Latin American economic analysis for the week of June 20, 2005

Latin American economic analysis for the week of June 20, 2005

Steelmakers led declines on Brazil's main stock index this week as concerns over shrinking profit margins took center stage. The Latin American benchmark steel price has fallen 13% so far this year spurring a psychological reaction to declining earnings. Worldwide, prices continued to ease as output increased owed in large to China which upped its production an astonishing 38%. That increase overrode production cuts by the world largest steel producers Arcelor and Mittal. Brazil's market declines were led most notably by its second-largest steelmaker CSN which has fallen 35% this quarter, and Gerdau. Vale, the world's largest iron ore producer also slipped as did Usiminas, the region's largest producer of flat rolled steel, which has declined over 31% for the quarter. The Brazilian real rose for the first day in three, 0.8%, bringing its yearly gains against the dollar to 11.3%. Throughout South America, market indexes yo-yo'd with Chile, Peru, and Colombia all showing raises while Argentina's remained flat. In Mexico there was good news from the Mexican central bank who signaled that they are done raising interest rates. For the past 14 months, the Bank of Mexico has raised rates 12 times to an overnight rate of 9.75%, however, it is widely expected to begin cutting the rate next month to aid expansion of Mexico's stalled economy. All in all, many feel it is about time as inflation is under control, the economy is growing too slowly, and interest rates are far too high. Overall, the interest rate has led to declines in investments as companies cut spending by 0.4% in the first quarter. News that Mexico's economic growth slowed in the first quarter after seeing has raised alarms and odds that further economic expansion will be less than the government's projected 3.8%. Meanwhile, Mexico's peso has reached its highest peak in 21 month and has gained 3.6% on the dollar so far this year. The peso's strength has put a damper on Mexico's imports and is said to be a sign of a monetary policy that is too restrictive. Throughout the region, Argentina and Colombia's peso saw gains against the dollar while Chile's was down slightly.