Latin American economic analysis – week of August 8, 2005

Latin American economic analysis – week of August 8, 2005

This week the news is dominated by Brazil with little noise coming from the rest of the region. Much ado has been made of the antitrust ruling against Cia. Vale do Rio Doce (CVRD) this week which strips them of their first buyer’s rights to Cia Siderurgica Nacional’s (CSN) Casa de Pedra mine. CVRD, the world’s largest iron ore miner, has shrugged off the ruling saying the effect of losing the rights to Casa de Pedra is minimal. CVRD currently produces about 190 million metric tons of iron ore per year and expects that total to rise to 300 mmt in the next four years. By way of comparison, CSN produces 18 mmt per year but is aiming to up it output to 40 mmt by 2007. The Administrative Council for Economic Defense (Cade) also ordered CVRD to cut its stake in the MRS Logistica railway by 18 percent which will diminish its ability to control the flow of materials from mine to port. Meanwhile, things for Brazilian President Luiz Inácio Lula da Silva are steadily going from bad to worse. Thursday proved a pivotal day for the embattled president as key witnesses testified that Lula may have accepted money under-the-table to help finance his 2002 campaign. As a result, the Brazilian stock market reacted poorly early Friday amid calls for Lula’s impeachment. Thus far the Bovespa had shed nearly 1.5 percent and the real had lost 0.7 percent against dollar. Earlier, on Thursday, the real tumbled 2.7 percent after the central bank sold the currency for dollars for the first time in five months. Among the most notable was CVRD’s two percent loss. Despite putting on a brave face CVRD is finding it difficult to regain its footing due to the aforementioned Cade ruling. Gerdau SA, Latin America’s largest overall steel producer, has also found itself in negative territory falling 2.6 percent for its third consecutive loss this week. Usiminas, Latin America’s largest flat steel producer, is on a three-day losing streak as well, falling 1.7 percent on Friday. The company is also facing negative reactions from lower-than-expected earnings results in the second quarter. Around the rest of the region, Mexico’s June year-on-year industrial output rose 0.7 percent after a 2.9 percent increase in May and over five percent in April. Mexico’s peso has fallen 0.2 percent against the dollar but is up 5.3 percent so far this year. In widely expected move, Chile’s central bank raised interest rates 25 basis points to 3.75 percent. The bank is further expected to move the rate up another additional 25 points by year’s end to keep inflation in check. Chile’s peso rose slightly 0.8 percent against the dollar. Colombia’s peso shed another 0.4 percent in its second consecutive loss and Argentina’s peso slipped 0.2 percent.