Latin America Gets Boost From China's Success
online.wsj.com
September 28, 2003 9:51 p.m. EDT
By MARC LIFSHER
Staff Reporter of THE WALL STREET JOURNAL
CARACAS, Venezuela -- Ever since China emerged as the world's manufacturing powerhouse, economists and policymakers in Latin America have worried that China's success would come at their expense as investment and jobs flocked to places such as Guangdong province and away from cities such as Lima, Peru.
And while there is little doubt that China has become the favorite destination for manufacturers looking for cheap labor, Latin America hasn't been shut out completely. In an unexpected twist, it appears China and other Asian countries are turning to Latin America as a source for commodities needed to feed Asia's appetites and fuel their manufacturing machines. China, in particular, has stepped in as a major buyer at a time when demand from the U.S. and Europe has been weak. That, in turn, has triggered a rally in commodity prices, reversing two years of stagnation.
Copper, a bellwether metal, is leading the charge with a 15% price jump from last year. Gold production is soaring as prices flirt with the level of $400 an ounce. Even sales of goods such as soybeans from Brazil and beef from Argentina are heading higher.
Economists, meanwhile, are increasing their economic growth estimates for the region. Foreign reserves are swelling or at least stabilizing, currencies are strengthening and inflation appears to be under control in most nations. The only potentially bleak spot on the commodity horizon may be oil, where prices have been falling since midsummer.
But the general improvement in other commodity prices and production should contribute to an "export led" recovery for Latin America over the next few years, predicts World Bank economist Guillermo Perry, in a report released this month. "The region's contraction is over," he wrote.
Chile is a prime example of Latin American exports to China. Over the past few years, China has become Chile's third-largest trading partner, behind the U.S. and Japan. According to a report from UBS, China accounted for 7% of all Chilean exports in 2002, compared with 2.3% in 1999. Chilean exports to China are estimated to be around 10% of total exports for 2003, UBS analyst Ben Laidler said. Chilean exports to China jumped by 53% during the first quarter of 2003, compared with the first quarter of 2002, and the trend appears to be continuing for the rest of the year, the UBS report said.
The growth estimates for all of Latin America are reflecting export-driven economic gains. The World Bank is forecasting that growth in regional gross domestic product -- the total value of the region's output -- will increase to 3.7% in 2004 from 1.8% in 2003. (GDP growth during 2002 shrank by 0.8%.) Export volume is expected to grow 11.2% in 2004 and 9.2% in 2003, the World Bank says.
Copper, which is mined primarily in Chile and Peru, is trading around 80 cents a pound, up from about 70 cents a year ago. Peruvian copper production rose 7% in July, compared with July 2002. The increase was led by a 21% output jump by Southern Peru Copper Corp., a unit of Grupo Mexico SA, the world's No. 3 copper producer. Both Southern Peru and Australia's BHP Billiton Ltd. expanded operations or restarted facilities mothballed because of previously low world prices.
In Chile, year-to-year copper production climbed 22% in July, due mainly to BHP Billiton's expansion of its Escondida mine, says Juan Villarzu, chief executive officer of state-owned Corp. del Cobre de Chile, the world's largest copper mining and refining company.
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Andean gold miners also are raising production. Year-to-year gold output was up 28% in July in Peru, the Latin American leader and the world's seventh-largest producer. The continent's biggest gold mine, Yanacocha, owned by Denver-based Newmont Mining Corp. and Cia. Minas de Buenaventura SAA of Peru, reported a year-to-year rise of 82% in exports for July. Yanacocha has been a winner for Newmont and Buenaventura because it enjoys low operating costs at a time when gold is trading above $380 an ounce, up about 20% from last year.
The rise in international gold prospects also is leading to increased development in Venezuela. Crystallex International Corp., based in Vancouver, British Columbia, recently concluded a successful feasibility study for exploiting an estimated 10.2 million ounces of proven or probable reserves in Bolivar State. Hecla Mining Co. of Coeur D'Alene, Idaho, says it expects to produce 100,000 ounces a year from four Venezuelan mines that will be reactivated late this year or early 2004.
But minerals aren't the only profitable exports buttressing Latin America's bottom line. Argentina expects to increase beef exports this year by 16% in volume and 7.1% in price over 2002. In Brazil, the soybean and grain industries are even more flush. Brazil's National Agriculture Federation estimates revenue from exports of soy products should rise by 25% this year to $8 billion. The jump would catapult Brazil past the U.S. as the world's No. 1 soy exporter. Brazil's trade balance benefits from low production costs combined with increases in prices and quantity. Brazil's trade surplus with the rest of the world reached a surprising $20 billion for the first eight months of 2003, $2 billion greater than China's for the same period.
Improved exports don't address other major concerns in Latin America, expressed recently at the World Trade Organization talks in Cancun, Mexico. And low-cost Chinese manufactured goods are creating unemployment in countries such as Mexico that opened many manufacturing plants in the 1990s.
"When you have a country like China buying a lot of copper and mineral products, it's because China is producing a lot of manufactured goods," say Luis Oganes, an analyst for J.P. Morgan. "Latin America is finding it's still having a hard time competing with China" in value-added products.
But for now, he says, "if you're a commodities exporter, it's good." |
