QL 08 conjunto 08 casa 01 - Lago Sul Brasília-DF
12 Focus Story: Brazilian Iron Ore Industry: True as Steel?
Editor: Raj Srivastava Texts: Yatin Patel Layout: Hadassah Levyski
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BRAZILIAN ECONOMY
Brazil – leader in WTO anti-dumping complaints
A
ccording to data released in a study by
are obliged to pay for pharmaceutical products,
the WTO, OECD and the UN on 31st autos, cell phones and electronic products are October, Brazil is the nation that opened
absurd compared to average international prices.
the largest number of anti-dumping cases at this
Of the 54 cases filed at the WTO between
international organization. Analysts affirm that May and September 2011, Brazil had 7,
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this practice is “elitist” in that it “protects” specific
Australia 14 and India 8.
sectors by protection against international
September 2012, of the 77 cases filed, Brazil
competition. The prices that Brazilian consumers
had 27, Canada 9, China 7 and Australia 7.
Economic and Commercial Report
Between May and
BRAZILIAN ECONOMY
Brazil – worst IP among 26 emerging markets
A
ccording to data compiled by the
2012, Brazil had the worst performance of
Economist
that
all 26 emerging markets surveyed: •+1.0%.
compiled average growth of industrial
Estonia led with 10.0%, followed by China
sector as a percentage of GDP in 2011 and
(9.1%), Latvia (8.4%) and Turkey (6.9%).
Intelligence
Unit
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BRAZILIAN ECONOMY
Record Current Account Deficit for October
I
ncreasing profit remittances and foreign
R$2.03 in October, Brazilians again increased their
travel by Brazilians drove up the current
international travel, producing a tourism deficit of
acÂŹcount deficit in October to US$5.4
US$1.5 billion, the highest ever for the month.
billion,
the
highest
ever
for
the
month.
This left the deficit for the year at US$12.8 billion.
Despite the increase, however, the deficit
Although profit remittances have been in
was easily covered by the month’s foreign direct
decline this year, in October they jumped by
investment which totaled US$7.7 billion, also
51% to US$2.35 billion. Central Bank analysts
a record. The deficit for the year now totals
attributed this to indications that the economy
US$39.5 billion and FDI stands at US$55.3 billion.
was beginning to improve in the fourth quarter. 
With the dollar stabilizing in the range of
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Economic and Commercial Report
B
razil in October posted a trade surplus was 29.5% below that of Octo¬ber 2011. surplus on
billion
and
of
US$1.662
exports imports
of
of
billion
For the year, Brazil’s trade surplus now totals
US$21.766
US$17.386 billion on exports of US$202.362
US$20.104
billion.
billion and imports of US$184.976 billion. Exports
The month’s exports fell 6% on a daily
for the year have fallen 5.5% versus the same
average from September and were down 10.6%
period last year while imports are down 1.9% on a
BRAZILIAN ECONOMY
October Registers Trade Surplus of US$1.6 Billion
versus October 2011. Imports declined 0.5% from daily average. The surplus through October was September and 7.6% year-on-year. The month’s
31.6% below that of the first ten months of 2011.
Brazil Defends Actions To Protect Economy from Overvalued Currency
B
razil on Nov. 5 opened a new debate
liquidity and appreciated the real as well
before the World Trade Organization
as
on the right of countries to protect
their currencies from extreme fluctuations. Government
officials
have
taken
other
emerg¬ing
nation
currencies.
Brazil’s ambassador to the WTO Roberto Azevedo
presented
a
document
outlining
the
Brazil’s argument. The government is seeking
position that Brazil is engaged in a currency
WTO approval of measures that could be
war because of economic stimulus measures
adopted by Brazil and other countries to protect
adopted by the United States and other
their economies from the impact of over¬valued
nations which have increased international
currencies, such as measures to restrict imports.
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New Stock Exchange Planned for Brazil transatlantic
NYSE
exchange
estimated at US$100 million and executives
announced plans to launch a new
from the two groups said they expect the new
Brazilian stock exchange in partnership with
exchange to be responsible for between 10%
Americas
Trading
on
Nov.
2013 or the start of 2014. The investment was
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Brazil’s
Euronext
group
Group
(ATG). and 15% of daily local trading in Brazilian shares.
The exchange would be based in Rio
At present, Brazil’s BM&FBovespa has
de Janeiro, starting operations by the end of
a monopoly on stock trading in the country.
Copersucar Buys American Ethanol Company Brazil’s Copersucar and the US company Eco-Energy announced on Nov. 5 that they
largest
Brazilian
the largest biofuel marketer in the world.
trader
integrated
which sugar to
calls
itself
and
“the
ethanol
production,”
will
The two firms together control 12% of
have a controlling stake in the venture.
the global market for ethanol, with a combined
The company has annual sales of US$7.5
of
capacity
billion, compared
billion
with US$3 billion
2.6
gallons (10 billion
for
liters) of biofuel per
year,
partners
“With
the said
Eco-Energy. this
partnership, release.
Copersucar becomes a truly global company
Brazil makes ethanol from sugar, while
in the biofuel market, expanding the scale of its
US producers use corn as raw material.
operations to the two main ethanol markets in
The
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Copersucar,
are linking their ethanol operations to create
supply
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platform,” according to the press release.
two
in
a
press
companies
joint
investment
in
and
expand
their
agreed
Eco-Energy integrated
“to
on
a
the world, which are the US and Brazil, both in
build
production and consumption volume,” said the
biofuel
company’s chairman Luis Roberto Pogetti.
Economic and Commercial Report
investments
T
he
UBS receives license to operate in Brazil
R
eportedly, Zurich-based UBS AG, Also, the Central Bank approved the acquisition Switzerland’s
largest
lender,
has
of the Brazilian brokerage Kink Investments by
obtained a license to operate as a
UBS; this deal had been reached in April 2010.
bank in Brazil – more than two years after filing
UBS decided to re-establish a Brazilian unit
its request. This decision would allow UBS to
after selling Banco Pactual SA for US$2.9 billion to
conduct proprietary trading in Brazil plus make
billionaire André Esteves and his partners in 2009
Real-denominated loans, raise money in Brazilian
– who then created Banco BTG Pactual SA.
investments
markets, and underwrite stocks and local bonds.
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Industry watch
Auto Production Capacity Outpacing Demand
A
utomotive production capacity in Brazil is expected to outpace demand until
is expected to grow every year until 2016. From
2008
to
2011,
the
top
four
2016, a trend that will pinch margins on
automakers in Brazil, including Fiat SpA and
small cars - the country’s largest vehicle segment
Ford, have lost market share despite a nearly
- a Ford Motor Co top executive said on Nov. 14.
30% jump in sales. Meanwhile, companies like
“Excess more
capacity
pressure
on
is
pricing
going and
to
put Renault and Hyundai Motor Co have gained.
margins,
Newer entrants have started building
particularly in the B segment, or small car
factories in Brazil in response to steep tax
segment, which is the largest segment in
incentives and high penalties for imported
Brazil,” Mark Fields, Ford’s head of the
vehicles. Last month, Kia Motors Corp, hurt by a
Americas, said during an investor conference.
tax hike on foreign-made cars of 30 percentage
This year, Brazil’s auto sales are expected
points, said it would study building a factory in Brazil
to be around 3.8 million cars. But capacity is
“While
the
industry
volumes
are
more than 20% higher at 4.7 million vehicles. growing in Brazil, which is fantastic, capacity The gap between demand and installed capacity
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Economic and Commercial Report
is growing at a faster rate,” Fields said.
Industry watch
China’s Wuhan Abandons Brazilian Steel Project
Wuhan Iron and Steel Group, China’s
The Brazilian partner, LLX Logistica
fourth-largest steel producer, announced
SA , said that talks on the 5-million metric
it has abandoned plans to build a US$5
ton-per-year (5.5 million tons) steel project
billion steel mill in Brazil after negotiations
at the port of Açu were now “dormant” and
on
infrastructure
investment
failed. that the two sides had not met for months.
The company’s head, Deng Qilin, said
This follows the earlier decision this
Wuhan’s Brazilian partners had not provided
year by ThyssenKrupp to sell its majority
the necessary conditions for Wuhan Iron
stake in Brazil’s CSA steel com¬pany.
and Steel, also known as Wugang, to invest.
ThyssenKrupp has not yet found a buyer.
“Railways, port terminals -- they
Meanwhile, mining company Vale is
haven’t built anything. The market also
proceeding with the construc¬tion of a
isn’t there, so now we have stopped
US$4.5 billion steel mill in the northeastern
the talks and for the moment we aren’t
state of Ceará. Its partners are the
thinking about it,” he told reporters.
Korean firms Dongkuk and Posco.
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Brazilian Iron Ore Industry: True as Steel?
T
he price of iron ore - the main steelmaking
producers in global terms. Usiminas, Brazil’s
ingredient - in the Chinese spot market
largest steel maker, was estimated to have
<.IO62-CNI=SI> has fallen by about a
mined 7 million mt in 2011 of iron ore. The
third in the last few months. In September, 2012
nation’s second largest steel maker, CSN, has
at less than $90 a tonne, it was trading at its
pursued a more vertically integrated strategy
lowest levels in three years. Pitching for Brazilian
and produced 26 million mt of iron ore in 2011.
Iron Ore mining industry in this time may sound
MMX, the iron ore group established and
like whistling in the dark. But whistle stop tour of controlled by Brazil’s richest man, Eike Batista, Brazil´s Iron ore industry will not be out of place.
mined 13 million mt in 2011 and international
In 2011, Brazilian iron ore output reached
players Arcelor Mittal and Anglo American added
395 million mt/y and production has increased
another 5 million mt/y each to national output.
every year for a decade. Iron ore mines traditionally are very large operations, requiring
New Dogs but Old Tricks
considerable capital and political clout to put into operation. It is no surprise that Vale,
While the biggies dominate the production,
listed but largely controlled by the government
a handful of minnows are active in the Brazilian
dominates the nation’s iron ore landscape.
iron ore space and their ranks are swelling.
Vale enjoys prime position in Brazil; it owns
Iron ore exploration work used to be focused
exploration rights in perpetuity, sits on much of on finding the next “el dorado,” with smaller
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the most prospective land and historically held
deposits passed over. Rising iron ore prices,
a national monopoly. In 2010 Vale produced
improvements in beneficiation technologies and
81.7% of Brazil’s iron ore, but while its rivals
innovative business models, including truck
only produce a fraction of what the national
to port, have encouraged small companies to
champion mines, they are still significant
start taking a fresh look at smaller deposits.
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Economic and Commercial Report
FOCUS STORY
project is Planalto Piauí, located in the northern
With about $320 billion in
state of Piauí. Their reserve of iron ore deposit
assets, BNDES is one of the
is 880 million tons (measured, indicated and
world's largest investment
inferred). ``Exploration began in 2008 and
banks and the main source
this year we entered the engineering phase.
of corporate credit in
We are working hard to start production in the
Brazil
second half of 2015. The final product will be a
ASX-listed Centaurus Metals is developing
premium pellet feed fine with more than 70%
a low-grade project in northern Minas Gerais.
Fe content, low level of contaminants and direct
Despite the grades and the relatively small size
reduction quality,” said Augusto Lopes, CEO. In
of the resource, the project can turn a good profit,
a project of this scale, logistics and infrastructure
explains managing director Darren Gordon. “We
are keys and Lopes argues that they are very
completed the pre-feasibility study last year
favorable. “We have already secured allocation
so we have relatively current costs at present.
on the new Transnordestina railway, which
We arrived at a capital cost of about $132
will pass around 6 km from the main ore body
million with an NPV of just under $300 million.
and will connect the project with the two major
Jambreiro will produce 2 million mt/y of 66% iron
Brazilian ports of Suape (PE) and Pecém
ore with an operating cost of just under $20/mt.”
(CE). A 500 kv power transmission line passes
As export capacity is constrained in Brazil
just 10 km from the future processing plant. In
and building new railway capacity is not an option
relation to water supply, the National Water
for most smaller mines, Jambreiro is being built
Agency (ANA) has granted Bemisa a license
to service the domestic market, which means
to pump 15 million cubic meters of water per
lower sales prices but also lower transport costs,
year, enough to satisfy our needs,” said Lopes.
capital expenditure, and a simpler project from a development and permitting perspective (railways
There may be light at the end
are subject to long and complex environmental
of tunnel but it is a long
permitting
processes
just
like
mines).
tunnel
Bemisa Group is unusual in being a Brazilian-managed company backed by local
One of the biggest problems in Brazil is its
private equity. The company has an extensive
logistics and infrastructure. A company that has
portfolio of properties in eight states covering
done a lot to change this is Vale, which has been
a range of mineral types. Their most advanced
investing in these areas for more than 20 years. www.indianembassy.org.br
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FOCUS STORY
However, most Brazilian companies realized only
Hope is a good breakfast but
recently the existence of this problem, since they
bad supper
are now facing complex challenges in executing potential projects due to this logistical bottleneck.
“The high quality of
Brazilian iron ore compared to Australian, Chinese and Indian competitors means Brazilian mines are likely to be among the last to lose business if demand plummets” (Cardoso and Landim)
Guilherme Cardoso, chief of BNDES’s basic industry department and Vale’s iron ore chief, Jose Carlos Martins are optimistic about coming time. The high quality of Brazilian iron ore compared to Australian, Chinese and Indian competitors means Brazilian mines are likely to be among the last to lose business if demand plummets, said Cardoso and Landim, who spoke to Reuters at bank headquarters in Rio de Janeiro. This means steelmakers, especially in
The Brazilian railway system does not reach all
China, the world’s largest iron ore market, will
the strategic resources. Beside this, bottlenecks
likely opt for Brazilian ore on both price and
prevail at Brazilian ports both in terms of the
quality over ore from elsewhere, they said.”Not
gross tonnage that they can handle and in terms only does Brazilian ore have a higher iron content of the size of vessels that they can accommodate. than most competitors, it has lower impurities,” With
and
Cardoso said, adding that new projects in
debt
Brazil are to a degree protected “because
as
most producers in the world have higher
Brazil’s Vale SA and Australia’s BHP Billiton
costs.”Vale’s investments in ships, including
Ltd
considering
the giant Valemax carriers, have reduced
delaying or canceling major mining projects.
transport costs, Landim and Cardoso said.
With about $320 billion in assets, BNDES
But logistics and transportation remain
is one of the world’s largest investment banks
the biggest problem for Brazilian producers as
and the main source of corporate credit in Brazil.
Australia enjoys benefit of better infrastructure
BNDES lending for steel projects fell 80 percent
and proximity to China. Without solving the
to 195 million reais in the January-August
Gordian knot of better infrastructure and credit
period, compared with the same period a year
availability, Brazilian iron ore industry can not
ago. This just makes the situation worst for the
expect itself to bring the sunny days back.
the
China’s
festering
crisis,
big
and
slowing
European
mining
Rio
Tinto
economy sovereign
companies
Ltd
are
such
industry which is facing prolonged rough patch.
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namaste
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