Lower value of iron ore brings Chinese share down to 26.8% from over 30%
01/16/2023
After reaching a share of over 30% in 2020 and 2021, China’s share in Brazilian exports fell to 26.8% last year, especially because the value of iron ore shipped dropped. The share is also lower than in 2019, when the Asian country absorbed 28.7% of Brazilian exports. Still, China remains the main destination of Brazilian exports, followed by the United States, with 11.2%, and Argentina, with 4.6%.
Experts believe that China will recover its share in Brazilian shipments in 2023, but partially, within a general landscape of expected slowdown in the global economy.
Compared to 2021, the U.S.’s share in Brazilian exports remained stable, with an increase of only 0.1 percentage point. Argentina, which is expected to be the first country officially visited by President Luiz Inácio Lula da Silva, advanced 0.4 percentage point, but is still far from the 7.5% reached a decade ago.
With the drop in shipments to China, the trade surplus with the Asian country totaled $28.97 billion in 2022, equivalent to almost half of Brazil’s total surplus of $61.76 billion. Despite being robust, the China-Brazil trade surplus was lower than in 2021 ($40.26 billion), when the Asian country accounted for two-thirds of Brazil’s total surplus of $61.41 billion.
The 4.5 points of difference in China’s share were spread among several trading partners. Besides countries in Asia, such as India and Singapore, the European Union and Latin American countries like Chile, Mexico and Colombia increased their shares. In all these destinations, Brazilian exports increased more than the 19.1% of the average of the country’s total shipments, data by the Ministry of Development, Industry, Trade and Services (MDIC) show.
The shipments to the Chinese also grew, but at a slower pace, only 2.1%. The result can be explained mainly by iron ore, the second item most purchased by China. The Asian country absorbed $18.2 billion in Brazilian iron ore in 2022, down 37% year-over-year, because of lower prices after a peak in 2021. With the retreat, Brazilian ore exports virtually returned to the level of 2020, when the country shipped $18.5 billion.
Besides the effect of the ore price in 2021, China also gained space in Brazilian exports in 2020, when the pandemic hit. That year, the Asian country grew amid a widespread global recession, which also makes the base of comparison high and explains the lower growth of the Chinese appetite in 2022. The situation was different last year, with evidence of greater difficulty in the economic recovery of the Chinese economy.
Also in 2023, the performance of the Chinese economy is an important variable for the evolution of Brazilian exports, said economist Livio Ribeiro, a partner at BRCG Consultoria and researcher at the Brazilian Institute of Economics of Fundação Getulio Vargas (FGV/Ibre). In his view, China may regain a part of its share in 2023, but not all of it.
Despite general expectations in relation to the Chinese economy due to the recent decision to end the zero-Covid policy, Mr. Ribeiro still sees Beijing with difficulties to advance in the recovery of the domestic economy. In his view, the growth of Brazilian exports to China is likely to be driven more by iron ore and corn, a relatively new and rising item on the export list to the Asian country. But proteins, such as meat in general and soy, items more linked to family consumption, are unlikely to advance too much, he said.
The Chinese government’s policies to stimulate the domestic economy, he said, focus on investments. “But this China, today, is smaller than the China that consumes. As long as there is no decision to encourage consumer spending, there won’t be such a rapid movement to accelerate China’s growth.”
Sergio Vale, the chief economist of MB Associados, believes that the Chinese economy will be able to grow nearly 4% in 2023, with short-term stimulus measures. But this depends on how Covid-19 cycles will play out, he added. Depending on the effects of the disease’s impacts, the rate could fall to 3%. In Mr. Vale’s view, China’s consumption of Brazilian products, however, can benefit from the lower prices of iron ore, which will also have export values adjusted, in addition to a good Brazilian grain harvest.
In addition, he said, an advance in China’s share is likely to happen because, even with a slowdown, the Asian country is expected to grow in a scenario of sluggishness and a potential recession in important markets such as the United States and Europe.
Considering the expected global scenario of deceleration, José Augusto de Castro, head of the Brazilian Foreign Trade Association (AEB), projects for 2023 exports of $325.2 billion, which would mean a drop of 2.9% year-over-year. In this context, even if China maintains the level of demand for Brazilian items, it may gain ground in Brazilian shipments.
The 2022 scenario, he said, shows the reliance of Brazilian exports on agricultural or metallic commodities. Last year, despite the decrease in ore shipments, there was an advance in soybean and oil, the latter item driven mainly by price increases due to the Russia-Ukraine war. The three items, he said, probably accounted for 35.7% of Brazil’s export revenues last year, similar to the 35% in 2021.
Last year, the rise in oil prices also contributed to the advance of Brazilian exports. The sale of crude oil grew 39.5% and its share in Brazilian exports rose to 12.7% in 2022 from 10.9% in 2021 – it is very close now to the 13.9% share of soybeans.
The greater share of oil contributed to changes in the destination of Brazilian exports. The MDIC data highlights the rise of Singapore in recent years among the largest destinations of Brazilian products. In 2022, Singapore ranked seventh, with an increase of 43.4% in the purchase of Brazilian products in relation to the previous year. Although the advance is not new – the country’s share of Brazilian shipments increased to 2.5% in 2022 from 1.3% in 2019 –, oil exports also help explain this growth.
Of the $8.35 billion that Brazil sold to Singapore in goods in 2022, $5.9 billion was crude oil. Such a high volume, said Mr. Castro, suggests that the country re-exported Brazilian products to other countries in its region.
*By Marta Watanabe — São Paulo
Source: Valor International