This from Mike Burnick:

Brazil is far and away the global leader in ethanol production technology. In fact, the country began large-scale development of ethanol as an alternative fuel source amid the oil shock of the late 1970’s and early 80’s.

Today, ethanol accounts for 50% of Brazil’s total annual automotive fuel consumption. More than 70% of new cars sold in the country are flex-fuel capable. That means they’re able to run either on gasoline, ethanol, or some combination of the two.

Currently, Brazil is the world’s second-largest ethanol producer, and largest exporter, with total output of about six billion gallons a year.

The country has its sights set on becoming the dominant global exporter of ethanol by 2020. Brazil’s global ethanol exports could total as much as 200 billion gallons a year within that time – that’s over 30-times today’s ethanol production. Talk about a growing industry!

U.S. and Europe Just Can’t Compete with Brazilian Ethanol

Brazil enjoys a big advantage over other nations – as the world’s lowest cost ethanol producer. As shown in the graph above, Brazil can distill bio-fuels from sugar cane at a significant cost advantage to other nations.

Neither U.S. corn-based ethanol, nor wheat-based ethanol from Europe, can come close to matching the Brazilians on a production cost basis.

The sugarcane plant, which flourishes in Brazil’s tropical climate, produces a “yield” of 6,000 liters of ethanol per hectare of land. That’s about twice the yield of corn-based ethanol!

In fact, Brazilian ethanol is about 40% cheaper to make than in the U.S. – and costs less than half the price of European ethanol.

When Trade Tariffs Fall, Brazilian Ethanol Will Flow

Of course Washington, in their infinite wisdom, maintains silly trade tariffs equal to 54-cents a gallon on imported ethanol. This ridiculous trade barrier benefits a relatively small number of U.S. corn farmers at the expense of millions of American drivers.

In spite of this, Brazil’s largest ethanol export market remains the United States. In fact, Brazil shipped us more than 430 million gallons of ethanol last year – up fourfold from 2004! Wholesale gasoline prices in the U.S. are leaping above US$4 a gallon, and will keep spiraling higher as crude oil goes through the roof during what’s shaping up to be a long, hot summer.

Naturally, pressure is mounting for Congress to eliminate this silly, protectionist ethanol tariff. When that happens, the floodgates will open wide for much-cheaper Brazilian ethanol to flow freely into U.S. markets.

By leveraging the strength of its vast sugarcane growing region, and building on its already well-established ethanol producing technology, Brazil is perfectly positioned to benefit.

In fact, this emerging market tiger could easily become the Saudi Arabia of ethanol within the next decade. You heard it here first!

Hopefully, American protectionist trade tariffs are lifted soon… and when they are, Brazil’s ethanol expansion would quickly follow.

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Consider China the mother of all direct and indirect subsidies. Especially when it comes to the staging of the Beijing Olympics—the greatest coming out party a totalitarian government has ever staged.

Not that the others didn’t try. Hosting Olympic Games tends to be a fiscal nightmare for the host. The Athens Olympics resulted in massive budget deficits for Greece. Australian taxpayers will be paying off Olympic debt from the 2004 Games for a decade to the tune of $32 million a year. Even the Salt Lake City Winter Olympics in 2002 left Utah with a $155 million deficit.

The true cost of the Beijing Olympics will dwarf everything previously seen. But thanks to China’s inscrutable web of direct and indirect subsidies, their full extent will be as difficult to determine as the true cost of Chinese labor.

Beijing just added another layer. It will be carried by China’s heavy industry and power plants. Dozens of heavily polluting factories in Beijing and Hebei Provinces—scheduled for closure over the next two years—will be permanently closed before June.

Temporary shutdowns of other industries will last from July 17 until September 20 and will affect the neighbouring municipality Tianjin and the provinces of Hebei, Inner Mongolia, Shanxi, and Shandong. These provinces represent an area larger than France, Germany and Italy combined.

This will have a major effect on the electronical manufacturing industry and those companies who have been outsourcing their production to China. The closures will also reduce the supply of components, good and services to the affected industries. Steel maker Beijing Shougang Co. estimates that output this year will fall by 16% from 2007.

The hardest hit industries include electricity, petrochemicals, as well as coal and cement producers.
Chinese officials are just as reluctant to release details about the full extent of the shutdowns as they’d be to announce that torturing puppies had been added as an Olympic exhibition sport.

Idling production facilities will hit major companies like Eastern Petrochemical Co., China’s largest manufacturer of polyvinyl acetate. Beijing Eastern is owned by China Petrochemical Corp., or Sinopec (SNP:NYSE). Sinopec’s first-quarter profits already came it 70% lower than last year’s.

If you need a reason to be cautious around Chinese stocks this year, look no further than the effect of the Olympic shut-down on third-quarter earnings.

Source:  China Closures Spell Q3 Trouble