As risk appetite claws back into the global markets given vaccine breakthroughs, return of China from the lunar holidays and above all, a Joe Biden supported stimulus package on the horizon, copper has had a fairly bullish streak. Coming from March 2020 COVID induced lows of $4,343/MT, the red metal has since recovered over 107.2% having to crossed the $9,025/MT mark on February 22. Many players are nonetheless still of the view this rally in price is highly speculation driven and will steam out.
Read also: As copper flirts with new highs of $8,000/MT, Zambia looks to mining to expedite economic recovery
Copper is used as a bellwhether of global growth and a rising prices signals demand for infrastructure development through electric cabling and earthing materials. However in this green era when the world is cautious about being environmentally and socially responsible, a higher price is being fueled by the looming electric car era.
The red metal has also been keenly supported by a weak dollar environment as evidenced by a feeble dollar index against a basket of 6 major currencies DXY which is currently pegged at 90.23 compared to levels of 102.2 (March20). There is more demand for commodities in the world as hope for economic recovery keeps gaining momentum by the day. Global PMI releases have echoed similar sentiments with readings for the United States (US), China and the Eurozone in expansion zone (>50) for both the manufacturing and services sectors. Disease will still weigh the rally to some extent but the momentum still flares.
GREATER PROSPECTS TO BALANCE FISCAL BUDGETS FOR ZAMBIA AND DRC
For nations like Zambia and Democratic Republic of Congo (DRC), a rising copper price widens the prospects of of balancing fiscal deficits quicker through increased tax revenue flows. Zambia’s process to increase stake in key mines has commenced and should prices remain buoyant longer, could spell higher fortunes for the Southern African nation.
The state will now seeks an equity partner for Mopani Copper Mines after the Glencore transaction to exit while for Konkola Copper Mines, the business restructure, into a smelter and mineral resource business, will proceed as per directive from a Zambian high court despite arbitration ongoing with Vedanta in London. Africa’s red metal hotspot, has a unique opportunity to correct privatization mistakes 25 years ago where shareholding was given up to foreign investors leaving the nation at a receiving end of a hard bargain.
NINE GRAND A METRIC TON SPELLS ECONOMIC RECOVERY FOR THE COPPERBELT OF AFRICA
Red metal bulls come at a time that producing nations will seek to leverage off ming for V shaped recovery especially after a 2020 COVID year. Ideally higher prices act as production incentives which will in turn generate a rise in demand for downstream businesses that service the mines. The outlook remains bright with downside risks from the ongoing litigation which to some extent could dent investor sentiment. However the current existing projects such as the Kansanshi (K2) and Lubambe project are in time to push Zambia’s production higher.
Amidst a debt and COVID pandemic labyrinth, the copper producer is in the middle of talks with Washington based lender IMF for potential bail out in a Rapid Credit Facility (RCF) or an Extended Credit Facility (ECF) while financial advisors Lazard Freres engage creditors on possible restructure.
The Kwacha Arbitrageur