Hanging up the commodities boom hat
Today's Financial News - Posted January 15, 2009
Our neighbors to the south had a fantastic few years, but the boom is over. For countries like Brazil, Chile and especially Venezuela it is time to diversify… or bust.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): After enjoying nearly half a decade of economic good-ol’-days, South America is retracting faster that a lawmaker making an inadvertently bigoted joke.
Brazil was the target of many American investment dollars after it led the world in significantly increasing its use of alternative fuels. Its ethanol industry made many Americans “green” with envy. But now that oil prices are plummeting, the country’s Cosan SA Industria e Comercio, the world’s second largest sugarcane producer, is wondering what happened to all its customers.
To the north, Venezuela’s aggressive leader, Hugo Chavez, is eating his words and is once again opening the nation’s oil fields to western oil producers, not just the governments friends in Iran, China and Russia. It is a bold move that proves falling crude prices are slamming the socialist government’s hopes of spreading the wealth from border to border.
After nationalizing its oilfields and standing back as oil production continued to fall, Chavez needs the help of conglomerates like Chevron (NYSE:CVX) and Royal Dutch Shell (NYSE:RDS.B) to boost oil production and put some oil revenue back in the state’s coffers.
It is a testament to the dwindling supply of crude around the globe that these companies are even entertaining the idea of messing around in Venezuela’s violate economy after getting fleeced out of huge amounts of cash. But money is money and Venezuela’s oil is cheap and easy to suck from the ground.
Who didn’t see this coming?
Head south and another major commodity is causing havoc as its price plummets. Chile raked in huge profits as the commodity bubble sent copper prices through the roof. If people were willing to steal copper from the wiring running through the walls of houses here in America, imagine the ferocity at which Chilean miners pulled the stuff from the ground.
In December of 2007, the country exported $2.39 billion worth of the metal. This past December, that figure plunged to just $1.23 billion. Copper prices averaged $1.39 per pound during the month. During the summer of 2008, miners were getting closer to $4 per pound.
Money comes and money goes, especially in the ant-versus-grasshopper commodities industry
As 2009 unfolds, the drama to our south will only get worse. The issues America faces are nothing compared to the problem these one-trick ponies will deal with over the next year.
A stronger dollar and falling commodity prices make it a great time for America to be a net importer.
We will not be hearing much anti-America talk out of Chavez for the next few months. He has his own people to deal with.
Next Article: Under Armour’s results will embarrass some investors
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