Powerful La Niña Brings Drought To Chile
Comment of the Day

February 09 2011

Commentary by Eoin Treacy

Powerful La Niña Brings Drought To Chile

This article by Mark Briggs for the Santiago Times may be of interest to subscribers. Here is a section:
"Things are tight, but with some measure of support we're confident that can we can develop something between now and six months, so the problem can be overcome without rationing," said Eduardo Ricke, chief operating officer of the CDE-SIC, which coordinates the operation of electrical system.

Ricke admitted that one option being discussed was a limit on industrial electricity usage in the north - where the nation's mining industry is concentrated - to develop a surplus to help meet demand further south.

Luis Mayol, president of the National Agriculture Society (SNA), suggested the country seriously consider building more water reservoirs and dams. Farmers in Norte Cote are pruning back their fruit trees so that they will recover for next year, limiting production this year.

Eoin Treacy's view Drought as mentioned in the China example above is a contributory factor in higher food prices. However, mining is also highly water intensive. The Chilean drought is therefore also having an effect on copper prices.

The LME traded contract broke above $10,000 last week and remains in a relatively consistent medium-term uptrend. It has posted a staircase sequence of reactions, one above another, since June and a sustained move below $9200 would be required to question the consistency of the advance.

Higher food prices are also contributing to inflationary pressures in Chile and the central bank is expected to raise rates again this week. (This article from Bloomberg may also be of interest). The Chile Select-40 Index has now experienced its deepest correction within the 28-month uptrend and has fallen to test the 200-day MA. A clear upward dynamic, sustained for more than a day or two, is now required to indicate a return of demand in this area. The Colombian index has also unwound its overbought condition relative to the 200-day MA.

Peru has paused in the region of the pre-crisis high and will need to sustain a move to new highs to reassert the medium-term uptrend. Mexico hit at least a near-term peak in January and appears to be in the process of consolidating its recent powerful advance. Argentina has lost upward momentum and looks susceptible to some consolidation of recent gains. Brazil continues to range mostly below 70,000 and will need to sustain a move above 74,000 to reassert the medium-term uptrend. .

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