Panel SA: Brazil’s vulnerability in fertilizers is wide open, says manufacturer

Unigel, which at the end of the year signed two contracts in the free gas market to supply the fertilizer plants leased from Petrobras in Sergipe and Bahia, wants to accelerate expansion to try to help reduce Brazilian dependence on imported products, according to Roberto Noronha, CEO of the company.

Recently, in 2021, you started two contracts in the free gas market. What is the importance of this in the current context with the war? The main raw material for making urea is natural gas. These contracts are essential. There is no way to produce without having a constant supply contract. These units need to have the constant flow of gas all year round. This is a gas produced in Brazil.

How concerned are you about Brazil’s dependence on imported fertilizer? I’ve been telling the Brazilian government that Brazil’s vulnerability is now kind of wide open.

The Russian government is recommending the suspension of fertilizer exports. The four largest markets are China, India, Brazil and the USA, of which three, which are China, India and the USA, have a dependence between 20% and 25%. Brazil depends on something like 80% of imported fertilizers.

It is vulnerability for the main component of the Brazilian GDP, which is agribusiness. So it worries me, yes.

And the company? We invested heavily to put these units that were in hibernation to work, and our idea is to keep expanding to try to reduce the vulnerability a little. We obviously did not foresee this crisis, which is undeniable.

We got in before anyone thought we might have the problem. Now, we are here as a partial solution, because we cannot meet the entire demand. However, we will try to make the expansions extremely quickly to try to minimize the problem.

How long does it take to turn on a hibernate? It depends on the state of hibernation. I’ll take the example of the hibernated plant in Três Lagoas, we at Unigel were able to reactivate it very quickly.

You need to buy equipment, hire, train people, negotiate raw materials, licenses, there is a process.

In a short term, if I could get into the unit today, I believe that in 12 months, I could possibly get the company back on its feet. It’s not overnight.

Another hibernated plant can be faster because it doesn’t have to complete investment. Depends on the situation. If you take a ready-made project, it’s faster.

And what is the investment? Does it increase with war? Before the war, we invested more than R$500 million to reactivate the two units.

We are investing in this agro segment, fertilizers, a new sulfuric acid plant, which will feed a new ammonium sulfate plant. In 12 months we will be building a completely new plant and reactivating one in Sergipe.

And this investment, we are estimating the sulfuric acid plant another R$500 million and the reactivation of the ammonium sulfate plant, at least another R$50 million to R$100 million.

Is there not much to be done in the emergency? The factory that exists is not Unigel. We can help with the process. We trained a huge team to produce urea.

We could eventually try to do something in a very short period of time, but there’s a whole negotiation behind it. There is a lot that has to be discussed with the current owner of the factory. It would be with Petrobras.

Thinking about the long term, what public policy could Brazil do to help solve this dependency problem? I participated in some meetings for the preparation of the national fertilizer plan. The important thing for Brazil to encourage investments in the sector, in my particular case of nitrogen, would be to have competitive raw materials, because that means you can produce and compete with imported products.

If you look back, why have there never been massive investments in nitrogen fertilizers? Having tax isonomy, having more competitive logistics costs, as the minister is trying to do with the reactivation of railways, all this helps.

But the essence of the problem, for me, is in the competitive raw material. Brazil has resources, it has gas, it has a demand for fertilizer, it has everything to work out. Many countries that don’t have it manage to produce it. It’s a matter of alignment.

Do you have any intention of exporting on the radar? Do not. As the demand in the Brazilian market is much greater than our supply capacity, we are not interested in exporting urea. Nor ammonium sulfate, which Brazil is also a mega importer.

What is your opinion on Bolsonaro’s position in avoiding criticizing Putin for the invasion of Ukraine under the justification of dependence on fertilizers? Brazil imported 1.4 million tonnes of urea from Russia last year. Yes, there is an important volume. This does not mean that this urea cannot come from other countries.

On the president’s position, I prefer not to comment. We at Unigel are producing at full load, 1.15 million tons per year, and we intend to continue investing to expand this production.

X-ray

CEO at Unigel, member of the board and executive committee of Abiquim (Brazilian Chemical Industry Association). He holds a bachelor’s degree in mechanical engineering from ITA and also a degree in law from USP. He has a postgraduate degree in finance from FGV and in advanced management from Insead.