Mixed for­tunes for com­mod­ity prices

The Manica Post - - Business - Rumbidzayi Zinyuke Se­nior Business Re­porter

ZIMBABWE and many other sub-Sa­ha­ran economies that rely on com­modi­ties could be set for a year of mixed for­tunes as some mar­ket fun­da­men­tals of sup­ply and de­mand seem favourable to price in­creases in 2018 while some met­als like gold and plat­inum are headed for a tough year.

Eco­nomic ac­tiv­ity in the re­gion has been slow since 2014 when com­modi­ties reg­is­tered record lows, es­pe­cially in the price of oil.

In the case of Zimbabwe, the econ­omy was hit hard by the low com­mod­ity prices ex­ac­er­bated by the El Ni­noin­duced drought that had a sig­nif­i­cant im­pact on agri­cul­tural out­put. Min­ing and agri­cul­ture are the key driv­ers of the Zim­bab­wean econ­omy.

But gains recorded in com­mod­ity prices for the bet­ter part of 2017, cou­pled with a good har­vest, brought re­lief to Zimbabwe and in­deed most African coun­tries.

The World Bank, in its Oc­to­ber Com­mod­ity Mar­kets Out­look re­leased last year fore­cast a slight re­cov­ery in the price of some com­modi­ties in 2018.

A good agri­cul­ture sea­son is ex­pected to play a ma­jor part in the pro­jected eco­nomic growth of 4,5 per­cent for Zimbabwe this year.

Ex­perts are pre­dict­ing an­other bumper har­vest this sea­son ow­ing to favourable rain­fall pat­terns and the con­tin­u­a­tion of tar­geted in­ter­ven­tions through the Com­mand Agri­cul­ture pro­gramme that has been ex­panded to in­clude other crops and livestock.

Oil

Crude oil prices are ex­pected to av­er­age be­tween $48/bar­rel to $68/bar­rel by March this year.

OPEC mem­bers an­nounced that they would aim to cap pro­duc­tion at around 33 mil­lion bar­rels of oil per day, sig­nalling the po­ten­tial end to two years of un­re­strained pro­duc­tion.

For Zim­bab­wean con­sumers, there has never been much joy as pump prices re­main higher than most coun­tries in the re­gion de­spite a de­crease in global crude oil prices.

Mar­ket watch­ers be­lieve the pro­jected gain in oil prices will not change much on the lo­cal scene as fuel prices re­main guided by some forces other than global price changes.

Pre­cious met­als

For pre­cious met­als, which re­cov­ered some ground in 2016 and part of 2017, Zimbabwe is set for some de­clines.

The rally in pre­cious met­als came as in­ter­est rates moved to­ward or be­low zero mak­ing met­als more at­trac­tive to in­vestors.

Zim­bab­wean plat­inum min­ers were smil­ing for most of 2016 as prices con­tin­ued to firm well into the fourth quar­ter.

Plat­inum, how­ever, had a lack­lus­tre 2017 as prices fell on lower de­mand from the auto in­dus­try.

The metal reached $1 036,10 per ounce, its high­est point of the year, on Fe­bru­ary 27, but quickly fell to $943 on March 13. It tum­bled even fur­ther in the next cou­ple of months, hit­ting $905 on May 4.

Mine sup­ply was ex­pected to fall by 1 per­cent in 2017, par­tially due to a 2-per­cent re­duc­tion in South African mine sup­ply caused by mine clo­sures dur­ing the sec­ond half of 2017.

But the plat­inum out­look for 2018 ap­pears to be brighter.

Ex­perts ex­pect plat­inum prices to rise in 2018 to an av­er­age of $1,057 in the fourth quar­ter. Cou­pled with Gov­ern­ment's ini­tia­tive, this could be a slightly bet­ter year for Zimbabwe's plat­inum min­ing firms.

Gold, which was re­spon­si­ble for push­ing most pre­cious met­als suf­fered a se­ries of slumps for the bet­ter part of last year.

Be­cause gold does not pay div­i­dends or gen­er­ate in­ter­est in­come, prices strug­gle when in­ter­est rates rise.

The in­vest­ment bank Gold­man Sachs pre­dicts gold prices to fall to $1,200 per ounce by mid-2018 “amid fall­ing con­cerns of mar­ket par­tic­i­pants, as mar­ket­place fears gen­er­ally make gold a safe haven for in­vestors”.

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