The top ten Brazilian products in bilateral exchanges account for 91% of sales

11/07/2022

Brazil was the seventh-largest seller to China in 2021, a position that contributed to assuring a record surplus in the Brazilian trade balance last year. Among the ten countries that sold the most products last year to the world’s second-largest economy, however, Brazil was the one that had the most concentrated agenda. Only ten products were responsible for 91.4% of the total value that Brazil exported to China last year.

China’s increasing share in Brazilian exports, concentrated on just a few items, is only paralleled by large oil exporters such as Angola, Qatar, and Oman (which sell very few products to China), and exposes the performance of Brazilian exports not only to the ongoing volatility of commodity prices but also to the expected slowdown in the Asian country, experts say. The International Monetary Fund (IMF) projects a 4.4% growth in China’s GDP in 2022 after an 8.1% increase in 2021.

With a dynamic similar to that of Brazil, although with a lower concentration in the export list, is Australia, the fifth country that sold the most to China last year, with the “top ten” products accounting for 88.2% of the amounts exported. Russia, tenth in the ranking of the biggest exporters, has a concentration of 75%. Taiwan is the first supplier to the Chinese, with the top ten products reaching 71.2% of their exports.

The situation of these countries contrasts with that of South Korea, Japan, and the United States, which follow in this order Taiwan among China’s largest suppliers. The three countries have a much lower concentration of the ten most sold products: 51.5%, 20.5%, and 37%, respectively, according to Chinese government data.

Among the 50 largest GDPs on the planet, only Nigeria (the 31st largest global economy) and Iraq (47th) have sales to China that are more concentrated in ten products than the exports from Brazil, which is expected to be the tenth-largest in the world this year. In both cases, oil is the main product to China. Iraq is the third-largest supplier of the commodity to the Asian country, and it represented 99.3% of its sales last year.

Even as the seventh-largest supplier to China last year, Brazil was the leader in sales to the Asian country in only 48 products. The champion in this ranking was Japan, with 1,444 items, followed by Germany, with 856 products, and the United States, with 796.

Figures available on Brazil’s side also show a concentration of the export agenda. Last year the Chinese absorbed 31.3% of Brazil’s total exports, a share nine percentage points higher than in 2017, according to data from the Economy Ministry.

The share of the ten largest products in the value shipped remained high, advancing to 91.4% of exports to China in 2021 from 89% in 2017. Even within the “top ten,” there is great concentration. The three leading products – iron ore, soybeans, and oil – accounted for 80% of what Brazil sold to China last year.

The concentrated structure of exports favored Brazil last year when iron ore prices hit historic highs. In 2021 the Chinese bought $87.9 billion in Brazilian products, 29.7% more than in the previous year. The performance contributed to a record Brazilian trade surplus of $61.4 billion.

“As the concentrated agenda has guaranteed surpluses, there is an accommodation, with no effort to diversify,” says José Augusto de Castro, president of the Brazilian Foreign Trade Association (AEB).

The problem, he points out, is that this also subjects exports to price volatility and the performance of the Chinese economy. For him, the vocation for exporting commodities must be taken advantage of, but also with a parallel policy that stimulates exports of manufactured goods.

Although prices are still contributing positively, Brazilian exports are already starting to feel some effects of commodity price adjustments in 2022. In June, highlights Mr. Castro, the major effect in this direction came from iron ore. According to data from the Secretariat of Foreign Trade (Secex), the commodity’s export revenue fell 40.5% in June year-on-year. There was a drop of 4.3% in the quantity shipped and the average prices of the item dropped 37.8% in the same comparison.

This probably contributed, says Mr. Castro, to the 11.7% drop in the value of exports to China in June compared to the same month in 2021. With the performance, the Asian country absorbed 29.1% of the values exported by Brazil in June this year, nine percentage points less than the 38.1% share it held in June 2021. The figures include Hong Kong and Macau – in Chinese foreign trade data, the two locations are counted separately.

In the year to June, China’s share in Brazilian exports fell to 29.1% from 35.3% in the same period of 2021. The average price of total iron ore exported by Brazil in the period fell 25.4% in the first half of this year compared to the same period of 2021, contributing strongly to a 31.5% drop in export revenue. The was also a drop in quantity, but at a lower rate, by 8.2%.

“As there are only a few products and they are very representative in the list of shipments, a shock in one of them ends up having a very big contribution to the relations in the aggregate list,” explains Livio Ribeiro, partner at BRCG and researcher at Fundação Getulio Vargas’s Brazilian Institute of Economics (Ibre-FGV).

“China is currently going through a particularly delicate moment,” Mr. Ribeiro says. Beijing has been trying to reactivate more aggregate demand, he explains, through stimulus focused on investments in infrastructure. But it is not known, he says, if this will be enough because consumer confidence has collapsed with the new Covid-19 outbreaks.

Given this picture, BRCG’s estimate for Chinese GDP growth in 2022 is 3.8%. “To reach 4% will take a lot of struggle. For 4.5%, a monumental effort,” Mr. Ribeiro evaluates.

Fabio Silveira, a managing partner at MacroSector, projects growth between 3.5% and 4% for the Chinese economy this year. “China’s growth is expected to go from an annual average of close to 5.5% in the last three years to an average between 3% and 3.5% in the next three years. A drop with great impact because we are talking about the second-largest economy in the world.” In this scenario, according to Mr. Ribeiro, the agricultural products exported by Brazil, such as soybeans and beef, are the ones that can be most affected in the short term.

According to him, demand for iron ore volumes is expected to suffer relatively less due to China’s attempt to maintain more accelerated investments. As for oil, he says, the Chinese option to buy more from Russia may displace other markets, which may affect Brazil.

In 2021, China absorbed 70.4% of all soy exported by Brazil in value. In iron ore, the share was 69.7%, and in petroleum, 46.6%. The Chinese also bought 56.2% of all Brazilian boneless frozen beef shipped last year. In 2021, Brazil was the largest supplier of soybeans and frozen boneless beef to China, the second-largest supplier of iron ore, and the seventh-largest of oil.

For Mr. Silveira, even with the global slowdown and that of China, with effects on the prices of important commodities in the export agenda, the Brazilian trade balance is likely to close 2022 with a relatively robust surplus, between $45 billion and $50 billion. The warning sign, however, comes on for next year, when the trade balance may become flatter and no longer contribute so favorably to the foreign sector.

*By Álvaro Fagundes, Marta Watanabe — São Paulo

Source: Valor International

https://valorinternational.globo.com/