Miners expect big rally in commodities
Zimbabwe’s mining sector is anticipating to benefit from elevated commodity prices in the international market this year with the Russia-Ukraine conflict playing a more prominent role in driving up prices.
Export receipts are expected to hit US$6bn this year as sanctions are expected to restrict Russia minerals to be sold outside its borders thereby creating huge demand for Zimbabwe’s minerals, according to Chamber of Mines of Zimbabwe CEO Isaac Kwesu.
“The geopolitical conflict between Russia and Ukraine is anticipated to somewhat pull down the world economic growth from the original forecasts with potential consequences of price hikes in various commodities and the impact will invariably result in high energy and food prices,” Kwesu told Business Times.
He said the crisis was having “positive spinoffs” on metal prices with gold, PGMs and some base metals such as nickel already surging above 2021 averages.
“High uncertainty to propel precious metal prices for the greater part of 2022, precious metals will find support as a safe haven on the back of the crisis in Europe. We anticipate gold prices to trend towards the all-time high reached in 2020,” Kwesu said.
He said palladium prices were also expected to reach their previous peaks as deficits emerge from constriction of supply from Russia- the world’s largest producer.
Platinum prices will also trend up with the increasing fungibility with palladium.
Coal prices are expected to slightly improve as Russia’s supply to Europe was restricted, Kwesu said.Base metal prices are projected to hit peaks on the backdrop of political risks and supply chain constraints.
Low metal inventories and strong consistent demand in the economic recovery has been supporting prices.
As Russia and Ukraine are global leaders in metal markets such as nickel, copper, iron, the ongoing conflict has the potential to spur supply bottlenecks and this is expected to push up metal prices, Kwesu said.
In its latest economic outlook bulletin , the Chamber of Mines said Zimbabwe’s mining sector was set to benefit from global developments in 2022 and favourable commodity prices were expected to spur the mining sector’s performance.
The State of the Mining Industry Survey conducted by the Chamber of Mines last year indicates that mining companies are ramping up production in 2022, with mineral exports expected to benefit from favourable prices.
The gold and PGMs sectors are the main growth pillars for the mining sector in 2022.
“The mining industry is expected to generate approximately US$5,5bn in 2022, underpinned by strong performance in gold with US$2,1bn, palladium with US$1bn and diamond with US$0,8bn,”reads part of the Chamber’s report.
The downside risks to the above projections include an erratic power supply (resulting in production disruptions), capital shortages, exchange rate volatility and widening parallel exchange market premiums and foreign exchange constraints, it said.
The global economy which was projected to grow by 4,5% in 2022, is set to be affected by the geopolitical conflict between Russia and Ukraine which has already affected value chains across the world.
The conflict will have far-reaching global political and economic consequences, particularly in the first half of 2022.
Russia is the second-largest oil producer and supplies over 45% of Europe’s oil and natural gas.
Russia also supplies 6% of the world’s aluminium and is a major player in PGMs markets producing 38% and 10% of global palladium and platinum, respectively.
This means that sanctions that have since been imposed on Russia by the US, British, and other European countries, which include removal of Russian banks from Society for Worldwide Interbank Financial Telecommunication (Swift) and a suspension of the Nord Stream 2 natural gas pipeline, would destabilise commodity markets.
Although there are no direct sanctions on commodity producers, the removal of some Russian banks from the SWIFT payment system will massively complicate international trade finance.
Inflation, a major risk, is anticipated to remain high in 2022, partly due to fiscal and monetary policies put in place to alleviate the effects of Covid-19 and the rallying commodity prices.
Additional inflationary pressures are expected to emanate from elevated food and oil prices as well as associated lagged pass-through effects, particularly in developing economies.
Global economies still face significant threats of resurgent new Covid-19 variants and reduced vaccine efficacy against new highly transmissible variants implies that the evolution of the pandemic remains uncertain.
With potential intermittent outbreaks, supply-chain bottlenecks across different sectors will likely persist in 2022, weighing down the prospects of developing economies, most of which are heavily dependent on commodity exports.
In 2022 gold price is expected to remain elevated above US$1,900/ounce throughout the year.
“With the geopolitical tension, gold still will be a main safe haven asset. Meanwhile, the gold price has already responded to the unfolding crisis in Europe, surging above the US$2,000/ounce mark during the period of conflict, from an average of US$1,750/ounce in December 2021.
“Gold will also have support from high demand from central banks and jewellery sectors. In the second half of 2022, we anticipate the gold market to revert to macro drivers such as real rates, U.S. Federal Reserve policy as well as the growth outlook. We, therefore, expect the gold price to taper off at prices above the 2021 average,” the Chamber said.
A miner who preferred anonymity said the mining sector anticipates to grow and reach the government target of 8%, with attendant benefits including improved foreign currency receipts and other contributions to the economy.
Notwithstanding the buoyant outlook and inherent potential of the mining industry, the mining sector is not immune from the systemic challenges that continue to affect the economy, with other specific challenges impacting negatively on mineral performance including inadequate foreign currency allocations and loss of value on the surrender portion.
“We expect the government to remove various bottlenecks and capitalise on the current commodity price boom to maximise on the situation,” he said.
In the outlook, mining experts said that there is a need for the government to work closely with the private sector to address all structural bottlenecks, improve the operating environment and unlock the full potential for the mining sector.