The challenge in understanding commodities and energy products in the developed markets of Europe and North America stems from the sheer volume and complexity of products. The challenges in emerging markets however, are no less complex, but fundamentally different. In our publication DataWatch, we take an In Depth look at the burgeoning commodity markets of Latin America. Our March issue discusses the economic conditions of the region, or what actually makes it “emerging market”.
The GDP of Latin America, comprised of Mexico/Central America and South America, has proceeded at a healthy 5% in 2011, while the US remained mired below 2%. Significant demand for energy and metals due to China’s appetite for raw materials, has enabled some countries like Columbia, Chile, and Peru to cash in. If history is any indication, this relative advantage can quickly turn into an Achilles heel if commodities prices heads south. Lets look at South America in aggregate:
- South American Commodity Markets – Import/Export (IMF Regional Economic Outlook, Western Hemisphere)
As shown in the figure above, South America’s net commodity exports increased from about 6% of GDP during the 70s to 10% in 2010 (left graph, red dot, right axis). Commodities represented 60% percent of the regional Total Gross Exports in 2010 (right graph, left axis). While agricultural exports fell in the last two decades due to falling global demand, metals and energy expanded to fill the gap, leaving South America as dependent on commodities as ever.
To say that South America’s current prosperity depends significantly upon the health of China’s export machine is a major understatement. It would be prudent for firms in the area to evaluate their risks based not only on regional commodity prices, but data from global markets such as CME and ICE. In the next DataWatch issue we will discuss financial derivatives markets emerging in Latin America.
Of course ZEMA will be there to help them transform raw market data into actionable information.