South American economies struggle to exit recession while strengthening ties with China

Argentina: The country’s difficult economic times may just have become more difficult. Still protesting the government’s export tax policy, farmers have announced another one-week strike, during which time no precious agricultural goods such as soy beans or wheat will reach the market. The government is in no mood to give in since this tax is just too plentiful and discontinuing it would empty the public coffers even more. 

    Steel Production: 356,000 mt in July or -32.7% less than last year. In the first seven months of 2009 2.015 million mt were produced or -40.6% less than last year.


Brazil: Economists are eagerly waiting for Q2 GDP figures to be released. Rumor has it that the number to be published September 11 will be surprisingly good. Some officials have already predicted a growth rate of 1.0% for the year. Industrial output in August rose for the seventh month in a row even if it is still lagging compared to last year’s numbers

    Steel Production: 2.496 million mt in July or -22.8% less than last year. In the first seven months of the year 13.061 million metric tons were produced or -36.9% less than last year.


Chile: The central bank has left the basic lending rate at the ultra low 0.5% and the economy seems to be responding. But progress is slow. Copper production in the first half of 2009 came in an encouraging +15% over last year. Codelco, the world’s largest copper mine, has spent the first US$2.0 billion on modernizing and expanding its mills. The total program calls for an investment of $12.0 billion over ten years.

    Steel Production: 90,000 mt (e) in July (-36.6% compared to last year). In the first seven months of the year 611,000 mt were produced or -39.6% less than last year.


Venezuela: Conditions have turned from bad to worse. Just as many countries seem to be pulling out of the recession, Venezuela could be entering one. GDP fell -2.4% in Q2. The average price of crude oil exports fell -50.3% in Q2; the oil sector shrank -4.2% and manufacturing output -8.5%. Retail sales dropped -6.5%. General Motors had to shut down local assembly operations in June because no foreign currency was available at the official, pegged rate of $2.15. Reports have surfaced that President Chavez will address the ongoing discrepancy between the parallel market and the official currency rate.

    Steel Production: 370,000 mt (e) in July (-9.9% compared to last year). In the first seven months of the year, 2.552 million mt were produced or 3.3% more than last year.

Special Focus -- China and Latin America: China’s influence in Latin America is becoming ever-more pronounced. The underlying premise is simple: China needs the commodities (agricultural products, crude oil, and iron ore) that the region can offer. To help this along, a number of strategic investments have been made. Below are some highlights of China’s growing role in Latin America:

• In the first half of 2009, China became the largest export market for Brazil; however, the US took in more manufactured goods from Brazil than China. Two-thirds of Brazil’s exports to China consisted of soy beans and iron ore.
• Chinalco, a Chinese metal giant, is developing a copper mine in Peru at a cost of US$2.2 billion. The first shipment out of this mine will leave for China in September.
• The Chinese Development Bank and Sinopec, an oil company, will lend Brazil’s state-owned Petrobras US$10.0 billion over the next ten years in return for 200,000 barrels a day of crude oil from the newly discovered deep sea oilfields.
• China National Petroleum and CNOOC, another oil company, are bidding US$17.0 billion for an 84% stake in YPF, Argentina’s biggest oil company. These shares are currently held by Spain’s Repsol.
• Chinese companies are operating small oilfields in Venezuela and have formed a joint fund to invest US$12.0 billion in that country.

But it is not only monetary benefits that Latin America gets out of the China connection. Wages in China are twenty to forty percent below the ones in Latin America, causing the region to file more antidumping suits against China than even the US. Brazilian shoemakers and toy-makers, for example, have been destroyed by cheap Chinese imports. Mexico’s share of the US clothing market dropped from 14% to 8% between 2000 and 2005. Manufacturers in Latin America are trying to fight back, though they have simultaneously increased imports of cheap machinery made in China.