South American economic overview – June 25, 2008

Argentina: The Argentinean economy is under siege. The three-month-old farmers' strike over government-introduced export taxes on grains and oilseed is taking its toll. Food cost is going up sharply. Because of the resulting lower investments and weakening consumption, Barclays Capital reckons that Argentina's GDP will grow no more than 5.5% this year, official numbers notwithstanding. The new methodology of calculating the consumer price index has not convinced anybody -- credible unofficial sources put the real inflation rate at 30% overall and 36.7% in the interior regions. The consumer confidence level has dropped to a five-year low and is 22.8% below last year's level.

Steel Production: 499,000 mt in May, an increase of 12.3% over last year. In the first five months of 2008, 2.368 million mt were produced, or 10.4% ahead of last year's pace.

Brazil: The economy has weathered the global economic turmoil rather well. The strong currency keeps import prices low even though food and energy costs have pushed up consumer prices to 5.6% which is still within the Central Bank's target range of 4.5% +/- 2%. Still, the benchmark interest rate was pushed up to 11.25% at the beginning of June and another increase to 12.75% is expected in July. Finally, it was noted that Brazil remains attractive for financial investors. With the benchmark interest rate at 12.25% and deducting the consumer price index of 5.6%, the real interest rate is 6.65%. Only Turkey has a higher rate at 7.05%.

Steel Production: 2.97 million mt in May, or 2.8% more than last year. In the first five months of the year 14.5 million mt were produced, or 6.8% more than last year.

Chile: Inflation quickened at the fastest rate in 13 years. The benchmark interest rate was increased to 6.75% but in the opinion of many experts remains too low to slow inflation. More interest rate hikes are expected for the remainder of the year. Energy costs are bearing down on the economy, prompting the government to announce a US$1.0 billion fuel subsidy program and an 80% rebate on diesel taxes for truckers.

Copper Price: US$8,420 per mt as of June 20 for delivery in three months (US$7,250 last year)

Venezuela: Economic conditions are deteriorating steadily. Work stoppages at the nation's largest steel plant, SIDOR, along with its nationalization and delays in allocating foreign currency funds for imports, are dragging down the manufacturing sector. Manufacturing fell 4.4% in April, following the sharp decline in industrial production in March. GDP growth for Q1 was the slowest in four years. Meanwhile, inflation is running amok, standing at 31.4% in May, the highest rate in all of Latin America.

Steel Production: 375,000 mt in May, or 12.5% less than last year. In the first five months of the year 1.7 million mt were produced, or 20% less than last year.