Wednesday, February 25, 2009

Jim Rogers welcome to the Century of China -- 2006 video recently uploaded to youtube

Jim Rogers, The Hedge Fund Manager who rode a motor cycle around the world presents his views on China.

China-Brazil: Oil for Cash

Brazil and the People's Republic of China signed deal last Thursday that will ensure China a long-term supply of oil in exchange for much-needed financing for Brazil's state oil conglomerate Petrobras.

Petrobras, will supply China with a total of about 100,000-160,000 barrels of oil a day. In return, China will supply $10 billion in loans to help Petrobras and its private-sector partners develop the pre-salt” fields" discovered last year, which Brazil estimates it will need $174.4 billion of investments between 2009-2013 to develop.

The agreement breaks down as follows. 60,000 and 100,000 barrels a day will go to Unipec Asia, a subsidiary of China Petroleum and Chemical Corporation (Sinopec). 40,000 and 60,000 barrels a day will go to PetroChina.

The loan is guaranteed in the form of a memorandum of understanding with the China Development Bank and Sinopec to provide up to $10bn in finance to Petrobras.

The agreement also covers potential joint development of oil industry projects and supply of goods and services to Petrobras by Chinese companies.

To read more about this topic check out this FT article

If you're interested here's how these companies have been doing in their respective stock markets over the past year.

Enap, Chile's state oil company declares $958 mil net loss in 2008

Chile's state oil company, Enap, the second largest company in the country after copper giant Codelco (according to this FT article) declared a $958 million net loss in 2008 yesterday.

Enap produces 230,000 barrels of oil per day and 13m cubic meters of fuel a year. The company also has interests in Argentina, Ecuador, Egypt and Iran and . It supplies about 85 per cent of Chile’s fuel needs and exports to Central and South America.

Sadly, Enap is what will go down in history as a classic victim from the volatile markets of the world economy during the global economic crisis of 2008-2009.

Record high commodity prices reached in 2007-2008 forced Enap to purchase a great deal of the crude it refined for use in the domestic economy for around $140 a barrel. When oil prices dropped to $34 a barrel in December, the company was forced sell its refined crude products for the lower market price. In all, this macro swing in the global economy cost the company around $650 million.

Two other factors also contributed to the loss. Drought in northern Chile forced Enap to shut down some hydroelectric plants. Second internal problems in Argentina lead the government to implement subsidies on petrol products, igniting demand in Argentina. When push came to shove and Argentina realized there wasn't enough gas to go around, the country diverted some of its supplies meant for Chile to the domestic economy. Thus forcing Chile in both instances to import energy from new and more expensive sources.

All in all a bad year for Enap in the global economy.

According to this FT article, Enap has pinned its hopes on hydrocarbons exploration in the Magallanes region in the far south of Chile, but the state auditor has raised questions about the viability of the project, and Enap has yet to announce whether it will go ahead.

Peru and Japan to discuss Free Trade

Peru and Japan will begin free-trade negotiations next month, Peruvian Foreign Minister Jose Garcia Belaunde said yesterday.

After meeting with Japan's Foreign Minister Hirofumi Nakasone in Tokyo, Garcia Belaunde told Lima-based Radioprogramas, "The Global financial crisis won't hinder talks for an agreement."

I'll be sure to keep readers up to date with developments on this topic as they surface in the next few months. The politics of the global crisis aside, it would be a good idea from a macro-economic perspective to encourage economic cooperation between Peru and Japan.

Many people don't realize that next to Japan, Peru has the largest fishing fleet in the Pacific Ocean. Correct me if i'm wrong about this fact for it could be outdated. I believe it still holds true, especially because most official statistics don't account for the fact 2/3 of Peru's fishing vessels are part of the extra-legal economy in Peru, thus not officially included in most economic data.

Monday, February 23, 2009

News line: Commodities in focus

Source of articles in this post: Bloomberg

Oil Falls on Signs Demand May Drop Faster Than OPEC Cuts Supply

Feb. 23 (Bloomberg) -- Crude oil fell 4 percent on speculation demand will decline faster than the Organization of Petroleum Exporting Countries is curbing supply...

Gold Falls After Reaching 11-Month High in N.Y.; Silver Drops

Feb. 23 (Bloomberg) -- Gold fell in New York as some investors sold the metal after a rally last week to the highest price since March. Silver also declined...

Copper Rises for 3rd Time in Four Days as Metal Inventory Drops

Feb. 23 (Bloomberg) -- Copper prices rose for the third time in four sessions after inventories of the metal dropped, raising speculation that demand may rebound...

Corn, Soybeans Rise as Cheap U.S. Crops May Boost Export Demand

Feb. 23 (Bloomberg) -- Corn rose from a 10-week low and soybeans gained for the first time in nine sessions on speculation that cheaper U.S. supplies will spur import purchases.

Cotton Falls as Plunging Equities Signal Deteriorating Economy

Feb. 23 (Bloomberg) -- Cotton futures fell as sliding global equities triggered mounting concerns that the deteriorating economy will erode use of the fiber and other commodities.

Coffee Prices Rebound as Concerns Ease That Demand May Decline

Feb. 23 (Bloomberg) -- Coffee prices rose the most in more than two weeks as concerns eased that the U.S. financial industry may collapse and destroy demand for raw materials.

Marc Faber says stocks may develop rally 'relatively soon' Feb 23. -- Bloomberg

American Heroes for your viewing pleasure

Sunday, February 22, 2009

South-South Cooperation in focus: Chinese Vice President: Sino-Latin American Cooperation Shows Promising Future

Visiting Chinese Vice President Xi Jinping says cooperation between China and Latin America has a promising future and both sides will step up further cooperation.

Xi Jinping made the statements during his visit to Brazil.

"As the world's largest developing country, China will step-up all-round and mutually beneficial cooperation with Latin America, the most important developing region, to a higher level. Sino-Latin American cooperation has a promising future."

Xi Jinping notes that his Latin America tour has been fruitful.

"During these Latin America visits, I've held talks with some leaders on how to enhance our cooperation and bilateral relations under a new international situation. We have also attended various signing ceremonies on a range of cooperation projects."

During his visit to Brazil, Xi Jinping met with Brazilian president Luiz Inacio Lula da Silva and Foreign Minister Celso Amorim about deepening strategic partnerships.

Click here to listen to Xi Jinping's statement

Trouble for Mexico's oil sector

Petroleos Mexicanos (PEMEX), Mexico's state oil conglomerate said on Friday, crude oil output fell 9.2% in January.

Cantarell, one of Pemex's largest oil fields and the third largest in the world, saw output plunge at its fastest rate in over 14 years. Pemex says the field is currently producing around 772,000 barrels a day, down a whopping 38% from a year earlier.

overall production fell to 2.885 million barrels a day, down from 2.957 million barrels a year earlier.

“If the question is, what is Pemex going to do in the short-term to prevent the falling production?” George Baker, a Houston-based energy consultant who publishes the newsletter Mexico Energy Intelligence, said in an interview. “I’m afraid the answer is nothing.”

On a positive note, Pemex's natural-gas output rose 8.5% to 7.091 billion cubit feet in January. Too bad natural-gas fell below $4 per million British thermal units for the first time in more than six years (see this Bloomberg article for more)

All in all, Pemex and more importantly the country of Mexico need to re-align their economy away from the oil sector. This has proven rather difficult in the past, as it has as well in other Latin American country's which rely too heavily on a particular basket of commodity exports.

The current global recession is once again evidence of how dangerous a commodity focused growth strategy in reality is.

For Mexico, the situation is even more dire. Crude oil and natural gas, as you can see below (and have probably heard) are not selling for what they used to.

Close proximity to the US, heavy reliance on money from relatives working in the US, a declining oil industry and the general erosion of their competitive edge in manufactured goods because of the rise of Asia put Mexico in a particularly difficult situation.

I in no way consider myself a expert on Mexico. As a matter a fact, I have purposely left Mexico out of much of my academic writing due to the unique Macro-Economic conditions facing the country. Check out this site for a great read on Mexico (

Soros Says Financial Crisis Marks End of a Free-Market Model -- Bloomberg

Feb. 21 (Bloomberg) -- Billionaire investor George Soros said the current economic crisis has its roots in the financial deregulation of the 1980s and marks the end of a free-market model that has since dominated capitalist countries.

Liberalization of the financial industry begun by the Reagan administration has led to a series of breakdowns forcing government intervention, Soros told economists and bankers last night at a private dinner at Columbia University in New York. The global recession, triggered by the collapse of the U.S. housing market, has “damaged the financial system itself,” he said.


Click here to access the full article from Bloomberg

Commodities in a Global Recession, Outlook for Grains - Bloomberg

Philip Gotthelf of Equidex -- A new brain in the commodity world I have started to pay attention to.

Analysis and Discussion with President Philip Gotthelf of Equidex (Market Pulse)