Brazil surpasses Saudi Arabia as China's second-largest crude oil supplier

Brazil overtook Saudi Arabia as China's second-largest supplier of crude oil in the first nine months of 2026 — and that rise is no isolated event. It is the axis around which today's most important stories in the Brazilian economy revolve: the country's growing dependence on Beijing, the benefits that flow from it to the export sector, and the contradictions it creates for domestic industry.

According to customs data released on Tuesday, oil propelled Brazil-China bilateral trade to a record level in 2026. Vale, whose ADRs trade on the NYSE, deepened that relationship by filing an application with NAFMII — the association of institutional investors in China's financial market — to register a program of yuan-denominated debt notes, the so-called "panda bonds." The miner's move runs parallel to a similar initiative by the National Treasury, which this week is conducting a roadshow in Beijing to gauge conditions and demand for a possible sovereign "panda bond" issuance — preparations first reported by Bloomberg. The diversification of Brazil's external financing toward the Chinese capital market marks a meaningful strategic shift at a time when domestic rates, with the CDI at 13.65%, are driving up the cost of capital for companies and government alike.

This deepening relationship with China, however, has a bitter side for Brazilian industry. Imports of agricultural machinery grew 144% year-on-year, driven largely by Chinese and Indian suppliers. The consequence is visible on the factory floor: companies in the sector are already cutting shifts and shutting down production lines in Brazil, unable to compete with imported prices. Agribusiness, by buying cheaper equipment abroad, is inadvertently financing the deindustrialization of a sector that historically relied on its demand. The agribusiness wage bill reached R$72 billion in the second quarter, with education levels and average income on the rise — the countryside is prospering, but no longer as an anchor for domestic manufacturing.

The tension between commodity-exporting Brazil and industrial Brazil has an additional and urgent chapter: the Newcastle disease case detected at a farm in Nova Itaberaba, Santa Catarina, has led China, Mexico, and Chile to restrict imports of Brazilian poultry. Brazil is the world's largest exporter of the product, and the outbreak, though geographically contained, poses a concrete threat to sector revenues. For the large animal protein processors with exposure to foreign markets, the speed of containment will be decisive for fourth-quarter earnings impact.

On the domestic front, the scenario is dominated by a combination of factors that the third-quarter earnings season will begin to quantify starting this week. Analysts at Itaú BBA and Bradesco BBI converge on the diagnosis: high interest rates, rising delinquency, and families with stretched incomes should pressure corporate results, especially those of the large banks. S&P reinforced the cautious tone by downgrading CSN's credit rating from "B" to "B-" with a negative outlook, citing weak performance in mining and elevated leverage — a sign that corporate credit deterioration is not hypothetical. The lag in Petrobras diesel pricing relative to the international market, now approaching its annual record with Brent accumulating 78.7% appreciation in 2026, adds further pressure on logistics margins: road freight became 13% more expensive in the third quarter, according to Valor Econômico.

Against this tense fiscal and electoral backdrop, the Lula government announced it will send a constitutional amendment proposal to earmark 25% of mandatory budget amendments to funding free fares on urban public transport on weekends. The measure, a campaign promise just days before the runoff election, adds to a set of fiscal initiatives whose estimated cost already exceeds R$356 billion, according to consultancy Pinotti & Schwartsman. The TCU, which had conditioned approval of the Central Bank's accounts on the conclusion of the Banco Master case, backed down and approved the BC's accounts for 2025 without waiting for the pending ruling — an institutional inflection point that the market watched closely. The Ibovespa closed up 1.56% at 208,295 points, with the dollar retreating, a move attributed to electoral optimism fueling risk appetite in local assets.

It is also worth noting that the vacancy rate for high-standard logistics warehouses fell to 3.2% in the third quarter — the lowest level in three years, according to Cushman & Wakefield — while JLL points out that companies have been locking in industrial warehouse contracts ahead of potential regulatory changes stemming from the tax reform. These are two indicators that, taken together, suggest the productive sector is still betting on a positive activity trajectory over the medium term, even amid current pressures.

In the coming sessions, the market will have to digest the post-debate Quaest poll — the first survey after the clash between Lula and Flávio Bolsonaro on Band — the results of WEG, Meta, and Tesla abroad, and the second preview of October's IGP-M. On the domestic front, the unprecedented auction for direct sale of natural gas from the federal government to industry, scheduled for Thursday with 36 qualified companies, could offer a concrete signal about the industrial sector's appetite for competitively priced energy inputs — and about the government's willingness to use its pre-salt assets as an instrument of industrial policy.