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Financial and capital risk management
 6 Months Ended
Jun. 30, 2024
Notes and other explanatory information [abstract]  
Financial and capital risk management

18. Financial and capital risk management

 

a) Effects of derivatives on the statement of financial position

 

   
  June 30, 2024 December 31, 2023
  Assets Liabilities Assets Liabilities
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap 13 70 109 30
IPCA swap - 57 - 41
Dollar swap and forward transactions 230 100 650 -
SOFR swap 16 - 4 28
Treasury forwards 1 7 - -
  260 234 763 99
         
Commodities price risk        
Gasoil, Brent and freight 16 - 52 22
Energy Transition Metals 1 5 - 8
  17 5 52 30
Other - 1 - 2
         
Total 277 240 815 131

 

b) Net exposure

 

   
  June 30, 2024 December 31, 2023
Foreign exchange and interest rate risk    
CDI & TJLP vs. US$ fixed and floating rate swap (57) 79
IPCA swap (57) (41)
Dollar swap and forward transactions 130 650
SOFR swap 16 (24)
Treasury forwards (6) -
  26 664
Commodities price risk    
Gasoil, Brent and freight 16 30
Energy Transition Metals (4) (8)
  12 22
     
Other (1) (2)
     
Total 37 684

 

c)       Effects of derivatives on the income statement

 

       
  Gain (loss) recognized in the income statement
  Three-month period ended June 30, Six-month period ended June 30,
  2024 2023 2024 2023
Foreign exchange and interest rate risk        
CDI & TJLP vs. US$ fixed and floating rate swap (117) 134 (130) 178
IPCA swap (23) 23 (28) 30
Dollar swap and forward operations (318) 376 (346) 538
SOFR swap 12 12 44 15
Treasury forwards (9) 13 (9) 13
  (455) 558 (469) 774
         
Commodities price risk        
Gasoil, Brent and freight (19) 4 (2) (20)
Energy Transition Metals 1 - 1 (1)
  (18) 4 (1) (21)
         
Other 2 1 1 2
Total (471) 563 (469) 755

 

d) Effects of derivatives on the cash flows

 

 
  Financial settlement inflows (outflows)
  Six-month period ended June 30,
  2024 2023
Foreign exchange and interest rate risk    
CDI & TJLP vs. US$ fixed and floating rate swap 1 (8)
IPCA swap (4) 3
Dollar swap and forward operations 117 118
LIBOR swap - 4
SOFR swap 4 -
Treasury forwards (3) 13
  115 130
Commodities price risk    
Gasoil, Brent and freight 12 3
Energy Transition Metals (3) 5
  9 8
     
Derivatives designated as cash flow hedge accounting    
Nickel - 34
  - 34
Total 124 172

 

e) Market risk - Foreign exchange and interest rates

 

Protection programs for the R$ denominated debt instruments and other liabilities

 

             
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2024 December 31, 2023 Index Average rate June 30, 2024 December 31, 2023 June 30, 2024 June 30, 2024 2024 2025 2026+
CDI vs. US$ fixed rate swap         (16) 107 3 14 (2) (2) (12)
Receivable R$ 4,581 R$ 5,162 CDI 100.00%              
Payable US$ 1,061 US$ 1,196 Fix 1.70%              
                       
TJLP vs. US$ fixed rate swap         (41) (28) (2) 2 (4) (9) (28)
Receivable R$ 599 R$ 694 TJLP + 1.07%              
Payable US$ 149 US$ 173 Fix 3.47%              
                       
          (57) 79 1 16 (6) (11) (40)
                       
IPCA swap vs. US$ fixed rate swap         (57) (41) (4) 3 (4) (10) (43)
Receivable R$ 924 R$ 1,078 IPCA + 4.54%              
Payable US$ 228 US$ 267 Fix 3.86%              
                       
          (57) (41) (4) 3 (4) (10) (43)
                       
R$ fixed rate vs. US$ fixed rate swap         187 600 97 35 62 124 1
Receivable R$ 14,004 R$ 12,660 Fix 6.75%              
Payable US$ 2,705 US$ 2,431 Fix 0.97%              
                       
Forward R$ 8,335 R$ 1,209 B 5.27 (57) 50 20 20 (62) 4 1
                       
          130 650 117 55 - 128 2

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

       
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

CDI vs. US$ fixed rate swap R$ depreciation (16) (277) (538)
  US$ interest rate inside Brazil decrease (16) (47) (81)
  Brazilian interest rate increase (16) (41) (65)
Protected item: R$ denominated liabilities R$ depreciation n.a. - -
         
TJLP vs. US$ fixed rate swap R$ depreciation (41) (76) (112)
  US$ interest rate inside Brazil decrease (41) (45) (50)
  Brazilian interest rate increase (41) (46) (51)
  TJLP interest rate decrease (41) (44) (48)
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
IPCA swap vs. US$ fixed rate swap R$ depreciation (57) (112) (167)
  US$ interest rate inside Brazil decrease (57) (63) (70)
  Brazilian interest rate increase (57) (65) (74)
  IPCA index decrease (57) (61) (65)
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
R$ fixed rate vs. US$ fixed rate swap R$ depreciation 187 (459) (1,104)
  US$ interest rate inside Brazil decrease 187 158 127
  Brazilian interest rate increase 187 136 88
Protected item: R$ denominated debt R$ depreciation n.a. - -
         
Forward R$ depreciation (57) (436) (814)
  US$ interest rate inside Brazil decrease (57) (57) (57)
  Brazilian interest rate increase (57) (57) (57)
Protected item: R$ denominated liabilities R$ depreciation n.a. - -

 

Protection program for interest rate US$ denominated debt

 

             
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk  Fair value by year
Flow June 30, 2024 December 31, 2023 Index Average rate June 30, 2024 December 31, 2023 June 30, 2024 June 30, 2024 2024 2025 2026+
SOFR vs. US$ fixed rate swap          16  (24)  4  5  -     12  4
Receivable US$ 2,150 US$ 2,300 SOFR 0.00%              
Payable US$ 2,150 US$ 2,300 Fix 3.77%              
          16 (24) 4 5 - 12 4
                       

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

           
Instrument   Instrument's main risk events   Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

SOFR vs. US$ fixed rate swap   US$ SOFR decrease   16 (36) (91)
Protected item: SOFR US$ indexed debt   US$ SOFR decrease   n.a 36 91
             

 

Protection for American treasury volatility related to bond issuance and tender offer transactions

Due to the volatility of the United States Treasury (“UST”), a treasury lock transaction was implemented to preserve the issuance of new bond occurred in June 2024 and the tender offer occurred in July 2024 (subsequent event).

             
  Notional     Fair value Financial Settlement Inflows (Outflows) Value at Risk

 

Fair value by year

Flow June 30, 2024 December 31, 2023 Bought / Sold Average rate June 30, 2024 December 31, 2023 June 30, 2024 June 30, 2024 2024
                   
                   
Treasury forwards US$ 1,130 - S 4.44% (6) - - 3 (6)
Treasury forwards - - B - - - (3) - -

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

       
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

NDF Tresury Treasury increase (6) (46)  (81)
Protected item: Treasury US$ indexed bonds Treasury increase N/A 46  81

 

f) Protection program for product prices and input costs

 

             
  Notional     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2024 December 31, 2023 Bought / Sold Average strike (US$) June 30, 2024 December 31, 2023 June 30, 2024 June 30, 2024 2024
Brent crude oil (bbl)                  
Call options 12,763,500 19,907,250 B 91 12 45 1 7 12
Put options 12,763,500 19,907,250 S 59 - (22) - - -
                   
Forward Freight Agreement (days)                  
Freight forwards 330 1,210 B 15,636 4 7 11 1 4
                   
          16 30 12 8 16
                   

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

       
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

Brent crude oil (bbl)        
Options Price input decrease 12 (14) (214)
Protected item: Part of costs linked to fuel oil prices Price input decrease n.a. 14 214
         
Forward Freight Agreement (days)        
Forwards Freight price decrease 4 2 (1)
Protected item: Part of costs linked to maritime freight prices Freight price decrease n.a. (2) 1

 

g) Other derivatives, including embedded derivatives in contracts

 

             
  Notional     Fair value Financial settlement Inflows (Outflows) Value at Risk Fair value by year
Flow June 30, 2024 December 31, 2023 Bought / Sold Average strike (US$/ton) June 30, 2024 December 31, 2023 June 30, 2024 June 30, 2024 2024 2025+
Fixed price nickel sales protection (ton)                    
Nickel forwards 3,402 3,322 B 18,579 (4) (8) (3) 2 (3) (1)
                     
          (4) (8) (3) 2 (3) (1)
                     

Embedded derivative (pellet price)

in natural gas purchase (volume/month)

                    
Call options 746,667 746,667 S 233 (1) (2) - 1 (1) -
                     
          (1) (2) - 1 (1) -

 

The sensitivity analysis of these derivative financial instruments is presented as follows:

 

       
Instrument Instrument's main risk events Fair value

Scenario I

(∆ of 25%)

Scenario II

(∆ of 50%)

Fixed price sales protection (ton)        
Forwards Nickel price decrease (4) (19) (33)
Protected item: Part of nickel revenues with fixed prices Nickel price decrease n.a. 19 33
         

Embedded derivative (pellet price) in natural gas purchase

agreement (volume/month)

        
Embedded derivatives - Gas purchase Pellet price increase (1) (4) (10)
         

 

h) Hedge accounting

 

 
  Gain (loss) recognized in the other comprehensive income
  Three-month period ended June 30, Six-month period ended June 30,
  2024 2023 2024 2023
Net investments hedge (202) 95 (258) 144
Cash flow hedge (i) - (4) - 15

 

(i) In 2023, the Company had a nickel revenue hedge program contracted, which expired on December 31, 2023. In 2024, there was no revenue hedge programs in place.

 

i) Financial counterparties’ ratings

 

The transactions of derivative instruments, cash and cash equivalents, as well as short-term investments are held with financial institutions whose exposure limits are periodically reviewed and approved by the delegated authority. The financial institutions credit risk is performed through a methodology that considers, among other information, ratings provided by international rating agencies.

 

The table below presents the ratings in foreign currency as published by Moody’s regarding the main financial institutions used by the Company to contract financial instruments, including derivative financial instruments.

 

   
  June 30, 2024 December 31, 2023
  Cash and cash equivalents and investment Derivatives Cash and cash equivalents and investment Derivatives
Aa2 706 1 338 -
Aa3 - 1 42 -
A1 2,587 26 2,022 50
A2 608 104 309 293
A3 1,146 3 186 22
Baa1 - - 2 -
Baa2 20 - 16 -
Ba1 (i) 100 - 85 -
Ba2 (i) 782 99 287 314
Ba3 (i) 591 43 373 136
  6,540 277 3,660 815

 

(i) A substantial part of the balances is held with financial institutions in Brazil which are deemed investment grade in local currency.