CCM Venezuela Weekly Report 25 August 2014
-
Upload
latin-american-herald-tribune -
Category
Documents
-
view
8 -
download
0
description
Transcript of CCM Venezuela Weekly Report 25 August 2014
[Type a quote from the document or the summary of an interesting point. You can position the text box anywhere in the document. Use the Text Box Tools tab to change the formatting of the pull quote text box.]
Caracas Capital Markets, C.A.
VENEZUELA WEEKLY REPORT
Around this time last year, we sent a
Venezuela Weekly Report titled “It’s all about the
Benjamins” about the shortage of US dollars that
is devastating Venezuela. In short, since then the
situation has continued to deteriorate. What
makes the situation worse is that every time there
appears to be a reform on the horizon that might
slightly begin the process of taking steps to begin
to deal with the problems, the government of
Nicolas Maduro manages to take the wrong fork in
the road. This week was no exception to that
hobgobliny consistency of failure.
First, the Government announced that
Maduro was re-shuffling the cabinet – made up of
an amazing 27 to 32 ministers, depending on how
you count them (Chavez had started with 13,
saying that was too many!) – and that all ministers
had submitted their resignations. Sadly, Maduro
had already done this exercise just a few months
ago back in January. He had only announced his
first cabinet 7 months before that. Optimism in
this latest change is not high.
The second big event of the week came
from an interview with super-minister Rafael
Ramirez – currently holding the trifecta positions
of President of PDVSA, Minister of Oil & Mines,
AND Vice President for the Economy. Ramirez
has been promising that Venezuela would get its
financial house in order and he was going to unify
exchange rates. In Venezuela, there are basically
4 foreign exchange rates at the moment: Official
Rate (Cencoex, formerly Cadivi) at 6.3 bolivars to
the dollar; Sicad 1 at 11 bolivars to the dollar;
Sicad 2 at 50 bolivars to the dollar; and the black
market at a whopping 84 bolivars to the dollar.
Venezuela’s Currency Woes If you would like to make sure that you
receive this report by e-mail from us
each week, please let us know with a
message to Russ Dallen
or Miguel Villalba at
or call us on:
Caracas (58) 212 335 1906
Miami 305 735 8280
New York 646 201 5843
London (44) 207 993 4557
You can imagine the confusion that
engenders and the accounting bombs that lie in wait
for most foreign companies (think Ford, GM,
BBVA, Procter & Gamble, Colgate-Palmolive,
Clorox, American Airlines, United, Delta, etc.)
trying to report their Venezuela earnings in dollars
but not actually getting the dollars (the problem
being that most companies are using the wrong low
rates when in reality they have little or no chance of
getting their bolivars exchanged into dollars there).
With all his apparent power, Ramirez was
forced to backtrack on his unifying rates plan and
announced that Venezuela would instead have 2
rates (plus the unmentioned black market rate).
When asked for further specifics as to whether this
would take place this year, Ramirez responded with
a non-committal “maybe.” We are estimating that
the Cencoex and Sicad 1 will be unified at the 20 to
30 bolivars per dollar level (with the bias to the
low-middle side) and that the government will keep
the Sicad 2 rate at around 50. We do not believe
that the rate change will happen this year so that the
government can honor Maduro’s January promise
that the rate would remain at 6.3 all year.
CCM
For more information call: Russ Dallen, Miguel Angel Villalba, Jonathan Leo or Yajaira Cana
Phone: (305) 735-8280
Although the information in this report has been obtained from sources that Caracas Capital Markets, C.A. and Caracas Capital Advisory, C.A. believe to be
reliable, we do not guarantee its accuracy and completeness. All opinions and estimates included in this report are subject to change without notice. This report is
for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
25 August 2014
CCM Venezuela Weekly Report
Page 2
Related to the shortage of dollars and its
affect on companies, this week the US warned
travelers about shortages of airline capacity into and
out of Venezuela:
“The U.S. Embassy in Caracas would like to
advise U.S. citizens about the reduced availability of
regularly scheduled direct commercial flights
between the United States and Venezuela. According
to media reporting and announcements from major
airlines, the number of available seats per week on
direct flights between the United States and
Venezuela has been cut by at least 50 percent since
January 2014. “
Major world airlines have drastically cut
flights to Venezuela because they have been unable
to get their bolivars exchanged into dollars at the
rate promised by the government. The International
Air Transport Association (IATA) says that airlines
have over $4 billion in unexchanged bolivars
trapped in Venezuela, some of which have not been
exchanged since 2012.
American Airlines, which was one of the
largest foreign carriers into Venezuela with almost
Venezuela’s Bolivar Becomes a
Major Problem for Companies –
Airline Edition
Dollar Shortages – Latest Figures
"In the third quarter of last year,
Venezuela was only 0.5% of AA system
capacity, but would have been 2% of our
total combined consolidated revenue.
This year, we've canceled most of our
Venezuela flying ... which means that our
system PRASM in Q3 is negatively
affected by almost a full 1.5%
...." American Airlines President Scott
Kirby
7 flights daily from Miami, Dallas and New
York, cut its flights to virtually 1 a day in July
because of unexchanged currency. As of March
31, American says that it had $750 million in
bolivars that the Venezuelan government has
refused to exchange for US dollars.
The problem for American and other
airlines and companies is that the difference
between paying 6.3 bolivars per dollar from the
government and going into the (somewhat
illegal) black market at 84 bolivars to buy a
dollar to exchange is so great that all of those
profits will be wiped out and become a huge
loss. So, all airlines have cut capacity to
Venezuela. Delta, which flew daily from its
Atlanta hub to Caracas, cut service this month to
just once a week.
Maduro warned that any airline that left
would not be allowed to return to the country, so
those that are staying are just running the
lightest schedule possible hoping to get paid.
Venezuela’s oil price has been falling along
with its oil production (see below), and the
falls are showing in the country’s reserves. In
2010, Venezuela had $35 billion in reserves.
On August 15, the Venezuela Central Bank
reports that it currently has just $20.41 billion
in reserves. Worse, the amount of liquid
reserves had fallen 44% since last year, from
$3.1 billion to just $1.75 billion.
Page 3 CCM Venezuela Weekly Report
Venezuela Oil Price Falls to Lowest Since January 2011
Venezuela's weekly oil basket continued its
fall to its lowest since January of 2011 (just before
the Arab Spring hit Egypt) as international oil
markets seemed well-supplied even as crises in
Ukraine, Syria, Libya, Iraq and Israel boiled over.
According to figures released by the
Venezuela Ministry of Energy and Petroleum, the
average price of Venezuelan crude sold by
Petroleos de Venezuela S.A. (PDVSA) during the
week ending August 22 was $90.89, down $1.06
from the previous week's $91.95.
The average price in 2014 for Venezuela's
mix of heavy and medium crude is now $96.40. In
2013, it was $99.49, down from 2012's $103.42 and
2011's $101.06, but higher than 2010's $72.43, and
much higher than 2009’s average price of $57.01.
At $90.89, Venezuela's oil price this week
was well below the low for Venezuela's oil basket
in 2013 of $93.98, which was set during the week
ending November 22. The low in 2012 was set
during the week ending June 8 at $94.05.
Venezuela's basket set its highest weekly
average on July 18, 2008, when it hit $126.46
before economies around the world began crashing
under the weight of expensive oil and crashing sub-
prime debt. By January of 2009, Venezuela's oil
basket had fallen to a low of $27.10 a barrel.
The United States remains the largest
importer of Venezuela’s oil exports. According to
the US Department of Energy, Venezuela was the
fourth-largest supplier of imported crude oil and
petroleum products to the United States behind
Canada, Saudi Arabia, and Mexico. U.S. imports
from Venezuela have been on an overall decline in
recent years. In 2013, the United States imported
797,000 barrels per day of crude oil and petroleum
products from Venezuela, a decline of 49% from a
decade ago.
Venezuela sends a large share of its oil
exports to the United States because of the
proximity and the operation of sophisticated U.S.
Gulf Coast refineries specifically designed to handle
heavy Venezuelan crude.
While U.S. imports of primarily crude oil
from Venezuela have been on the decline, U.S.
exports of petroleum products to Venezuela have
increased largely because of Venezuela’s tight
finances that leave it unable to invest and maintain
its own domestic refineries. A decade ago, the
United States exported 7,000 barrels per day to
Venezuela. In 2013, the United States sent
Venezuela 84,000 barrel per day of petroleum
products, primarily methyl tertiary butyl ether
(MTBE), intended for blending in gasoline, motor
gasoline, and distillate fuel oil.
Oil is the main export of Venezuela and
provides most of the country's foreign currency.
The U.S. Energy Information Administration
estimates that in 2013 net exports from Venezuela
totaled nearly 1.7 million barrels per day of crude
oil and petroleum products, a significant decrease
since the peak of 3.1 million barrels per day in
1997.
If you would like to make sure that you
receive this report by e-mail from us each
week, please let us know with a message
to Russ Dallen
or Miguel Villalba at
or call us on:
Caracas (58) 212 335 1906
Miami 305 735 8280
New York 646 201 5843
London (44) 207 993 4557