China and Brazil seal $10 billion deal

[South-South Cooperation] -- China, Brazil

Lula da Silva & Hu Jintao

Chinese President Hu Jintao and his Brazilian counterpart, Lula da Silva, finished writing the latest chapter in Sino-Brazilian Cooperation earlier today in Beijing.

ChinaSouthAmerica has been following this story for a few months now, and I must say, it is nice to see a classic example of South-South Cooperation / Emerging Market Cooperation (whatever you want to call it) develop and eventually get finalized.

Here are a few excerpts from a WSJ article that a great job of summing up the details.

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State-owned Brazilian oil giant Petroleo Brasileiro SA said it finalized a $10 billion loan agreement from China in return for a long-term supply of oil, another victory for China's new strategy of using its cash-rich banks to help secure the natural resources the country needs to keep its economy growing.
...

Petroleo Brasileiro, known as Petrobras, said under the terms of the 10-year loan from China Development Bank, which has been at the center of China's resources policy, Brazil would supply China Petrochemical Corp., known as Sinopec, 150,000 barrels of oil a day for the first year, rising to 200,000 barrels a day for another nine years.

...

Mr. Gabrielli said the loan's interest rate was under 6.5%, and the loan used oil revenue as collateral but would be repaid in cash -- not oil. Although the deal didn't include guarantees to buy Chinese products or services, other deals will work on exploring closer cooperation, such as moving Chinese equipment factories to Brazil.

...

China's mission to secure commodities does not stop with Brazil--as you are well aware if your a frequent reader at this site.

Beijing has struck similar agreements with energy producers world-wide in recent months, including a $10 billion deal with Kazakhstan and a $25 billion deal with Russian oil and pipeline companies.

...

Stay tuned for further developments and ChinaSouthAmerica's analysis this deal and growth of Sino-Brazilian Cooperation.

Jim Rogers says Geithner is smokin the rock'

Jimmy tells it how it is...

CIC to invest in commodities

China Investment Corp is looking for investment opportunities in commodities, according to Jesse Wang, a senior official with China's $200 billion plus sovereign wealth fund.

Officials have said that CIC wants to diversify its portfolio in the natural resources sector after booking heavy losses on high-profile financial investments in private equity fund Blackstone and U.S. bank Morgan Stanley.

Wang, CIC chief risk officer, said the global recession had just begun, and as a result, bigger price declines in commodities and energy were possible.

"No matter where the company invests, it is always possible there will be book losses in a particular period," he told reporters on the sidelines of a meeting of a parliamentary advisory body.

The wealth fund will diversify its investments in the financial and energy sectors, Wang added.

A move into commodities and energy by CIC would add to a wave of investments backed by Chinese state funds in those sectors that topped $50 billion in February alone, including Russian and Brazilian oil deals and investments in Australian mining firms Rio Tinto and OZ Minerals.

For more articles on this topic click the links below

Foreign interest is all win for Australia -- The Australian
China's CIC Sees Opportunities in Natural Resources -- CNBC
China Investment Corp may diversify portfolio into commodities, energy -- Reuters via Mineweb
China to invest in undervalues commodity markets -- zionistgoldreport

"Show me the Mao's!" China goes shopping

Since the inception of this site a major goal has been to inform and sometimes personally analyze China's growing commodity demand and increasing cooperation with emerging markets (particularly South America).

If your interested in the topic Andy Hoffman, of Canada's, Globeandmail wrote a good article today worth your time. Below I've copy and pasted a few paragraphs from the article to summarize it. You can Click here or scroll to the end of this post to access the full article from the Globeandmail.

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Flush with cash at a time when most countries and corporations are struggling to gain access capital, the Asian economic superpower has spent nearly $60-billion (U.S.) in less than a week in a series of deals that will secure a long-term supply of iron ore, copper, zinc and oil.

"Cash is king and China has lots of it," said Egizio Bianchini, global head of metals and mining at BMO Nesbitt Burns, which in the past, has represented state-owned Chinese firms in several mining deals.

"China is looking and saying 'We don't have a lot of competition here and we have ready cash.' [For almost everyone else] there is no public debt market and no public equity market," he said.

Desperate for financing amid stalled capital markets and investor abandonment of the sector, resource producers are turning to China for a commodity it has in spades: ready money.

Yesterday, Brazil signed a deal to supply China with 100,000 to 160,000 barrels of oil a day in exchange for billions of dollars of investment. Under the agreement signed in Brasilia, state-owned China Development Bank will provide financing to Brazil's state-run energy company Petrobras to develop its massive oil reserves.

Click here to access the full article from the globeandmail

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Links to recent posts on this topic from
ChinaSouthAmerica: News and Analysis

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China's metals move a bright spot for sector -- Feb 13

China-South America -- China pursues Latin America ties -- Feb 9

China-Mexico: Sinopec competes against Schlumberger Ltd and Halliburton Co. for drilling contracts in Mexico - Feb 5

News line: commodities in focus - Feb 2

Emerging Markets' Presence Grows at Davos Economic Forum - Jan 30

China goes shopping for commodities - Jan 7

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The end of China's boom years -- perspective from Reuters Melbourne, Australia office

Ending China boom to boost BHP, Rio profit but big writedowns expected

Author: Sonali Paul
Tuesday , 03 Feb 2009

MELBOURNE (Reuters) -

Global miners BHP Billiton and Rio Tinto should post solid six-month earnings growth, but results will feature hefty writedowns and mark the end of a China-powered boom.

Brokers have cut their forecasts for the world's biggest and third-biggest diversified miners following their production reports, and investors are now focused on how cost reductions and spot sales of iron ore might have helped them shore up profits.

Rising costs had been a major problem over the past two years, in face of labor shortages and soaring energy and steel prices, but those have now eased...

Click here to access the full article from Reuters via Mineweb

Commodities in focus – mixed messages from China

Until this past October / November when markets came crashing down all over the world as the US credit crisis exploded into a full blown global economic crisis it seemed as if nothing could stem China's insatiable demand for commodities.

However, once economic crisis spread to wealthy nations a chain reaction started.

First, consumers who had been eating up cheap Chinese exports for years decreased their spending as credit dried up. Less demand for goods produced by China's manufacturing sector would mean less Chinese demand for commodities.

Second, a slowing global economy produced a situation where aggregate commodity demand shrank around the world. It mattered little if a country is rich or poor, a slowing global economy would mean less demand for energy and metals.

Third, as economic problems continued to spread it became less and less likely the economic dragon of China would be able to ride the storm out. If a global recession occurred, China would find it very difficult to rely solely on their domestic economy and international currency reserves to keep things growing as fast as they had been from 2001-2008.

Finally (and this is a over-simplification), combine all facts and you get a situation where the future of the global economy is unpredictable. Meaning, no one really knows when Chinese demand will pick up again, no one really knows when the global economy will recover and therefore investing in metals and energy seemed foolish if recession would hamper demand in the near future.

That being said, a few interesting stories passed through the presses this weekend. The first two indicate demand is returning to the commodity markets in China, the second two tell a different story.

Baoshan Steel, Angang Steel, Wuhan Iron & Steel and Maanshan Iron & Steel. Four major Chinese steelmaker stock ratings where raised by Credit Suisse, which said improving demand will help raise steel prices (click here for Bloomberg LP article).

China National Petroleum Corp., the country's biggest oil and gas producer, said it plans to increase oil and gas production by 5% annually to meet domestic demand (click here for Bloomberg LP article).

China's State Electricity Regulatory Commission said demand and output in China will continue to shrink this year because of slower economic growth. China is the world's second largest consumer of energy.

If people are using less electricity it means one of three things. First, it could be a bad sign for the economy. It could indicate the Chinese are becoming more efficient / environmentally friendly. Or third, it may mean the Chinese are trying to save a few Yuan from the higher price they have to pay for the energy.

The correct answer in this situation I feel is the first. A slowing economy simply means less demand for energy. I don't doubt the Chinese are indeed adapting their growth strategies to be more environmentally friendly, but I don't think it is the reason their demand for energy is shrinking (80% of China's energy comes from coal). Last, I don't think it's because of higher prices, commodities after all have once again become very cheap (click here for the Bloomberg LP article).

Moving onto aluminum. China's Shanxi Guanlu said on Friday it was shutting 40,000t of aluminum capacity owing to low prices and weak demand (click here for the full article from the Mining Journal).

I think the main idea to take away with you from all of this is that the market has no idea how to make up its mind and neither do the participants in the market. If and when the global economy does see a recovery, be sure you have some of your money invested in energy and metals, because demand will return and with a vengeance.

For a bit of perspective check out what Jimmy Rogers and Marc Faber, the guru's of commodity investing have to say.



Jim Rogers - Recession and Commodities in 2008




Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P1




Marc Faber - Says He'd Favor Industrial Commodities Over Gold 2009 - P2

Commodities in focus: Lead and Zinc producers cut production in China to help slumping prices

With commodity prices heating up around the world, emerging markets have finally began to show signs of slowing demand. The latest metals making headlines are two primary base metals; zinc and lead.

A meeting of 27 major Chinese Lead and Zinc producers took place in Shanghai yesterday. The producers agreed in Shanghai "the move would help improve the supply-demand relation so as to curb further price fall," as reported by the China Mining Association (CMA).

In Chinese yuan, the price of lead ingots has fallen 34% from 26,500 yuan/ton ($3,887 usd) to 16,500 yuan/ton ($2420 usd). Zinc ingots meanwhile have plummeted in price, falling by 53% from 33,360 yuan/ ton ($4,890 usd) to 15,650 yuan/ton ($2300 usd).

China's Nonferrous Metals Industry Association estimates domestic lead consumption shrank 50,000 tons in the period January-May, but stated new projects set to begin in Shaanxi, Hunan, Yunnan and Gansu provinces would help re-invigorate demand.

China has been expanding at such a rapid pace it was almost necessary for a price correction in commodities. Add to the recent trend of investing in commodities as a safe heaven or hedge against other currently more risky investments and you get a situation where commodity prices have risen beyond sustainable levels.

Despite China's robust economic growth and ever increasing demand for raw materials, Chinese demand alone is not enough to keep commodities at their current prices. However, as the largest contributor to global GDP in 2007, Chinese demand is a very important factor.

What to make of all this? A temporary correction in commodity prices at best... and by temporary I do mean a few months or a year at most. Zinc and lead will remain in high demand due to the fact a slowing global economy is not going to bring all projects in China or other emerging markets to a stand still. Second if prices continue to decline, supply will probably remain constrained because some miners will put off exploration or development of new mines due to lower prices which make them economically less viable. This will create a similar situation in the long term when demand recovers and the market realizes there is once again insufficient supply. Economics 101 teaches you when there are too many people chasing the same good, the price of the good will rise, and this will be the case with zinc and lead.

As commodity prices decline, China's miners and smelters may suffer, but government projects and domestic urbanization plans become cheaper. As noted above, prices have declined and new projects are being planned in certain provinces.

The provinces mentioned above are all relatively poor regions in China, lacking infrastructure and in desperate need of investment. Shaanxi is a poor region about 6 hours by bus from Beijing and is at the heart of coal production in China.

Yunnan is a province in South China which boarders Myanmar and is populated by over 20 of China's ethnic minority groups. One of China's strategies for keeping ethnic minorities happy is to ensure the regions where they live experience the benefits of China's economic growth. In recent years Yunnan has also emerged as a popular tourist destination. As the influx of both domestic and foreign tourists increase, so will investments in infrastructure and services.

Gansu is a province in western China and is home to a wide variety natural resources. There is extensive mining in iron, lead, nickel, zinc and other metals. Additionally, two of China's most important oil fields, Yumen and Changqing are located in this region.

Hunan province is located along the Yangtze River and is home to the industrial cities of Changsha, Zhuzhou and Xiangtan. All three cities are major centers of production which account for roughly 40% of the regions economic growth. Currently the three cities are in major need of improvements in their infrastructure and will need to import in the materials necessary to furnish the improvements because of a severe lack in local resources.

If you've been following China's development plan since the 90's, it is clear the central government has chosen a selective development strategy-- focusing on important economic zones and leaving others behind. This is all very important because it shows capacity for growth and development in China remain. This is especially true for the regions described above which until recently have been over-shadowed by the wealthy coastal regions where China's export and manufacturing centers are focused.

The recent earthquake in Sichuan Province, rising disparities between Eastern China and Western China, and the need alleviate pressure on major city centers will prompt Beijing to begin paying more attention to the regions it previously ignored. When this happens, Chinese commodity demand will rise and so will prices.

Zinc and Lead began their bull markets in late 2005 / early 2006. At their respective peaks, both had more than doubled in price in just a few years time-- see LME price charts from 2002 - 2008 below.

London Metals Exchange: Zinc ($US/tonne)





London Metals Exchange: Lead ($US/tonne)

Despite being primary metals used as a economic input in production of goods and services, many industry experts felt the rise in Zinc and Lead prices in late 2005 was uncalled for. The two metals had relatively static performance from 2000-2005. However, by late 2005, it seemed the world had suddenly realized surging demand from Asia would create a new demand dynamic, causing prices to rise.

Zinc and Lead suddenly had become hot commodities. In 2003, Peru, the world's number 3 producer of lead and zinc, exported $201.3 million worth of Lead and $528.7 million worth of Zinc. By 2005, Lead exports had risen $312 million and Zinc exports to $805 million.

Below I have included two charts of the major sectors in which Lead and Zinc are used in.

As readers can see both metals are used in a variety of industries. Even if Lead and Zinc have a tough 2008, demand for the base metals will not fade. Consider this correction an overdue dose of medicine to cool a surge in prices which in reality was far from justified.

Aluminum price closes at US$1.48/lb on the London Metals Exchange (LME)

Aluminum prices are soaring... That is obvious. What is interesting is that despite a near 40% rise since the beginning of 2008, record high energy costs, a ever worsening credit / mortgage crisis, a sinking US$ both the aggregate demand and supply of aluminum remain strong.

Aluminum is a relatively labor and energy intensive metal to produce in a pure form which is suitable for use in relatively complex industry and production lines. Record high energy prices of recent have made it so that Aluminum is naturally more expensive to produce.

Second, global efforts (if you go as far to call it an "effort) to combat climate change has also caused the price of producing aluminum to rise. Aluminum producers must account for any damaging effects production causes and either.

Last, and arguably the most significant is the seemingly insatiable demand stemming from the developing world, which despite a 40% rise in the price of Aluminum this year, demand has only continued to increase.

A little outdated perhaps, the chart below indicates by 2005 China's aluminum consumption had grown to represent roughly 23% of global demand, surpassing the United States.


The nice pie chart below breaks down global production of aluminum. The BRIC countries (Brazil, Russia, India and China) alone in 2006 accounted for 45% of total aluminum production. Developing countries have emerged as a signifcant force on both the supply and demand sides of aluminum trade.



It is no wonder, even with record high prices there appears to be little reasons to believe in a price correction or slow down in demand in the near or long term.

Click here to read Business News America's article on rising aluminum prices.

Jim Roger's offers his comments on the rising prices of commodities and where the market is heading

Commodity Guru Jim Rogers stated in a interview earlier this weekend, "the severe oil supply shortage could take futures prices even higher."

Bloomberg LP - Mining giant Rio says rising commodity prices won't be enough to convince China to stop buying... high prices are here to stay

Rio Says China Inflation Won't Undermine Commodities (Update1)

By Jesse Riseborough

June 16 (Bloomberg) -- Rio Tinto Group, the world's third- largest mining company, said recent gains in inflation in China driven by rising food and energy costs won't undermine strong demand for commodities.

``A leveling out in food and energy prices will lead to falling 'headline' inflation without a dramatic impact on economic growth,'' Tom Albanese, chief executive officer of London-based Rio, said in a slides presentation sent today to the Australian stock exchange. ``Any sustained inflation is likely to support aluminum and iron ore prices.''

Inflation in China, the world's fastest growing economy and biggest consumer of commodities, slowed to 7.7 percent in May, from 8.5 percent in April, still exceeding the government's annual target of 4.8 percent, according to the statistics bureau. Demand from China has spurred six straight years of commodity gains, including record prices for iron ore and copper.

Prices for Rio's products ``are supported by economic fundamentals, not financial bubbles,'' Albanese said, citing dwindling supplies of metals including copper. ``Current prices of key Rio Tinto products are justified by the economic fundamentals of sustained demand growth and tight supply; together these factors will support long-run prices.''

Rio, battling a $164 billion takeover offer from the world's largest mining company BHP Billiton Ltd., rose A$4.62, or 3.6 percent, to A$134.50 on June 13 on the Australian exchange.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net;

Last Updated: June 15, 2008 19:39 EDT

New literature on Sino, US, and Latin America Relations -- China's expansion into the Western Hemisphere: Implications for Latin America and the US

China's expansion into the Western Hemisphere: Implications for Latin America and the United States Edited by Riordan Roett and Guadalupe Paz
click here to purchase



Just picked my own copy up, others interested in this field of growing interest and importance should share my satisfaction of finally having some new scholarly/ academia / writing on the topic.

The book addresses everything from the different opinions and perspectives Chinese, Latin American and US scholars have when it comes to accessing the impact of China's relationships with Latin American Countries and the United States.

Second and of most relevance for this website is part II and III, where the authors describe China's expanding influence and ties with South East Asia, Africa and Latin America in terms of China's security and commodity demand. Which countries stand to benefit? Which to suffer? Is there a happy middle? Last, can Latin America learn from China's engagement with African and South East Asian nations to lessen the possibility of exploitation?

From what I have read thus far, the book seems to be a good overall collection of research and writings that will by books end put the overall ramifications of increasing Chinese cooperation and connections with the emerging world, how the global economy and the influential leaders of the world are shifting into a new alignment, where a multi-polar world will emerge-- represented by the US, European Union and Asia.