20% drop in mining revenues in Brazil is due to climate impacts in Minas Gerais and to price control and Covid-19 measures employed by China
As a result of climatic factors, related to high rainfall in Minas Gerais, and external factors, linked to China's restrictions, the mining industry in Brazil suffered a retraction in the first three months of this year. When compared to the first quarter of 2021, the production of the mineral sector saw a decrease of 13%, while revenues fell by 20% in the first quarter of 2022, according to information released by the Brazilian Mining Institute (Ibram). The production in question is equivalent to 200 million tons, and the corresponding gain was R$ 56.2 billion.
The Brazilian Mining Institute also stated that the reduction in the industrial ore sector can be attributed to the large number of rains in the state of Minas Gerais – the second largest mineral producer in Brazil -, which caused a decline in the country's iron ore production, and the isolation actions practiced in multiple cities in China due to Covid-19.
According to the article by Iuri Corsini for CNN, published on 04/26, China, main partner of Brazil in the ore section and which has already purchased more than 60% of the production, decreased the amount of minerals imported from Brazil by 12%, which resulted in a drop of 31% in the values of imports in the first three months of this year, when compared to the same time last year, and a retraction of 29% if taking into account the last quarter of 2021. Finally, there was a reduction of 22.8% in exports from Brazil during this period.
Even so, Brazil had a positive mineral trade balance of US$ 6.2 billion, with receipts of R$ 19.4 billion (lower 20%) in taxes and royalties.
Iron ore leads in revenue percentages
The highest revenue is due to iron ore, which corresponds to 58.1% of the entire gain in the mining industry and totaled R$ 32.7 billion (a drop of 33% compared to the first quarter of 2021 and 43% compared to the last three months of that year). Second and third place respectively belong to gold and copper, which account for 11% (R$ 6.5 billion) and 9% (R$ 5 billion) of the entire turnover. Regarding ores imported by Brazil in the first three months of 2022, the most important were potash, which is essential for the production of fertilizers and was equivalent to 46% of imports, and coal, which was equivalent to 40%.
In addition, Ibram established that the capital investments expected for the following five years – from 2022 to 2026 – in the mining sector are US$ 40.4 billion, of which US$ 36.2 billion are dedicated to production and infrastructure and US$ 4 .2 billion correspond to socio-environmental investments. Of the total amount, 46% is already underway.
Director of Ibram highlights the importance of the mineral sector for Brazilian economic activity
According to the director-president of Ibram, Raul Jungmann, the data show that the large amounts of investments show the relevance of the industrial mining sector to the Brazilian economy, despite the drops observed in relation to the previous year.
The director also stated that: “Even when there is a drop in results, exports of minerals generate foreign exchange that the country cannot give up. Hence, it is very convenient for the country to stimulate mineral research so that there can be a planned expansion of the mining sustainable and, moreover, there needs to be an awareness that this industry cannot be exposed to repeated attempts to bleed its competitiveness by raising its taxes and charges, as has been observed”.
Regarding the relationship with China, Jungmann pondered whether Brazilian dependence on the country would not be excessive, since when China changes its policies, Brazil's mineral industry is immediately affected.
Even if China possibly remains with tactics to regulate the value of ores, Ibram expects a slight resumption of results during the rest of the year. This is because, according to the institute, climate impacts are more common at the beginning of the year, so production in Brazil should no longer be affected by them.