Finally good news, something fairly solid to hold onto. The pandemic has taken a particularly expensive toll in Latin America: in health, with one of the highest death ratios per total population in the world; and economically, with one of the hardest recessions and one of the slowest recoveries. Today, however, the south of the region faces a positive surprise in the distance: an increasingly wide array of raw materials, including copper and soybeans, has exceeded pre-pandemic values in recent weeks, opening up an unexpected escape route to the crisis. The challenges are enormous but things, in short, look somewhat better than a few months ago.
The rapid return to life of activity in China and the US rebound behind the stimulus deployed by the Biden Administration have shaken global pessimism.
The major infrastructure plans have substantially raised expectations for the consumption of food and metals.
And the bottlenecks in the supply chains of these products, besieged by two major storms in a short period of time - first was the confinements, but the last straw has been the recent collapse of the Suez Canal - have squared the circle, unleashing an inflationary escalation in raw materials unprecedented in a long decade.
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"It is a clear element of optimism," says the Ibero-American Secretary General, Rebeca Grynspan, who predicts an upward revision in growth forecasts throughout Latin America and, particularly, in its southern part. "However, the starting point is much worse than in the supercycle of 10 years ago: poverty has risen, fiscal deficits are higher and indebtedness, higher," he warns. The data is clear: the coronavirus has brought poverty in the huge neck of land between the Rio Grande and Ushuaia to values of 12 years ago, while extreme shortages have receded to levels of two decades ago. And the International Monetary Fund (IMF) believes that per capita income will not return to pre-crisis levels until - at the earliest - 2024. With or without the boost from raw materials.
From dependency as a ballast to capitalizing on the rise
The fall in the prices of basic products to the abyss in the worst part of the pandemic was the last straw for some economies, the South American ones, paralyzed by restrictions to stop the spread of the virus.
Oil, a true figurehead, came to trade negatively — in short: investors paid to get rid of the barrels due to the impossibility of storing more in crowded warehouses;
metals plummeted due to the sudden stop in demand;
and only the foods held the type due to their condition of staple products.
A year later, all that sounds distant, remote, almost past. The economies of the region are still suffering the consequences of the halt, but the commodity market - such as the stock markets or bonds - has turned 180 degrees. And with it, the expectations of the most dependent South American countries: Chile, Peru and Bolivia, boosted by copper and lithium; and Brazil and Argentina, global titans of agribusiness.
All of Latin America, but especially the Southern Cone, has been trying for years to shake off — without much success — its perennial subordination to
commodities
and the progressive reprimarization of its economies.
However, when the wind blows in favor, as now, the curse becomes a blessing: soybeans, by far the most exported product by the two largest South American economies, has almost doubled in price in the last 12 months in the heat of the largest Asian demand and one-off supply shocks, such as droughts.
Copper rides in an area of historical highs.
And iron, the second largest source of Brazilian income, has just surpassed them.
An employee works in a Codelco smelting furnace in Ventanas, Chile. Rodrigo Garrido / Reuters
The golden years: no trace of the supercycle
Only a decade has passed since those golden years in which oil was trading at triple digits, soybeans tripled in value in just five years and copper quintupled in record time. Hence the parallelism between the recent spurt in basic materials and that one is tantalizing. As much as unrealistic: only one of the ten economists consulted by EL PAÍS dares to speak of a supercycle such as the one that carried the South American economy in flight and allowed the greatest improvement in social indicators since there are records. Today's boom, they add, has more overtones of transitory than structural.
“We did not expect it, and it is very positive. But there is so much uncertainty about whether or not it will be sustained over time that I think it is necessary to opt for a prudent look. You can't talk about a supercycle, ”Martín Castellano, chief economist at the Institute of International Finance for Latin America, sentenced by telephone. “It gives me the impression that, above all, conjunctural factors such as the search for protection against inflation on the part of many investors. They used to buy gold and now they have put their interest in other raw materials, ”completes José Luis Machinea, former president of the Central Bank of the Republic and former Minister of Economy of Argentina.
Between the super cycle, the cycle and the minicycle, the bets are more aimed at the third. "After two or three years, it will be very difficult for them to continue rising because world GDP will not grow as in the 2000s, when China became the power it is today," says Marcos Casarin, head of analysis for the bloc of the consultancy Oxford Economics. Nor does the IMF chief for the Western Hemisphere, Alejandro Werner, see signs of a lasting rise in
commodities
. "It would be too optimistic to think otherwise, and that will prevent an impact on growth like the one we saw between 2003 and 2014," says Werner. According to his calculations, for every 10% improvement in the terms of trade, the South American economies will grow between one and two points more in three years from now.
A semi-industrial plant for potassium chloride and lithium carbonate, in Bolivia.EFE
'Green' minerals take over from crude oil
Oil was the key driver in the latest commodity bull cycle.
This time, however, the story seems quite different: since the abyss of April, his recovery has been faster than expected but incomparable with that of then.
“The big difference between the two episodes is crude oil, which is not accompanying the increase in prices of some minerals and foods.
And that will prevent the oil-producing countries from sharing the momentum, ”explains Werner.
The time has changed.
With combustion cars weighed down by governments' green twist to meet climate targets, oil has fallen out of favor, barely sustained by OPEC supply cuts.
He still has a few more years of dominance in the global energy matrix, but each day that passes is one less towards the long-awaited post-oil world.
This change of era is already leaving its mark on the Latin American geoeconomic map: the major oil exporters —Venezuela, Mexico, Colombia, Ecuador—, who lived days of wine and roses with a barrel above $ 100, will hardly be able to make a profit. the return to life of
commodities
.
The other side of the coin is copper and lithium.
The first is essential in the solar panel industry and for the assembly of electric cars, among others.
The second, essential for batteries.
And the world supply of both passes, to a large extent, through three South American countries, which have the upper hand in a scenario of rising prices like the current one: Chile, Peru and, to a lesser extent, Bolivia and Argentina.
Chile: lesson learned?
The projected increase in global copper consumption far exceeds the expectation of increased supply.
A deficit that is on the way to being structural and that is honey on flakes for Chilean interests, a country that alone contributes almost one out of every three tons consumed each year worldwide.
But Chile is also, almost certainly, the nation most aware in Latin America of how ephemeral these processes can be: after the last big boost in the price of copper, a long decade ago, investment decisions were made short-term price projections and the wave of new extractive projects ended up temporarily killing the goose that laid the golden eggs. When the price began to fall in 2014, the Chilean copper industry had to deal with the worst possible equation: oversized construction projects, with high associated costs, and low sales prices.
That is the lesson left by those years in which, at times, the extractive sector party seemed to have no end.
And it seems well learned.
Producing companies are betting on caution in their investment decisions and new projects will only see the light of day if two requirements are met: that they prove cost-competitive and that there is clarity on the orientation of long-term prices.
The danger of inflation
The rise in commodities will allow "a less hard landing on fiscal and debt," says Nora Lustig, professor at Tulane University (New Orleans, USA) and president emerita of the Latin American Economic Association and the Caribbean (Lacea). "It will give more room for maneuver to maintain a less restrictive fiscal policy, and this is very important in the midst of the pandemic," he explains. With the public coffers under enormous pressure, the countries of the bloc are preparing first of all to close the gap. "One thing is certain: more money than expected will enter the public coffers and governments will buy time before having to make adjustments," completes Casarin, from Oxford Economics.
The other side is inflation.
Oil, the component that most affects prices, has risen less than the rest.
But it has risen.
And food, the other key item - especially in the consumer baskets of the poorest sections of the population, the most battered by the crisis - has skyrocketed.
The rise of the corn tortilla, the quintessential food in Mexico and several Central American countries —which are barely obtaining returns from the improvement in the terms of trade— is the best example of how this phenomenon can weigh on the pockets of the poorer.
Central America and the Caribbean, out of the party
The dividing line for this new commodity boom is Panama: good news to the south, much less good to the north. All the South American countries - "without exception", emphasizes Alicia Bárcena, executive secretary of ECLAC, the UN arm for the development of Latin America and the Caribbean - are net exporters and it comes from pearls that become more expensive. The opposite occurs in Central America, a net importer of primary products with a handful of exceptions: Costa Rica, Honduras, Nicaragua, Panama. For that subregion, the tailwind comes from a factor completely unrelated to raw materials: the economic improvement in the United States, which will boost remittances.
The rising cost of food and minerals will also be bad for the Caribbean, one of the areas most affected in the world by the stoppage of tourism.
"It will be negatively affected in its terms of trade," explains Bárcena.
The exceptions to this rule are counted on the fingers of one hand: Guyana (protagonist of the last oil miracle in the world), Suriname (rich in gold) and Trinidad and Tobago (which exports gas and crude oil), the only three net sellers of oil. primary goods.
In Mexico, already in North America, the economic rebound will be more sustained by its industrial connection with the world's leading power than by the rebound of basic products.
But the rise in oil and minerals, far from subtracting, will add up.
Party at the Rosario Stock Exchange
It is the star product of Argentina, responsible for one of the four dollars that comes in from exports. For the third world producer of soy, with 16% of the market after Brazil (35%) and the United States (33%), its increase in price is unmitigated good news. At the border of $ 590 per ton, its highest value in eight and a half years and almost double the $ 300 shown on the Chicago parquet slates in May last year, and with corn - second in the table. of Argentine exports, which also doubled its price, Argentina will export grains this year for 34,400 million dollars, 8,100 million more than in the previous season, according to the Mediterranean Foundation.
The Rosario Cereal Exchange, the largest agro-export conglomerate on the planet, reported an income of 5,000 million dollars between January and March only from the sale of flour, oil and soybeans. As every year, China took over 90% of the national production and if the income in dollars does not end up being even higher, it will be solely because of the drought. A factor that hits on the volume side but boosts prices: part of the recent rise has to do with the lack of rainfall in Buenos Aires, Santa Fe and south of Córdoba, the regions that concentrate the bulk of the crops.
The second South American economy urgently needs the inflow of foreign currency.
Without international credit, the Government of Alberto Fernández covers the fiscal red, which in 2020 soared to 8.5% of GDP, printing currency.
This monetary expansion has rendered the efforts to contain inflation sterile, and the situation leaves exports as the only possible alternative to straighten the course.
One last Argentine derivative of the rise in the prices of raw materials: each rise causes a resurgence of tensions between the Government and the producers, because the State keeps 37% of the income from soy exports, a figure that the field considered excessive.
The Brazilian agribusiness beeps again
The upturn in
commodities
has taken on a special role in the analysis of financial specialists who guide millions of small investors who are trying their luck on the stock market via YouTube.
Austin Rating chief analyst Alexei Agostini is one of the few who believes that we are at the start of a new commodity supercycle in light of how prices have skyrocketed: "It's crazy."
In Brazil, an export powerhouse and the world's leading soybean seller, expectations are high.
With these new prices (thanks also to a very devalued real), the big
traders in
the sector are monitoring Brazilian producers with lawyers and drones to ensure that they comply with the contracts sealed a year ago.
Felippe Serigati, from the Getúlio Vargas Foundation, is inclined -as most do- that this boom will not be as intense or prolonged as that of the first decade of 2000. “The current rise is explained because the
world
stocks
of corn, soybeans or Wheat is very low, but not as low as we saw in 2007-2008: only soy is at those levels ”. Nor is there a factor that then helped to tip the balance: China's entry into the WTO. "We see additional demand from already installed players, not the entry of a new one, as then, which impacted like a meteor on world trade."
Agostini predicts that the current boom will benefit sectors such as agribusiness or mining, which are very important in the Brazilian economic fabric.
But that bonanza, Serigati explains, will hardly extend to the general population.
The times of surpluses, subsidies and free loans are over.
These, as in the rest of the region, are still marked by fiscal straits and unemployment.
With information from
Naiara Galarraga Gortázar
(São Paulo),
Federico Rivas Molina
(Buenos Aires) and
Rocío Montes
(Santiago de Chile).
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