Archives for November 2011

Rising Energy Requirements: Brazil to Expand Its Nuclear Energy Production

petroleumBrazil is contemplating to expand its nuclear energy output by constructing five more reactors to augment the two currently in operation, Energy Minister Edison Lobao recently announced.

According to Lobao, despite the recent incidents in Japan, Brazil is sticking to its policy of expanding its nuclear program, mainly because of rising energy demand and supply deficit.

Brazil at present operates two reactors in its sole nuclear power plant located in Angra dos Reis, a coastal town south of Rio.

The facility generates only around three percent of Brazil’s energy production, which relies tremendously on hydroelectric installations.

But as economic expansion is outstripping energy supply, resulting in occasional blackouts across regions, the country is seriously looking at all possible means of energy, including nuclear and wind power.

Lobao noted that building of a third reactor is in progress at Angra, (due for completion in 2015), and confirmed that the government will come up with four more reactors.

Meanwhile, Greenpeace and other environmental lobby groups, nonetheless, oppose broadening Brazil’s nuclear program, arguing that there is possibility for widespread ecological damage in case of an accident.

However, Brazil’s energy minister looks unperturbed by the opposition as he said that Brazil’s reactors have a different and “trustworthy” safety system, much better than the one used in Japan’s ill-fated Fukushima plant, which was breached in its quake-tsunami disaster in March.

Currently, Brazil and Argentina are the only two South American countries possessing nuclear power plants.

World Trends In nuclear energy generation:

According to experts dealing in atomic energy, it is difficult to predict that nuclear energy industry will slow down in near future. This is mainly due to the nuclear supply story and rising energy demand. Consider this: As of Jan. 1, 2010, there were 437 active nuclear power plants in the world generating more than 370GW. There are also at present 56 new plants under construction capable of creating an extra 512GW. That means an overall capacity rising by 14% is well on the way in the due course for nuclear power, with plans for 29 more plants under consideration in the U.S. alone and more than 100 worldwide.

Brazil’s Poultry Industry Boosting Country’s Food Exports

eggBrazil’s processed food exports are witnessing the fastest rate of growth among the world’s major food producers.

The fifth largest international exporter, Brazil showed an increase in the sales of these products to foreign countries of 4.8% per annum for the period 2005 to 2010. According to the data provided by the GTIS (Global Trade International System) the other four producers U.S. , The Netherlands, France and Germany) ranked above it showed much slower growth for the same period
The leading exporter of chicken in the world, Brazil also currently ranks 3rd largest producer, with a total of 12 million tons. In 2010, more than 3.8 million tons were exported to over 150 countries, representing a 42% share of the global market. Chicken is at present, the 5th ranked export product of Brazil’s exports’ basket, coming behind only to iron ore, petroleum, soy and sugar.

Export volumes soared in the first half of 2011. From January to July, chicken exports reached 2.239 million tons, a strong growth of 3.4% compared to the same period previous year. Revenues have increased even more, with the first six months of the year amounting to $4.6 billion, against $3.75 billion for the same period in 2010.

With regard to the kinds of products exported, chicken cuts amounted to 1.182 million tons for the first half of the year, while sales of industrialized chicken exports reached 106.5 thousand tons.

But what about Brazil’s other leading export? Sugar

One of Brazil’s biggest exports — Sugar—is losing its share in global market due to falling production, domestic inflation.

The cost of producing sugar in Brazil is set to move up  by 85 percent over the next two decades, said a report released by Czarnikow— a London-based sugar merchant.

At present, Brazil is responsible for more than half of the world’s sugar exports, but its crop has been damaged by insufficient investment in replanting and bad weather, according to market experts.

The rising cost of land and wages, mounting inflation and a surging currency have all helped drive production costs higher, threatening sugar exports from Brazil.

Euro debt crisis: Brazil Fails to Garner Sufficient Support From Other BRIC Nations

BrazilBrazil’s initiative to support the crisis-hit euro zone garnered only little support from fellow BRICS countries, last week, as doubts emerged whether the five emerging market powers have the political consensus or financial clout to throw a lifeline to Europe.

Last Wednesday, Brazil’s president, Dilma Rousseff, reiterated that her country was prepared to join an international rescue effort, a day after officials said Brazil was in preliminary talks with the four other members of the BRICS group – Russia, India, China and South Africa – to make joint effort in purchasing of bonds of euro zone countries.

Earlier, Brazilian Finance Minister Guido Mantega had said he would call on his BRICS counterparts to gauge the level of support before they meet on September 22 on the sidelines of meetings of the World Bank and International Monetary Fund in Washington

However, doubts quickly emerged whether the diverse group would have the political resolve to come up with a plan with enough financial muscle to make a genuine difference as the possibility grows of Greek debt default.

For instance, a central bank adviser in China urged Beijing not to buy large amounts of euro area bonds, and South Africa’s finance minister said that his country might not have the financial strength to support a bond-buying plan. India retreated it was “cautious,” and Russia appeared to dismiss the offer.

Besides, Russian President Dmitry Medvedev’s chief economic adviser, Arkady Dvorkovich, told that the Group of 20 would be a more ideal forum to deal with the euro zone crisis.

Greece feels that so far BRICS countries had shown very little interest in covering the country’s borrowing needs through the T-bill sales program.

However, many economists argue that even Brazil faces limitations, raising suspicion that its proposal of support is a largely self-serving initiative aimed at furthering its aim of gaining a bigger say in international financial institutions.

At present, Brazil’s $352 billion in foreign reserves can only be utilized for investment-grade assets and would likely be off-limits for European bond purchases, economists believe. At the end of 2010, 82 percent of its reserves were focused on U.S. Treasuries.

In the case of Russia, Finance Minister Alexei Kudrin says that at present,  45 percent of country’s $543 billion reserves are already in euro-denominated assets, therefore, the central bank has no room to increase holdings of euro zone debt at will.

Does World Really Follow the Free Market Economics?

TradingWe all know the virtues of a globally integrated economy.  Free market economics help countries to focus on those services and manufacturing activities where countries have competitive advantage over others.

Now days, the assumption is that we live in a world of free trade and free financial markets. But most us believe that both free trade and financial markets are now suddenly being sullied by unreasonable actions and recommendations of nationalist leaders seeking narrow and short term political gain.

In fact, this is simply not the case or at least it is very far from the whole case. We no more live in a world of free trade and free financial markets. To a certain extent, we live in a world that is divided.

Why? Here are the answers:

China, the world’s second largest economy, sternly manages the yuan to be dramatically under-valued against the dollar. It also manages the terms and conditions of both domestic and foreign investment and often makes admission to its markets conditional on the transfer of technology, investment, and jobs. Because China’s yuan is not let to appreciate, capital flows to Brazil where the real is towering and thereby making Brazilian production for both foreign and domestic markets– uncompetitive. It won’t be wrong to say that China is exporting unemployment to Brazil.

In these circumstances, it is perfectly reasonable for Brazil to become protectionist to try to counter china’s currency manipulation and protectionism. However, globally Brazil is being blamed for getting protectionist.  But the question is:  Is the protectionism here really that of Brazil or is it that of China?

Take another case of Europe and Switzerland:  is the protectionism that of Switzerland or is the problem of Germany’s unceasing trade surpluses and refusal to implement a European financial transfer mechanism that makes it impossible for the rest of Europe to grow?

The Escalating Trade War

Mitt Romney, the famous American politician and businessman, known for his “free trade” penchant, recently called for imposition of tariffs on Chinese imports if China does not let considerable appreciation of its yuan. Meanwhile, Brazil has imposed anti-dumping duties on imports of Chinese steel tubes.  Brazilian President Dilma Rousseff’s stated that this was justified and considering the current international crisis, nation’s principal weapon is to expand and protect our internal market.

While Brazil cannot be squarely blamed for this decision, the repercussions could be bad with many more countries threatening protectionism.

In the meantime, Switzerland’s intervention in capital markets last week to halt the dramatic rise of the franc has paved the way for possible currency wars.

World’s Most Over-dependent Export Economies

While robust imports and exports are important for a vital economy, some countries are in reality dangerously over-dependent on foreign trade.

When it comes to export oriented economies, there are host of countries that are highly reliant on exports. Let’s look at these countries and find out why over dependency is dangerous.

South Korea
In the case of South Korea, economists argue that the country’s “dependence ratio” is extremely high. While it may sound complicated, the dependence ratio is merely the ratio of imports and exports. In simple wor

While robust imports and exports are important for a vital economy, some countries are in reality dangerously over-dependent on foreign trade.

When it comes to export oriented economies, there are host of countries that are highly reliant on exports. Let’s look at these countries and find out why over dependency is dangerous.

South Korea
In the case of South Korea, economists argue that the country’s “dependence ratio” is extremely high. While it may sound complicated, the dependence ratio is merely the ratio of imports and exports. In simple words, it means trade to gross domestic product.

Dependence Ratio Rising
Normally, on the higher side, the dependence ratio for South Korea has climbed in the first quarter of 2011 to about 110%, reflecting the ever more disproportionate role of foreign trade in that country’s economy. The dependence ratio for China is stands at 49%, while Japan and the U.S. each have a dependence ratio of only around 25%, signifying that these three countries are much more self sufficient economically.

A country is more vulnerable to being trade-dependent if it’s comparatively small like South Korea, which only has a population of about 49 million (compared with about 128 million, 312 million and 1.3 billion, respectively, for Japan, the U.S. and China). A small population signifies a small domestic market, which forces a country to depend a lot more on foreign trade for economic growth and prosperity.

Germany and Mexico
Along with South Korea, Germany and Mexico are also identified for being trade-dependent, though to a lesser degree. Germany, with a population of only about 82 million, has a dependence ratio of 87% arising mainly from its reliance on the European Union for trade. It wouldn’t be much of a surprise to witnesses a sharp deceleration in Germany’s fast-growing economy soon, since the rest of Europe is introducing austerity measures that are apt to greatly reduce demand for German exports.

Mexico has a considerably larger population than Germany (nearly 113 million.), so we might expect, its dependence ratio is lower at 55%. This is, nevertheless, fairly strong trade-dependent ratio. Because Mexico depends so heavily on the U.S. for trade, its export oriented economy suffered worse than other Latin American economies during the 2009 recession.

ds, it means trade to gross domestic product.

Dependence Ratio Rising
Normally, on the higher side, the dependence ratio for South Korea has climbed in the first quarter of 2011 to about 110%, reflecting the ever more disproportionate role of foreign trade in that country’s economy. The dependence ratio for China is stands at 49%, while Japan and the U.S. each have a dependence ratio of only around 25%, signifying that these three countries are much more self sufficient economically.

A country is more vulnerable to being trade-dependent if it’s comparatively small like South Korea, which only has a population of about 49 million (compared with about 128 million, 312 million and 1.3 billion, respectively, for Japan, the U.S. and China). A small population signifies a small domestic market, which forces a country to depend a lot more on foreign trade for economic growth and prosperity.

Germany and Mexico
Along with South Korea, Germany and Mexico are also identified for being trade-dependent, though to a lesser degree. Germany, with a population of only about 82 million, has a dependence ratio of 87% arising mainly from its reliance on the European Union for trade. It wouldn’t be much of a surprise to witnesses a sharp deceleration in Germany’s fast-growing economy soon, since the rest of Europe is introducing austerity measures that are apt to greatly reduce demand for German exports.

Mexico has a considerably larger population than Germany (nearly 113 million.), so we might expect, its dependence ratio is lower at 55%. This is, nevertheless, fairly strong trade-dependent ratio. Because Mexico depends so heavily on the U.S. for trade, its export oriented economy suffered worse than other Latin American economies during the 2009 recession.

Top Spenders on Research and Development

TradingFor any country to become competitive in global sphere, the research and development activities serve as the backbone. Currently, the U.S. is still by far the number one on R&D spending in straight money terms. By the end of the year, the U.S. will have put staggering $405.3 billion toward R&D, more than two-and-a-half times the $153.7 billion of runner-up China. But apart from these two giants, who else are top spenders on R&D activities? Let’s have a quick look.

Israel

Israel’s 2011 R&D expenditures stand at $9.4 billion or 4.2% of its GDP. The main focus areas of R&D spending are technology infrastructure, basic infrastructure (e.g., roads, railways and energy sources), environmental science and space science. Israel also invests a great deal in various types of engineering, such as agricultural, hydraulic, military and biomedical engineering.

Japan

For 2011, Japan’s R&D expenditures will amount to $144.1 billion, which translates into 3.3% of its GDP. Japan’s main focus areas of R&D spending include energy conservation and new energy sources, housing, robot technology, life sciences, telecommunications, nanotechnology, infrastructure and frontiers (space and the oceans).

Sweden

Sweden’s 2011 R&D expenditures stand at $11.9 billion, or 3.3% of its GDP. The main areas of concentration on R&D spending are on human capital, communications technologies, university education and vocational training. Just Like many developed countries, Sweden puts lot money toward medical research, mostly for cancer and diabetes. It also invests heavily on climate-related research, particularly as it pertains to sustainable energy and natural resource use.

Finland

In 2011, Finland will invest $6.3 billion in R&D or 3.1% of its GDP. The major part of the spending is on high-quality, cost-effective health care delivery, improved diagnostic systems, better HIV and cancer therapies and the advancement of nutrition. Finland has been concentrating a lot on high-tech areas, too, like mobile communications technologies and “clean-tech” technologies that alleviate global warming through emissions reductions and other measures.

South Korea

South Korea’s 2011 R&D expenditures stand at 3.0% of its GDP or $44.8 billion. The main areas of interest under R&D spending are pharmaceuticals, environmental research, semiconductors, wireless technology, telecommunications equipment and computers, among other areas. Besides, South Korea has been stepping up military R&D as well.

Meanwhile, India and Brazil, experts predict will be No.8 and No.11, respectively, allocating $36.1 billion and $19.4 billion each for R&D in 2011.

 

The Potential of Wind Energy Industries in Brazil

Wind energyAccording to a study conducted by Bloomberg, named New Energy finance, Brazil could become one of the world’s great growth markets for wind power, but only if the industry considerably cuts its costs below current levels or significantly improves equipment performance. The report also adds that the country could add as much as 1.4 GW in 2012 and 1.5 GW in 2013, up from 392 MW in 2010.

Nonetheless, the study also cautions that it will take excellent wind turbine performance, significantly lower prices for such equipment, access to lower-cost capital, or some combination of these for the sector to grow in Brazil at the rate the industry and regulators foresee.

Brazil wind energy tariffs are globally competitive but it will need to enhance its production efficiency:

The country recently held two tenders for wind power and agreed to sign contracts with wind developers totaling just over 1.9 GW. The contracts were given on the basis of the projects that could supply power at least cost. Wind price sent strong appeal, for the first time, under- pricing developers of natural gas-fired power projects. While the average price for wind was $62/MWh, the price of natural gas stood at $65/MWh. These are the lowest tariffs being offered to wind generators on a market-wide basis—internationally– and below wholesale electricity prices in some other Latin American markets.

For this reason, the results were termed as very impressive by local energy officials and international wind energy advocates. However, now that developers have been tapped for such contracts, the responsibility falls on them to sell their power at the low rates on which they agreed. That means generating power at an even lower cost that allows their investors to receive the necessary returns.

According to Eduardo Tabbush, wind analyst at Bloomberg New Energy Finance, to achieve those returns, almost half of these new projects will have to operate at significantly higher efficiency or lower cost than has been seen in other parts of the world, according to Eduardo Tabbush, wind analyst at Bloomberg New Energy Finance.

For example, the study from Bloomberg New Energy Finance points out that up to 40% of the potential new megawatt capacity contracted under the auctions would result in equity returns of fewer than 10% for backers of those projects. This raises the likelihood of that capacity not being financed or built.

So for these projects to become viable by current standards, wind turbine costs must drop 15% in Brazil to $1.2m/MW, or 10% below the current global average. The same thing applies for other wind energy devices along with distribution, marketing and operational strategies that will help in improving returns and cutting costs.

COPOM Justifies Its Rate Cut Decision

DowLast month when COPOM decided to cut the interest rate by 50 basis points, it resulted into tremendous hue and cry. While the Brazil industry and consumers welcomed the move, most analysts felt that this would end up in overheating the economy.

However, COPOM stands firm on its decision. Brazil’s central bank said on Thursday that its surprise 50 basis-point interest rate cut was justified by the fading global economy, adding that tighter fiscal policy and reduced demand at home should let inflation to start easing in coming months.

After announcing the rate cut, the bank explained that it recognizes that the international macroeconomic environment has changed substantially since its last meeting, justifying a revaluation and, ultimately, an about turn of the recent process of raising the base interest rate.

This explanation clearly shows that COPOM anticipates a major trouble arising owing to sluggish economic environment in the US and Europe. For instance, in minutes from its Aug. 30-31 monetary policy meeting, the bank focused more on problems overseas than signs of an economic slowdown at home.

Nonetheless, the authority also said it would continue to be vigilant with inflation at a six-year high and rising, but it saw risks lowering from commodities price shocks and an output gap.

Apart from analysts, last week’s rate cut even surprised investors, most of whom had expected no change to rates because inflation has constantly increased at a worrying pace in Brazil, with prices up 7.2 percent in the 12 months through August. That’s why to reach up to this decision wasn’t easy for the COPOM. The decision split the bank’s board, with two of its seven members going against the rate cut. The bank said in its minutes that those two members believed the time was not yet right for a monetary easing cycle.

Meanwhile, the central bank said that the cycle of rising inflation on a 12-month basis should end this quarter.

While COPOM argues that slowing global economy resulted in rate cuts, many analysts also believe that  the rate cut was motivated in large part by new data showing signs of a sharper than expected economic deceleration in Brazil, with a contraction in economic activity possible in coming months.

Is the Global Economy Heading Towards Currency War?

America’s flagging economy has forced the Federal Reserve to keep the interest rate at record low levels. Already, the monetary easing (QE2) has done lots of harm to local currencies in countries like New Zealand and Brazil as investors throng towards attractive markets for interest rates pushing up the domestic currencies against the greenback.

In his latest speech to the Federal Reserve, although, Chairman Ben Bernanke didn’t indicate what form easing might take, any of the further monetary options are bound to tick off countries like Brazil. Now, the question is whether those monetary easing tactics will result into to so-called “currency wars” and drag down the global economy.

The risk of currency wars (that is, when countries around the world begin competing to make their currency cheaper than everyone else’s as a way to boost trade) has been persistent for a while.

For instance, last week’s announcement by the Swiss National Bank that it was “prepared to buy foreign currency in unlimited quantities” to stable its currency value added fuel to the fire.

Why countries resort to this and what results in currency wars?

As explained above, whenever big central banks like the Fed make moves that reduce the dollar’s value abroad, other safe haven currencies offering higher returns, like the Japanese yen and the Swiss franc, see an upward push for their currencies.

Also, when the central banks of those countries intervene to lower their currency values (which protect their export industries), other countries competing on trade are likely to follow suit. Markets like Brazil, meanwhile, are experiencing from “hot money” inflows from Western investors in search of riskier deals.

So where this would end and will the situation gets worse?

Some economists are not as much worried about the danger of full-blown currency wars as of now as they were a year or two ago. For one thing, the Fed seems more likely to extend the maturity of its existing bond holdings than to begin another round of controversial bond-buying, like QE3, which may have a more subdued effect.

Vehicles Sales Soar While Industry’s Growth Slows: Slowdown and Rate Hikes Blamed

BrazilAccording to the Brazilian Motor Vehicle Manufacturers Association, or Anfavea’s latest report, Brazil motor vehicle sales soared in August but growth continued to slow from the year-earlier period due to more expensive credit and a less lively economy. While the August sales of cars and light commercial vehicles reached 307,776, climbing 6.9% from July, growth was only 3.8% from August 2010.

According to the data provided by the Anfavea, for the first eight months of the year, car and light commercial vehicle sales surged by 7.5% to 2.37 million units, signifying a slowdown from previous months. The industry now expects roughly 5% growth for the full year. Sales growth lost momentum in August after growing 8.6% through July and 9.5% through June.

What are the Reasons?

Analysts say that rising interest rates and increased taxes on consumer credit have slowed car sales this year, notwithstanding low unemployment and high consumer confidence, in a market where more than two-thirds of car purchases are financed.

Now, even though the country’s central bank cut interest rates last month–ahead of a report that showed an economic deceleration in the second quarter–the industry doesn’t anticipate the lower benchmark rate to translate into increased car sales until sometime next year.

Anfavea President Cledorvino Belini believes that the decline in interest rates is very encouraging and it signals a very good future for the industry. He argues that government’s increase of taxes and interest rates, known as macro- prudential measures had a negative effect on the industry after a few months, but after next few months we can an upsurge in sales, although it won’t happen immediately.

While the production climbed in August to 299,127 vehicles, up 5.4% from the previous month, the output was up 4.5% from August 2010.

Nevertheless, stockpiles also continued to rise, climbing to the equivalent of 37 days of sales in August, from 36 days in July. The buildup has forced Brazil’s automakers to slow down production, with major carmakers giving layoffs to some workers.

Meanwhile, August auto exports climbed 19% on the year and rose 9.1% from July to $1.12 billion, Anfavea said Thursday. Total exports this year stood at $7.85 billion, up 17% from the 2010 period.

Now to further boost the industry, Anfavea says that industry will talk with the government to put forward measures to improve competitiveness. The association says the carmakers represented by Anfavea are dedicated to promoting innovation, technology, and national content aimed at driving up both local and export demand.

Currently, production costs in Brazil are 60% higher than Chain’s which means that Brazil will have to put sufficient efforts on innovations, R&D and lean manufacturing concepts if the industry has to compete globally.