How did Latin American flag products fare during the pandemic?
Published on 14 January 2021
The international market has not yet readjusted. However, in this note we show which key products for Latin America have remained even at normal levels.
The American continent has a great diversity of natural resources, from hydrocarbons to agricultural products, minerals and fertile valleys. In the last year, all productive segments were affected by the global economic slowdown at the time of the declaration of the state of pandemic in March. But then, there were gradual recoveries in exports or even in some cases the performance was almost normal, and diversification was a key to stability.
As the following table shows, almost all countries export most of the flagship products that characterize their economic development. Geography allows this to happen easily and to generate synergies or economies of scale at the cross-border level, except in cases such as the absence of rainforest or tropical jungle, or cold estuaries where salmon reproduce.
The combination of food market resilience and the recovery of the Chinese economy has allowed food and base metals such as copper to recover. On the other hand, precious metals such as gold have become attractive as a store of value in the face of uncertainty, while oil also recovered in parallel with the industry, although it faces other factors such as competition for political control by Russia and OPEC.
Five landmark cases
At present, all of the above is the main reason for the economic performance of Latin America. Although expansive policies have been implemented through monetary and fiscal stimuli, the reactivation of domestic demand in the region is weak due to the fragility of the labor market in the face of the weakness of the trade and service sectors.
For that reason, it is pertinent to review the recent performance of the region's flagship products. This will provide what is perhaps the best reference on the current potential for maintaining production at the national level.
1) Chile: Cathodes and sections of copper cathodes. Copper is perhaps the clearest example of the international transition of impacts for the pandemic. The fall in prices was caused by the slowdown in the economy of China, the first country where COVID-19 was developed, and also the first to recover from the first shock. As it is the destination of 40% of the world's production of this metal, the lifting of restrictions on mobility was enough to produce a rebound in May.
2) Colombia: Coffee. If any of the five countries analyzed in this note has a flagship product for excellence, that is Colombia, also known as the coffee country. Fortunately for its producers, consumption patterns were maintained and even intensified during the pandemic, as it is a stimulating product that generates pleasure at an affordable price.
3) Ecuador: Banana. Bananas have been another particularly counter-cyclical product. Their prices increased slightly at the beginning of the pandemic, but have now been regulated, at the price they had before the pandemic, because competition has increased, resulting in an adaptation to the competing price. For the moment, Ecuadorian producers face challenges other than external demand, such as pest protection and the development of better conditions for international trade.
4) Mexico: Petroleum. Mexico's modern history is defined by its oil production. Beyond being the main supplier of heavy industry and technology to the United States, Mexico's oil fields have determined the country's political power. Its economy was strongly affected by the fall in the price of the barrel, due to the deceleration caused by restrictions to mobility. These were lifted as the first wave of contagion reduced its intensity, but prices only reached levels of 20% below US$ 50 per barrel prior to the explosion of COVID-19.
5) Peru: Gold. Peru is one of the countries with the greatest diversity of minerals at a global level. While copper is the product that generates the most value in exports to the country, gold is the second element on the list and is fundamental to economic development.Since May, the international quotation, which was already high due to the markets' anticipation of the latent risks of COVID-19 becoming a pandemic, had a greater rise due to the financial ravages of the virus with the consequent increase in exports.
More flagship products
These are just a few examples of what can be found by accessing Veritrade.com information. Latin America is a rich region in resources and with many opportunities to take advantage in the international market, if you have the right data to prepare a strategy.
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