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China’s US$8.5 billion in steel encourages Latin America to adopt tariffs
(Bloomberg) — One after another, Latin American countries are following in the footsteps of the U.S. and Europe by imposing prohibitive tariffs on Chinese imports — a strain on what has been an otherwise welcoming relationship.
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Mexico, Chile and Brazil have increased – and in some cases more than doubled – tariffs on steel products from China in recent weeks. Colombia may be about to follow suit.
The fees may seem unfashionable given the way the Asian superpower has consolidated itself in Latin America in recent years. China has become the region’s largest buyer of raw materials and a major investor. At the same time, Latin America has given China another market to sell its products as it faces tough tariffs from the US and Europe. It is shipping nearly 10 million tons of steel a year, valued at $8.5 billion, to Latin America – a huge jump from a mere 80,500 tons in 2000, according to regional steel association Alacero.
Now, that relationship is being tested by a global turn toward protectionism and a flood of Chinese imports that threaten to drive Latin American steel producers out of business and put 1.4 million jobs at risk.
“This is an important test of China’s interests and intentions,” said Margaret Myers, director of the Asia and Latin America Program at the Inter-American Dialogue. It is also a “test of Latin America’s determination to challenge what is a critical economic partner”.
Brazil will soon introduce a tariff quota system to prevent predatory pricing of imported alloys. Although the official announcement did not mention China, the 62% increase in Chinese shipments last year to 2.9 million tonnes was behind the move, people familiar with the matter said.
“It’s a sign to the world that Brazil has rules – it’s not a no man’s land,” said Marco Polo de Mello Lopes, president of the industrial association Aço Brasil, who held talks with the government for nine months before it announced the new rules. .
However, reacting against China can be fraught with risk – especially for smaller, export-oriented economies that depend on Chinese demand for their sales of raw materials, from cherries to copper.
There are many examples of Beijing suspending purchases and investments in reaction to what it considers unfair and unilateral measures. There was a brief period during which China banned soy products from Argentina in response to broad anti-dumping measures. Following the arrest of a Huawei executive in Vancouver in 2018, China blocked canola shipments from two Canadian companies.
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China’s Ministry of Commerce did not respond to a request for comment on recent tariffs imposed by Latin American countries.
For the self-proclaimed leader of the Global South, there is also a broader symbolic risk that comes from a potential united front against its exports.
“In some ways, these developing countries are the best indicators of global trade sentiment toward China,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. “They suggest that protectionist walls against Chinese products are being erected in many different places, not just in rich countries.”
Existential crisis
Latin America’s trade relationship with China has also, in many ways, had a positive impact on the region.
Chile’s economy, for example, has benefited greatly from sending raw materials to China and buying back processed or manufactured products. The country’s free trade strategy – including bilateral agreements with China and the US – has opened huge markets for its grapes, wines, salmon, wood pulp and minerals, helping it become one of the region’s most prosperous nations. .
But like other raw materials export-oriented economies, Chile has struggled to compete in downstream markets – such as turning raw lithium into battery components or iron ore into steel products.
For Brazil, having the best iron ore deposits in the world is not enough to make its steel mills competitive with China, even though it has developed some production capacity.
Take as an example the mining company Vale SA, which extracts rich iron ore from the red earth of the Brazilian Amazon. Much of it is transported 16,000 kilometers to the Chinese port of Qingdao and fed into any of the country’s hundreds of large steel plants. There it is sandblasted and shaped into basic alloy products.
The problem is that when some of this steel makes the return trip, it reaches Brazilian manufacturers at a huge discount compared to the prices charged by local steel mills owned by Gerdau, CSN and ArcelorMittal.
In Colombia, where Chinese shipments arrive at a 50% discount, steelmaker Paz del Río asked the government to increase import tariffs and help it return to profitability, CEO Fabio Galán said in an interview last month. The influx of Chinese alloys is not only putting jobs at risk, but has also completely displaced imports from Brazil and Mexico, according to the company. In the year to April, 92% of steel wire imports came from China and Russia.
“The biggest risk is that steel becomes another example for the argument that China is exporting its excess capacity,” Beddor said. “It’s especially a problem because steel could lead developing countries to buy into that narrative in a way they wouldn’t for, for example, electric vehicles.”
At the same time, Chinese investors have also been a key partner for Latin American countries looking to take their raw materials-oriented economies further downstream. The country has become a big spender in Latin America and the Caribbean, investing US$187.5 billion between 2003 and 2022 in industries such as energy, transport and mining, according to a report by the Inter-American Dialogue.
Although Chinese spending in the region has slowed of late, investment has continued in key industries. The Industrial and Commercial Bank of China grew in Argentina. In Brazil, electric car giant BYD Co. is building its first factory outside Asia and plans to announce another in Mexico by the end of the year. In Chile, BYD and Tsingshan are developing lithium cathode factories. Since 2005, the China Development Bank and the Export-Import Bank of China have provided $136 billion in loan commitments to the region.
With the recently imposed tariffs, Latin American countries may be betting that China is now so entrenched in the region that Beijing will not engage in reprisals. President Xi Jinping is expected to make his first trip to South America in five years for the APEC and G-20 leaders’ summits, putting a renewed focus on relations in the region.
Furthermore, although the amount of Chinese steel entering Latin America is significant for the region and detrimental to local factories, it represents about 1% of the billion metric tons that Chinese factories produce every year. This could minimize the risk of angering Beijing.
“These countries potentially have more influence than in the past because they are more critical as a destination for many of these goods,” Myers said. “That said, they are still hugely dependent on China. So everyone is going to walk this fine line.”
‘Bandage’
For Latin American steel-producing countries, tariffs are still not a perfect solution.
For example, strict new tariffs in Chile will increase costs in the all-important mining industry that uses steel balls to grind ore.
“It is necessary to show a response to the dilemmas caused by economic globalization,” said Francisco Urdinez, director of Nucleo Milenio Iclac, a Chile-based think tank that studies Sino-Latin American relations. “But it is not a fundamental solution. It’s just a band-aid that ends up generating redistribution from consumers to producers.”
Then, of course, there is the issue of steel dumping, the practice of selling the product for much less than local competitors. Raising tariffs won’t be enough to stop Brazil, said Humberto Barbato, who heads the country’s electronics industry association, Abinee, a major steel consumer. Instead, the government should prioritize purchasing products with local content, he said. “The Chinese have a lot of flexibility to change the price.”
Although top Brazilian steelmaker Gerdau applauded the country’s new tariff quota, CEO Gustavo Werneck warned that it would not solve the local industry’s long-term competitiveness problem, such as the high cost of energy.
“China will make exports an important source of financing” for the country’s transition from industrialization to a more consumption-oriented economy, Werneck told journalists at a press conference.
In total, Latin America’s steel protections are much more limited than the tariffs that former President Donald Trump implemented during his administration. This only makes it more likely that China will simply try to plead its cases at the World Trade Organization, according to University of Queensland associate professor Scott Waldron.
“Any countermeasures will be limited,” Beddor said.
According to him, authorities have already “started restricting steel production, and that will likely be the main focus in the future, rather than how to retaliate against upset trading partners.”
—With assistance from Joe Deaux, Fabiola Zerpa, Simone Iglesias, Fran Wang, James Mayger and Jenni Marsh.
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©2024 Bloomberg LP
The spotlight next week will shift somewhat to the Federal Reserve’s second-quarter earnings season and monetary policy. Market watchers will be treated to results from several major names, including Dow 30 components Goldman Sachs (GS), UnitedHealth (UNH), Johnson & Johnson (JNJ) and American Express (AXP), along with streaming giant Netflix (NFLX).
The Fed will still attract some attention as investors will be eager to hear from a packed lineup of central bank speakers just before the policy meeting lockout period.
In terms of the economic calendar, after fifteen days of labor market and inflation indicators, activity data will gain momentum in the form of the latest retail sales and industrial production reports.
Earnings Highlight: Monday, July 15 – Goldman Sachs (GS) and BlackRock (Black). See the full earnings calendar.
Earnings Highlight: Tuesday, July 16 – UnitedHealth (UNH), Bank of America (BAC), Progressive (PGR), Morgan Stanley (IN), PNC Financial (PNC) and JB Hunt Transport (JBHT). See the full earnings calendar.
Earnings Highlight: Wednesday, July 17 – Johnson & Johnson (JNJ), US Bancorp (USB), Morgan Children (KMI), United Airlines (UAL) and Ally Financial (ALLY). See the full earnings calendar.
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Earnings Highlight: Friday, July 19 – American Express (AXP), Halliburton (THANKS) and Travelers (VRT (return to recoverable value)) See the full earnings calendar.
IPO Observation: Hospital and healthcare clinic operator Ardent Health Partners (TARDT), insurance service provider Twfg (TWFG) and the biotechnology company Lirum Therapeutics (LRTX) are expected to price their IPOs and begin trading next week. The analyst quiet period ends at Rectitude (RECT) to free up analysts to publish ratings.
Police cars outside the residence of Thomas Matthew Crooks, the suspected shooter at a Trump rally on Saturday, investigate the area in Pennsylvania. Following the incident, one rally attendee was killed, two rally attendees are in critical condition and Donald Trump suffered a non-fatal gunshot wound. The shooter is dead after being shot dead by the United States Secret Service. (Photo by Kyle Mazza/Anadolu via Getty Images)
Investors will initially favor traditional safe-haven assets and may lean toward trades more closely tied to former President Donald Trump’s chances of winning the White House after he survived an assassination attempt, according to market watchers.
“There will undoubtedly be some protectionist or safe-haven flows into Asia early this morning,” said Nick Twidale, chief market analyst at ATFX Global Markets. “I suspect gold could test all-time highs, we’ll see the yen being bought and the dollar, and flows into Treasuries as well.”
Early market commentary suggested Trump’s shooting at a rally in Pennsylvania on Saturday could also prompt traders to increase his likelihood of success in the November election. His support for looser fiscal policy and higher tariffs is generally seen as likely to benefit the dollar and weaken Treasuries.
An indicator of market sentiment heading into the weekend: Bitcoin surged above $60,000, likely reflecting Trump’s pro-crypto stance.
Other assets positively linked to the so-called Trump trade include stocks of energy companies, private prisons, credit card companies and health insurers.
Traders will also be closely watching market measures of expected volatility on Monday, such as those in the tariff-sensitive Chinese yuan and Mexican peso, which have begun to price in the U.S. vote.
Trump said he was shot in the right ear after a shooting at his rally. His campaign said in a statement that he was “fine” after the incident, which prompted him to rush off the stage.
“Currencies will be the first major market on Monday in Asia to react to the weekend’s shots. There’s potential for extra volatility, and getting a clear reading could be especially difficult because liquidity will be hurt by Japan’s national holiday,” said Garfield Reynolds, Asia team leader for Bloomberg Markets Live.
Strategists had already expected a volatile run-up to the election, particularly as Democrats are still agonizing over President Joe Biden’s candidacy after his poor performance in last month’s debate raised questions about his age. Investors were also grappling with the possibility that the election could end in a drawn-out dispute or political violence.
But there is little precedent for events like those in Pennsylvania. When President Ronald Reagan was shot four decades ago, the stock market plunged before closing early. The next day, March 31, 1981, the S&P 500 rose more than 1% and benchmark 10-year Treasury yields fell 9 basis points to 13.13%, according to data compiled by Bloomberg.
Bond investors should pay particular attention as the attack is likely to boost Trump’s election chances and ultimately lead to concerns about the fiscal outlook, according to Marko Papic, chief strategist at California-based BCA Research Inc.
“The bond market must at some point become aware of President Trump’s greater chances of winning the White House than any of his rivals,” Papic wrote. “And I continue to believe that as his chances increase, so too must the likelihood of a bond market revolt.”
Kyle Rodda, senior financial markets analyst at Capital.com, said he was seeing client flows into Bitcoin and gold following the shooting.
“This news marks a turning point in American policy norms,” he said. “For markets, it means safe-haven trades, but more tilted toward non-traditional safe-havens.”
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Jio Financial share price: Should you buy this Reliance group stock on Monday ahead of Q1 FY2024 results?
Q1 2024 Results: Jio Financial Share Price will be in focus on Monday as the Reliance Group company has a fixed board meeting on July 15, 2024 to consider and approve the company’s unaudited standalone and consolidated financial results. Trust Group company informed about the Q1 2024 Results date on Wednesday last week via an exchange filing. According to stock market experts, Jio Financial Services Limited is poised to deliver impressive Q1 results for FY25 on solid operating income. They have forecast a healthy QoQ PAT for the company in Q1 FY25.
Jio Financial Services News
Speaking on the Jio Financial Services Q1 2024 results, Manish Chowdhury, Head of Research, StoxBox, said, “We believe Jio Financial Services is poised to deliver impressive results in Q1FY25 aided by its operating income, which is likely to show robust growth driven by strong investment income, which in turn should lead to healthy PAT growth on a sequential basis. Jio Financial Services continues to make strategic moves such as launching digital products and expanding its ecosystem, with a clear focus on future growth. The company has announced plans to introduce products for lending against stocks and mutual funds, leveraging Jio’s large user base, which could be a significant growth driver in the coming quarters.”
“Furthermore, with the NBFC receiving RBI approval to become a primary investment company, Jio Financial Services is well-positioned to unlock value from its investments. Overall, we expect the company to report robust numbers in the upcoming quarter,” the StoxBox expert added.
Jio Financial Stock Target Price
Speaking about the technical outlook of Jio Financial share price, Ganesh Dongre, Senior Manager, Technical Research at Anand Rathi, said, “Jio Financial Services share price is poised to make a fresh high at the ₹260 apiece level. If the stock breaks above this mark, the Reliance Group stock could make a fresh high by touching the ₹290-₹295 zone. Hence, those with Jio Finance stock in their portfolio are advised to stick to the script by keeping a stop loss at ₹205. If the stock breaks above ₹260 decisively, then one can upgrade the stop loss at ₹240 for the near-term target of ₹295.”
On the advice to new buyers regarding Jio Financial stock, Ganesh Dongre said, “New buyers are advised to wait for the breakout. Once the stock breaks above ₹260, one can buy this Reliance Group stock at the short term target of ₹295, keeping a stop loss of ₹240 apiece.”
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms, and not of Mint. Investors are advised to consult with certified experts before making any investment decisions.
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