Falling commodity prices weigh down economy

The rapidly falling international commodity prices have negative effects on the country’s economy as evidenced in reduced profit levels, the Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) has said.

BY TARISAI MANDIZHA

According to the Zeparu Economic Barometer report covering the period July to September 2015, commodity prices fell significantly, largely as a result of falling Chinese demand.

zimplats-(2)

“The implications of depressed international prices are being felt through both reduced profit levels for local mining companies and the risk of reduced revenue for government. For example, Zimplats, a leading platinum producer in the country, reported a loss of $74 million in 2015, citing lower sales volumes and depressed prices as some of the limiting factors,” Zeparu said.

“In addition, falling prices will reduce exports earnings resulting in a loss of foreign currency inflows and a higher current account deficit. This will affect the money supply in Zimbabwe.”

Zeparu said the major Zimbabwean exports of metals – gold, platinum and nickel ores – had seen prices fall on international markets and in some cases the declines had been dramatic.

According to the report, platinum had lost close to a third of its value in a year.

It said the precious metals prices continued to be subdued in the third quarter of 2015 when compared to a similar period in 2014.

Gold lost 12,3% of value and averaged $1,124 per ounce (oz) in the third quarter compared to the corresponding period last year.

“The fall in gold price was the result of both the strong performance of the US dollar which is an alternative investment to gold, and thus reduced demand for gold, and the Chinese slowdown. China is one of the leading consumers of gold,” Zeparu said.

Platinum prices declined by 31,2% to average $986 per oz in the third quarter of 2015 compared to the third quarter of 2014.

“Platinum prices were affected by increased production in South Africa and the Volkswagen emissions scandal, which brought about fears of reduced demand. The Chinese slowdown has also played an important role,” Zeparu said.

According to the report, the decline in platinum price was expected to continue due to reduced investment demand and excess supplies. However, gold deliveries had continued to increase underpinned by small-scale miners’ remarkable contribution.

In 2015 total gold deliveries from January to September increased remarkably by about 34,2% to 13 211kg compared to the level recorded over the same period in 2014 driven by an impressive 114,9% increase in small-scale miners’ deliveries to 5 183kg.

Deliveries by primary producers in 2015 also increased by about 8% to 8 027kg compared to their 2014 levels, Zeparu said.

“The contribution of small-scale miners translates to about 28,2% of total deliveries between January and September 2015. This is a 3,7 percentage point increase from the contribution in the comparable period in 2014, demonstrating their increasing importance in the industry,” it said.

“The trend is expected to continue, given that royalties for small-scale gold miners with output not exceeding 0,5kg per month have been reviewed downwards to 1% from 3%. This is intended to incentivise small-scale miners to sell gold through formal channels.”

According to the report, total deliveries in 2015 so far translate to about 75,5% of the 17 500kg target for 2015, a high likelihood of the sector meeting the target of 18 700kg set for the year.

At its peak in 1999, gold production was about 27 000kg.

One Response to Falling commodity prices weigh down economy

  1. Young January 13, 2016 at 7:06 am #

    While its true that exports of commodities are weighed down by depressed prices on the World market, the over valued USD which Zimbabwe uses as a local currency is killing exports and tourism. With a USD cost structure, its unprofitable for Zim producers to export to South Africa for example. The Rand is now trading at USD 1 to R17 whereas in 2009 when Zim adopted the multi-currency system it was circa USD1 to R8. A Zim export order of R20000 to RSA in 2009 was valued USD 2500 and in 2016 it is valued $1177 a loss of $1323 if my calculation is right.Without an export subsidy the Zim producer will stop exporting to RSA coz its no longer profitable to continue. Power shortages,higher wages and other logistics compound the Zim exporter’s plight. That is the reality on the ground!

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