Supply and demand, Chilean copper edition

Want to see what rising commodities prices can do for your emerging market economy? Look no further than Chile and its copper exports to the world. Today Chile's Central Bank released the final scores for the country's commercial balance in 2010 and the copper export component came to a cool U$39.29Bn (yeah, billion with a B), a new record by quite some way. By way of context, copper provided 56.4% of everything Chile exported in 2010 in dollar terms.

To ram it home, if we check out the figures in chart form and also add in the tonnages of copper shipped out of Chile every year, we really get to see how lucky Chile has been in the last ten years. The Y axis numerical scale in this chart is the same for both datasets, but note that the volumes are in millions of tonnes (that fluctuate between 4.6m and 5.6m metric tonnes of copper exported every year) and the prices are in billions of dollars.

So for example, between 2002 and 2010 Chile has added less than one million metric tonnes to its copper exports volume, but thanks to world prices has added thirty-three billion dollars to its copper exports value. But of course, Chile's economic expansion is wholly due to its local politicians and has nothing to do with the wider world of economics...according to the Chilean politicos, at least.

Peru exports 1994 to date...and copper and gold

Here come three charts: The first shows Peru's exports in US Dollar terms, 1994 to date (including the record export numbers just posted in September 2010), as exports are the whole backbone of the Peru economic expansion. The other two charts show the pirces for Peru's number one and number two exports, namely copper and gold. And be clear that those two make up a lot of the pie, folks, as according to IKN estimates (using MEM production figures and London average spot prices for September), just copper and gold make up 41% of all exports out of Peru by dollar value.

Peru: Economic Miracle or just plain lucky? YOU BE THE JUDGE!

Peru's economic miracle, yeah right

Peru's widely documented economic growth miracle is a house of cards, based on exports of two products that the world currently pays a premium for and liable to a sudden stop due to the narrow exports base the country relies upon. That's clear if you check out country exports for April 2010, a pretty typical month of sales from the country.

Of the U$2.5464Bn in exports registered in April, no less than 52% (U$1.323Bn) came from sales of copper and gold. Then comes the third major metal zinc, all the other metals (lead, silver, iron ore, tin, molybdenum etc), some 8% from hydrocarbons and then all the rest...like everything else from a list that runs to fishery, all agriculture, textiles, wood&paper, non-metallic minerals, chemicals, metal mechanicals and a list of individual items as long as your arm pale into insignificance against the all powerful non-value aggregating primary materials Cu and Au. That's your idea of a miracle, is it? It's luck, no more and no less. The right products at the right time.

Sources are Peru's central bank (here) and peru's mining ministry (here).

Argentina exports up 1% YoY in November

For the first time this year, Argentine exports have posted a YoY monthly increase. Exports for November 2009 totalled U$4.934Bn, up from the U$4.894Bn posted for November 2008. Here's the overview chart of exports and imports for Argentina since January 2008.....

....and it's a similar shape to plenty of other regionals (Peru, Chile etc). Again, it goes to show that no matter what political or economic system you have in place, if your country relies on exports for growth you get screwed exactly the same way and then you come out of the hole at the same time.

Just don't tell Moody's, the IMF, dumbass LatAm biz reporters, dumbass op-ed writers etc etc etc

The only miraculous thing about Peru's economy......

...is that the phrase "Dutch Disease" is not used by the dumbasses in suits (you know them by the title "economists") to describe this one trick pony growth story.

This chart above is the whole decade of Peru's exports. Traditional exports apart from hard rock mining (i.e. fishing, agro, oil&gas) have hardly changed. Non-trad exports (some agro produce such as avocados and asparagus, then textiles, wood and paper, non metallic minerals and any product further up the value added chain) have hardly changed, either. The whole of Peru's growth is based on mining and the dumbasses in suits that point to Venezuela's utter dependence on oil exports then ignore Peru's utter dependence on metals are either deliberately skewing reality to prove a political point or they are, to quote the vernacular, simply TEH STOOOOPID.

Dutch Disease: coming to an economic miracle near you soon (if China decides to stop buying metals all of a sudden). Kow-Tow, Twobreakfasts....Kow-Tow.

So how's that Peru economic miracle coming along, Otto?

Hmmm, not so well, actually.

The Peru stats dudettes and dudes at INEI released their impex numbers yesterday and the result is above. Imports were down a whole bunch YoY (natch) but for the first time in 2009, the import number failed to beat the previous month's figure (EDIT 10 mins later: clearly not true, as May 2009 was very weak for example. I need to stop sniffing glue while writing).

As for those exports, let's just remind ourselves how utterly reliant Peru is on mining.
And just as a thumbnail example to explain how little of all that wealth is seen by Peru's people, a full 13% of the mined metals above are gold bars shipped directly to Switzerland and stuffed into some vault in some bank. Yup, that's gonna aggregate value, innit....

Economists, pundits and experts (epithet used very loosely) have made fools of themselves all year by talking up Peru, but now even the overly proud stuffed suits have been tasting humble pie...to a certain extent, anyway. Take, for example, Daniel Volberg of Morgan Stanley who wrote yesterday....

"Peru has proven less resilient to the downturn than we had expected after we revised up our regional outlook back in June."

....which is an economists way of saying "we were total idiots about Peru and were stupid enough to believe all the hype". But it doesn't stop them from talking up the country in 2010, either. Ever hear the story about the boy who cried wolf, dumbasses?

The beating heart of Peru's economic miracle revealed by The Wall Street Journal

Here's how Peru's top three export products for 2009 look like stacking up.

That cocaine number comes from this report in the WSJ with this as the moneyline...

"...the estimated $20 billion annually that Peruvian cocaine fetches abroad."

..that is also making the headlines in Peru today.

No wonder the Sanchez-Paredes family votes APRA, eh?

Chart of the day is...

..Peru's import and export figures per month, January 2008 to August 2009.

The latest imports figure came out over the weekend (exports for August not available yet) and the number was 31.4% down from August of 2008. Also, there are are two more hevy impex months (Sep and Oct 2008) to burn through before Peru gets YoY numbers that it can improve upon.

On the plus side, there is clearlt a slow, gradual increase in the monthly numbers for 2009. This is as much to do with the typical 12 month business cycle as anything else, but it must be a positive that the last four months have shown continued improvement.

The bottom line is that Peru has been through a hard landing, though you'd never believe it the way the idiots that ran them over the cliff are lauded by the idiots that encouraged them. But life goes on and the world has decided it wants copper and gold in 2009. Peru got lucky.

Peru ImpEx June 2009 numbers are out...

...and it's the samo samo. For the eleventh month in a row the figures are down YoY.

The main culprit on the exports side is the price of copper and its base metals friends, as 60% of exports from this monocultural economy are metallic. On the imports side, capital goods and construction primaries imports are down 45% and intermediates down 43%. As an aggregate, Peru's trade with the rest of the world is down a whopping 32% and that will only get worse for the July numbers due to the absolute peak in metals revenues for that month in 2008. But don't worry, because everybody's investing in Peru right now according to the government...these numbers can't be right...can they?

How these liars and charlatans must be looking forward to November when they can finally point to a YoY increase in things, but that will only be because world metals prices are better than they were back then. Economic miracle? Gimme a break!

Metal up = Peru up.
Metal down = Peru down.
End of story.

Peru's ImpEx update

Let's catch up with a bit of macro and see how those Peruvian imports and exports have been doing this year. The last time we did this post was January or February so there's been a lot of copper sent to China and gold to Switzerland since then.

This first chart shows monthly bars for both imports and exports.

In 2009 exports have recovered somewhat (thanks mainly to the rebounds in copper and gold) but are still well off 2008 highs. Imports have been in the gutter all year, the same levels as 30 months previously. Where's this "vibrant internal economy" that S&P talked about when affirming its ridiculous investment grade on Peru? IKN calls bullshit on another band of self-righteous, arrogant fools in suits.

The trade balance (below) has therefore gone to the surplus after the iffy moments at the turn of the year, again largely due to the metals rebounds (for the record metals accounted for 59.8% of Peu's exports in the first six months of 2009, pretty much the average that fluctuates around the 60 mark). This has helped stabilize the currency (PEN) which is good. Export dependent countries with non-reserve currencies can't spend more than a few months out of surplus before currency weakness starts notching inflation up. In 2009 Peru has inflation nicely under control, happy to say.

So if we add up the imports and exports to show (below) total trade activity with the rest of the world, 2009 has recovered a bit but there's a country mile between current trade and the numbers being posted this time last year.

The bottom line is that we have a country with a stagnant internal economy that got lucky and has been saved by the metals rebound. No more, no less. Find the Peru Central Bank source report on this link. If this is an economic miracle then Britney Spears' children were virgin births.

Peru: Can I Haz Scotiabank Job?

It must be a truly great thing to land a job as an economist in a Peru bank. Two main reasons:

1) If you have a brain there's no competition

2) Say what you have to say in the right way and you get quoted everywhere by the lapdog press. World of Ego, here we come.

Case in point, Pablo Nano of Scotiabank. Señor Nano yesterday predicted that Peru's trade balance would come out positive in June, which is largely along the lines of predicting that the sun will rise tomorrow morning or that the current Pope is of the same religious creed as the previous incumbent Holy Father. What you have is a rapidly shrinking economy and deflation on one side (imports down? Duh!) and a rebound in metals prices as China buys up all that lovely copper and Switzerland squirrels away as much gold as it can get from Yanacocha and Pierina. Or in the words of Pablo, "The May numbers show on the one side a sustained recovery in exports and on the other a larger than expected drop in imports". No shit Sherlock.

And sure enough, today's imports numbers confirm that Peru's real economy is diving into an ever deeper recession. YoY imports are down 39.6% (really..not joking), with the worst affected sector that of capital goods and construction materials, down 44.9%. That makes the first six months of 2009 down 30.1% from the same period in 2008, so if you care to think about it, 30% in six months and 39.6% last month.....means......that....yep...it's getting worse, not better.

But Peru isn't in recession....oh no, whatever makes you think that?

UPDATE: A very sad but very true observation comes from regular reader Ward in the comments section below. Here's the excerpt:

"...the fact that you typically need to be (very) young, female and goodlooking to be hired by a Peruvian bank may not bode well for having the most qualified people for the job."

Peru economic "growth": it's not just me that sees through the lies

What Otto feels like when told Peru is growing

A sigh of relief was heard Chez Otto this morning when your humble correspendent read that respected and independent Peru econ-watchers aren't buying the BS soap soap lies about Peru's fantasy growth that's constantly spun by its most awful of governments.

Hugo Perea of BBVA bank was asked by El Comercio to comment on yesterday's announced 7.45% drop in manufacturing activity in February. Acording to Perea, the March figure (currently estimated at -3% by the gov't liars) will come in much lower, more like -7% again, noting invenmtory levels dropping rapidly amongst other telltale signs. Another indy consult group, Maximixe, was asked about the outlook for April and May and also came out with a dose of necessary reality; "Our scenario is pessimistic, because there are still sectors with important weightings in our industry that are declining."

Meanwhile, Peru's chamber of exports, ADEX, had this to say. "We were hoping that things would get better in March, but they continued dropping. And acording to our associates things will continue showing a similar behaviour in April and May, as there still do not exist signs of recovery."

Yes indeed, folks. Reality. This is the country run that depends on trade with the world to survive and grow that had an YoY drop in imports of 11.2% and a drop in exports of 9.6%....and the self-serving corrupt liars that run the show insist that Peru will grow by 4% this year.

Wanna buy a bridge?

Peru: As long as we say we're growing, nobody minds

The headline is "Real Decline in Exports Masked"
(click to enlarge, Spanish language report)

Here's another exposé of the BS mathematics being used by Peru to pretend it's still growing. In its recent report, The Peru Central Bank (BCRP) admitted that export values had dropped significantly since the same time last year, but insisted that export volumes from the country has increased YoY by 0.2%. Now of course we know that export values have dropped significantly (just look at the prices for the metals), but it did seem weird that the BCRP was suggesting there's more volume traffic through Peru's ports right now, especially as anecdotal information from places like the main Callao seaport is that workers are idle and fear a round of layoffs.

So the revelation in Peru's La Republica this morning (see page above) from ace statsbuster Farid Matuk that the BCRP has been using a defunct stats baseline to calculate exports came as little surprise but welcome confirmation of the continued BS eminating from the Twobreakfasts government. According to Matuk, the BCRP uses a 1994 statistical index baseline to calculate exports, a database that was updated and made redundant in 1999 and then again in 2002. The BCRP should (if they actually cared about telling the truth) be using the 2002 dataset to make their calculations. And amazingly enough, by using the 2002 data the export volume results in a 7% drop YoY, not the 0.2% fantasy proposed by the bankers.

Still believe that Peru is "diffferent", is "armour-plated" and is "protected from the recession" like some fantasy island of love and harmony? Wanna buy that bridge of mine? The quotidian lies of the Twobreakfasts administration don't come for free, unfortunately. The ongoing deception of these people, as they try to lull Peruvians to sleep and get the world's applause as WonderCountry'09 is only pushing Peru closer to a nasty hard landing. Reality will bite eventually. It always does.

Peru macro update

First the good news; Peru managed to run a small trade surplus in February. This will take some pressure off the currency (as usual, click on any chart to enlarge);


Now the bad news. Exports might have been up slightly on January numbers, but February is like that. But exports also showed their second worst month since January 2007. Imports didn't fare much better, registering their lowest month since June 2007.


But the really bad news is when you add up total import/export activity. Total trade movement is down 26% in the first two months of 2009 compared to the same period of 2008.


Why is this important? Because total impex movements comprise around 50% (yeah, fifty percent) of Peruvian GDP. So much for Twobreakfasts and his shock-proof economy, as Matuk so rightly points out today.

And on the subject of Peruvian economics.......

....the Peruvian Central Bank's (BCRP) newly revised forecast for 2009 has some very strange assumptions. This report from Reuters lays out the general scenario, but the key changes are:

• Domestic demand down from 7.1% to 5% growth
• The projected fiscal surplus of 1.1% is now a fiscal deficit of 1.0%
• Export growth down from 6.2% to 1.9%
• Import growth down from 9% to 2.1%
• Inflation down from last year's posted 6.65% to a forecast of 2% in 2009
• The GDP growth forecast is unchanged, staying at 5%

If this isn't bistromatics of the highest order, I'm Chinese. And I'm not Chinese. Look, even taking the BCRP's own metrics don't you think that simple logic points you in the general direction of saying "This is BS, dude"? Seriously, how can domestic demand, imports, exports and inflation all drop and the GDP forecast stay the same? And that's only the start of things, really. Here's a chart showing Peru's exports in the period 2005 to February 2009:

Please note the Feb 2009 figure is the total and not broken down into
mining/non-mining parts as the figures are not yet available at BCRP

Can you seriously tell me that Peru is going to beat its 2008 export total this year? Even Carranza's Finance Ministry recognizes that exports will drop from around $32.47Bn to around $28Bn this year (which is also exaggerated imho, it's more likely around $25Bn), so I'd be interested in finding out what BCRP top cheese Julio Velarde was smoking when he came up with a 1.9% YoY export growth prognostication. To labour the point, Peru is staring a 15% to 20% drop in exports in the face, not 1.9% growth.

It's the same story with imports, of course. Growth in 2009? Oh c'mon guys, at least make your bullshit survive more than a cursory glance at reality.

Click to enlarge charts

It does make me wonder what Velarde is trying to achieve here. I actually basically respect the guy and know full well he's not a klutz. Perhaps by making such outrageous claims he's trying to send a signal to people that look further than the headlines in El Comercio. Perhaps he's trying to say "Twobreakfasts is making me manipulate the GDP number, so I may as well make them look as silly as possible". I'm just trying to find a thread of logic where there is none.

Peru: Does this look like a solid economy to you?

Words kept to a minimum this time as the charts can largely speak for themselves. This chart shows how Peru is now running a commercial trade deficit with the rest of the world. Not good.

This next chart shows that even though there's a fast-growing deficit, imports are actually dropping! It's the enormous cut in exports that's doing the real damage.

Here's a closer look at how much imports have dropped. Peru imported $400m less worth of goods in January 2009 compared to the same month of 2008.

But the equivalent chart for exports below is simply frightening. That's a drop of nearly one billion dollars in exports compared to the same month of 2008. This is a 100% non-sustainable situation for an emerging market country that depends on selling to the world. This cannot be stressed too strongly.

If we aggregate monthly imports and exports it gives a good idea of the enormous drop Peru has seen in trade with the rest of the world since the middle of 2008.

The Garcia administration is almost certainly most irresponsible government in Latin America. It refuses to admit there is a problem when it's staring anyone with a modicum of numbercrunching ability in the face. Peru's impex trade with the rest of the world has dropped by over $2.5Bn PER MONTH since last August and the country is now running a significant fiscal and trade deficit. This kind of obvious structural weakness will not be patched up by Carranza's much-trumpeted U$3bn stimulus...and half of that has been spent already!

Your choice: Stop believing the BS soft soap that Garcia, Carranza, S&P and Fitch tell you about Peru right now, or stop believing them when it's too late. But don't tell me I didn't warn you.

Related Post
Stop Peruvian Stupidity

More one-sided reporting on Bolivia: Antidote available here

Evo explains what bodypart is held most tightly
by capitalist economic policies

What we hear: Bloomberg reports that Bolivia exports for January were down 32.9% compared to January 2008. The total of $345.85m means there is a $170m or gap in the macroeconomic numbers compared to last year. For sure it's a big drop and part of it includes the exports lost to the US market due to the withdrawal of ATPDEA concessions, but the main chunk is the new, lower pricing for its gas exports to Brazil. This comes as no surprise to anyone with half a brain that has analysed the situation.

What we don't hear: Bolivia was adding to its international currency reserves to the tune of $250m a month at this time last year. So let's just assume that Bolivia doesn't move over the excess to its (already all time record) reserves this year; that would mean Bolivia has more than enough money coming in and doesn't have to feel the pinch on a day-to-day basis, this at a time when nearly every other LatAm country is taking money out of its reserves to fund programs.

Bottom line: Expect people with less than half a brain to "raise questions" (a lot of them get featured at the HACER hatemonger's website). Expect Bolivia not to worry. Also expect Bolivia to get through 2009 far better than those truly exposed to this world recession.

Alan Garcia is a liar: Some empiricals

At the same time President Twobreakfasts was waxing lyrical about Peru's stability and how it was shielded from the world recession and how Peru's GDP would grow 6.5% in 2009 (date, November 2008), the following was happening to Peru's trade balance:

And as bad as that chart looks, if you look further it actually gets worse. This second chart shows the import/export breakdown that results in the above trade balance. As you can see, the slowdown in both sides of the equation adds further recessionary pressure:

Developing nations such as Peru rely on export capacity to drive economic growth. No exports = no growth. That's a bit of cruel reality Economics 101 for you, dudes. S&P, Fitch and all the others can try to hoodwink you into believing that the internal economy is Peru's new driver but that is just so much crap, sad to say. Peru is not a strong currency nation that can run an indefinite trade deficit with the rest of the world; its ability to grow is totally dependent on its ability to sell to other places. And that chart up there is not good news.

It's not about unduly knocking a country or a region (as accused yesterday by some dumbass), it's about looking at the facts, telling the truth and not listening to obvious bullshit from obvious bullshitters. The main reason why Peru is in more trouble than (for example) Chile is that Chile is being mature about its future problems. The government of Peru is still jawboning its people into believing that everything is fine. That Peru GDP forecast is now down to 5%, by the way. It's going lower. Take that to the bank.

Another thought on Peru's "growth" in 2009

"Maybe next year, hey?"
(Click to enlarge by the way. Nice Hi-res)

Despite all that we have been led to believe by the delusionary Standard&Poors, still desperately trying to justify hiking Peru to "investment grade" last year, Peru has not diversified itself away from reliance on commodities. In 2008, metals such as copper, gold, zinc, etc accounted for 60% of the country's total export revenue. Because of this, the country's trade balance will certainly be negative in 2009. And if you take away the motor, the car stops running. No more construction boom, people. No more new cars sold. No more midweek treats at the new all-you-can-eat Chinese restaurant that just opened. Et cetera ad infinitum.

We're already seeing the effects of this deficit. Yesterday the Central Bank (BCRP) sold U$213m dollars into the forex market to shore up the local currency, the Nuevo Sol. With Peru's international currency reserves standing at U$32Bn at end 2008 it doesn't take a mathematics professor to work out they won't be able to do that kind of stunt too many times on the trot before people start asking "Hey? Where's all that money gone?", and the only answer the gov't will have is "Err well, big businesses wanted to buy a lot of dollars so we had to sell them else watch the currency weaken."

The idea of the currency safety net is to protect Peru and Peruvians, not the multinational mining companies that remit profits back to the USA, Canada, Australia, Switzerland and the UK, isn't it?

Add to the mix the other sectors already under pressure. Asparagus, fresh fruits, fish meal (Peru is the world biggest in this sector and once again it's nearly all foreign controlled) and last but not least in this quick role call, tourism. When gringos tighten their belts, The Sacred Valley of Cuzco suddenly becomes two weeks at the beach in a 3star.

Finally, let's once again point out the lack of connection between GDP figures and bleedin' reality. The same week that Peruvian mining companies lay off 5,561 workers the government insists the country is growing. Notice anything odd about that?

Brazil's economic turndown in one easy-to-understand chart

Holy Caipirinhas, Batman. Check out how Brazil's impex trade has just fallen off a cliff. Click this link to download the chart (sorry, I'm too dumb to work out how to peg a chart ripped from a PDF into a blog post). The chart is VERY scary and should send a shiver down the spine of every single LatAm economist and/or market watcher. It might even interest intelligent people, too.

A pity I can't work out how to put it directly on site. Any smart people know a way? The chart taken from the Datamar shipping weekly, who sourced it to Brazil's MDIC. You don't need any further comment from here, methinks. Is Mark Mobius still buying Brazil?

UPDATE: One smart reader later, here's the chart. No need to click that download link now.


Thanks, 'R'