China’s demand for raw materials is increasing the medium voltage motor drives market in Latin America
China's growing demand for raw materials in South America has had a positive impact in the medium voltage market there, particularly in Brazil. Chile and Peru are also projected to be among the fastest growing markets by 2015.
China has established itself as the fastest growing economy in the world and the prediction by the International Monetary Fund that the country will overtake the United States in terms of purchasing power parity by 2016 shows this trend is not expected to change any time soon. China’s strong economic position has been reflected in the global market for medium voltage (MV) motor drives, where China has been the fastest growing regional market in the world, averaging over 40% annual growth from 2007 to 2010. However, as the market in China cools due to government policies and reduced spending, a new regional report from IMS Research on the Latin American market for MV drives projects revenue growth in the Brazilian market to match that of China. Both markets are projected to grow at an average annual rate of approximately 18% from 2011 to 2015. Two other Latin American markets, Chile and Peru, are also predicted to be among the fastest growing in the world through 2015.
Interestingly, China’s rising demand for raw materials is a major factor in the growth of all three of these Latin American markets for MV Motor drives, because it is increasing investment in oil, gas and mining infrastructure where MV drives and motors are commonly used. This continues to encourage a growing economic relationship between Latin America and China. According to the Economic Commission for Latin America and the Caribbean (ECLAC), from 2006 to 2010, Latin America’s exports to China grew six times faster than the region’s export volume to the rest of the world, and raw materials account for nearly 60% of this. In the midst of the recession in 2009, exports from the Latin American region declined to all of its trading partners with one exception: China. Exports to China increased 11% in 2009 and then increased an astounding 51% in 2010. China is now the leading export destination for Brazil, Chile and Peru, with the exports heavily concentrated in mineral resources. Between 2007 and 2009, 80% of Chile’s exports to China were either copper or copper concentrate, 64% of Peru’s exports were either copper, lead, iron or zinc concentrate, and 45% of Brazil’s exports were iron concentrate. With available capital from the recent spikes in commodity prices and a sustained relationship with China expected to ensure demand in coming years, heavy investment is expected to increase mineral production across Brazil, Peru and Chile. This will result in increased demand for automated extraction, handling and processing machinery, and thus increased demand for medium voltage motor drives.
China is also securing this supply of minerals and petroleum from Latin America by investing in the region, particularly in Brazil and Peru, where China’s foreign direct investment (FDI) spiked to $10 billion in 2010 and $18 billion in 2011. This represents a significant shift in investment, as China’s FDI in these two countries for the period from 1990 to 2009 totaled only $2.5 billion. For comparison, the leading foreign investor in Latin America, the United States, invested almost $100 billion from 2006 to 2009. While the US remains the largest investor to the entire region, China’s presence has grown rapidly, and Chinese FDI to Brazil exceeded that of the US in 2010. Not surprisingly, over 90% of China’s confirmed investments in Latin America have been devoted to natural-resource extraction, particularly in the oil and gas, and mining sectors. As a result, the fastest growing medium voltage motor drives market in Brazil is the off-shore oil and gas sector, as Petrobras builds infrastructure to reach its 2020 goal for oil production in Brazil from the recently discovered Tupi reservoir. China loaned Petrobras $10 billion in 2009, securing the country access to approximately 200,000 barrels oil per day for a decade. (Note this is not considered FDI, as China did not acquire any management interest in Petrobras). China has money to spend, with the country’s international reserves valued at over $3 trillion, and more cooperation between China and Petrobras is expected in coming years as Petrobras builds to meet its $224 billion dollar investment plan. This is just one of the latest examples of China's investment within Latin America to secure natural resources, and it is not simply limited to oil. In Peru, Chinese companies Chinalco and Minmetals are investing over $2 billion each for construction of copper mines. This continues to fuel investment in new extraction and processing infrastructure, which continues to increase the market for medium voltage motor drives used in such infrastructure.
With China’s influence in the Latin American region as a whole continuing to grow, particularly in the mining, oil and gas sectors in Chile, Peru and Brazil, the high growth rates forecast for these medium voltage motor drives markets will depend on the economic health of China. The good news for medium voltage motor drive suppliers is that the IMF predicts China’s GDP will continue grow at a higher rate than any other country during the next few years, with economic expansion forecast at 9.4% in 2011 and 8.9% in 2012.
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Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
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Read more: 2015 Salary Survey