Brazil's mining royalties expected to recover this year

While remaining far from record levels, Brazil's mining royalties will likely recover this year due to a projected rise in iron ore prices. 

Last year, the royalties collected under the CFEM tax reached 6.85bn reais (US$1.38bn), down 2.3%, according to mining regulator ANM. In 2022, the government collected 7.01bn reais, which was a drop of 31.7%.

The reduction last year was caused by the appreciation of the Brazilian real versus the US dollar, reducing the amount of export revenues, as well as by falling iron ore sales, ANM official Daniel Pollack said in a statement.

Nearly two thirds of Brazilian mining revenues stem from iron ore, almost all of which is exported and denominated in US dollars, highlighting the importance of forex trends.

In 2021, Brazil collected 10.3bn reais from the CFEM levey, as the average iron ore price reached a record US$160/t and the exchange rate average 5.40 reais per dollar.

"The price of iron ore in 2022 reached an average of US$114/t and for this year I expect an average price of US$130/t. The drivers for the price fluctuation are associated with China which, on the one hand, is suffering a real estate crisis but, on the other, there is an expectation of government stimuli and the recovery of the economy," Pedro Galdi, mining and metals equity analyst at Mirae Asset Wealth Management, told BNamericas.

Some iron ore projects could advance this year due to rising prices.

"The iron ore produced in Brazil is of high quality, which means the production cost is very low, around US$40/t in general, maintaining the feasibility of projects even though we're currently a long way from record price levels," Valdir Farias, CEO of mining consultancy Fioito, told BNamericas.

In 2023, Minas Gerais state collected most of the CFEM tax, around 3.1bn reais, followed by Pará state with 2.6bn reais.