War in Ukraine expected to impact Brazil's infrastructure, mining sectors

The impact of the war between Russia and Ukraine on the Brazilian economy is likely to have consequences for the country’s infrastructure concessions and mining sector.

"The Brazilian economy is still quite closed, so the impacts on GDP performance, of course, depending on the extent of the conflict, do not tend to be that big," Luciano Rostagno, chief Latin America strategist at Banco Mizuho, told BNamericas, who kept his projection for GDP growth at only 0.3% this year, compared with an estimated expansion of 4.5% last year. 

According to Rostagno, the conflict generates both tail and headwinds for Brazil. On the positive side, commodities prices will tend to increase, and on the other, businesses are likely to assume a more conservative approach when it comes to new investments.  

"A conflict in Europe tends, at first, to cause a reduction in investments in emerging markets, like Brazil, since investors tend to focus on assets in developed countries outside Europe, like the US," added Rostagno. 

INFRASTRUCTURE CONCESSIONS 

The impact on Brazil’s infrastructure concession plans is unclear at this point.

"The world is increasingly volatile and increasingly uncertain. We’re currently experiencing a war situation and if we go back a few months we were facing the impact of the pandemic. We must have the humility to recognize that it’s increasingly difficult to predict scenarios and what we’re doing is working on a long-term agenda, leaving as many projects as possible prepared to be offered in terms of concessions," Gustavo Montezano, the CEO of development bank BNDES said during a press conference in response to a BNamericas question.  

BNDES structured most of the concessions prepared by the federal and state governments in recent years, for highways, ports, airports and water and sanitation.

However, the Ukraine conflict generates doubts about the success of Brazil’s concessions program for this year, as many of the potential operators and investors are based in Europe.  

MINING 

In the mining area, Brazil is a major exporter and will potentially benefit.

"Iron ore pellets is a market of 120Mt/y and Russia accounts for nearly 30% of that. So this conflict is already impacting prices, the big question is how long will this tension last," Marcello Spinelli, VP of the ferrous area at mining giant Vale, said during a conference call to present the company's 2021 results.

Vale's CEO Eduardo Bartolomeo underlined that the conflict is also putting increased pressure on nickel prices. "We still don't have any restrictions, sanctions [against nickel production in Russia], but prices were going up before the conflict and with this conflict prices will tend to rise further," he said.