The purpose of resource, commodity value
JUST this week, there was a small scale miners’ consultative meeting in Gweru hosted by the Minerals Marketing Chamber of Zimbabwe. Of significance were the fluctuating price trends of chrome ore, particularly the recent downward trend of nearly 50 percent in comparison to rising prices that opened the year.
Not only in Zimbabwe, but globally, chrome prices have been falling. This has been attributed to the reduced demand by Chinese steel processors.
In South Africa, prices for chrome ore shipments have been reduced by as much as 13.7 percent in recent weeks.
So it was encouraging to read that the MMCZ was strategising necessary infrastructure across mining regions to enable the better price hedging and stock storage of chrome.
The consultations supposedly hope to apportion the best value across stakeholders in the chrome supply chain, from the treasury of national export revenue down to the pockets of small scale miners.
However, the greater narrative from this event and others of similar concern in the mining and commodities sectors is that of the purpose of value.
Fluctuating values are a characteristic of resources and commodities.
In fact, they are characteristic of market economics.
Accordingly, the notion of value must always be accompanied with a cognizance of price highs and lows as determined by demand, influenced by a variety of factors.
A nation that accounts for its wealth in terms of resources and commodities must inherently adjust its mindset to the fluctuating prices of its cherished assets.
This warrants such a nation to equip itself with the acumen and vision to find consistent purpose of value.
When prices are high, what value are you getting from the resource or commodity?
When prices are low, what value do you stand to save or in the worst case lose from the resource or commodity?
Fundamentally, this means a nation should be erudite to take advantage when prices are high, and hedge its losses when prices are low — but to what purpose?
There are a number of resource endowed nations that belabour on such thought, and the consistent rewards of such acumen are evident.
The purpose of value is not in the prices of resources or commodities themselves, but the purpose of value resides in the socio-economic opportunities that are presented from favourable prices.
Consider OPEC nations. The purpose of oil value reflects in its consistent sustenance of relatively high living standards and upkeep of socio-economic desirables.
This is the purpose of resource and commodity value.
As such, price fluctuations are interpreted in the resource and commodity’s ability to sustain consistency in this purpose.
Such an understanding may seem common place, but this is not so evident in many resource and commodity rich nations on our continent.
Consider the recent commodity boom that took place throughout Africa.
It indeed was the basis of an extensively hopeful Africa Rising narrative, of which after the decade of soaring commodity prices, the socio-economic state of many African countries do not show that such a sustained event took place on global markets at all.
Concededly, the matter of whether or not African nations actually hold ownership of their resources and commodities is significant.
However, in regions such as Zimbabwe where resources are beginning to find greater local ownership, the dividends that should reflect the value of our resource and commodities has been slow to gather.
This is why we should take greater cognizance of the purpose of value.
As a nation we should start to develop that acumen and vision to capture the purpose of value through price fluctuations of our resources and commodities.
Factors that influence resource and commodity demand include technology.
Technology is evolving so fast that traditionally cheaper energy sources such as coal — a commodity in which we hope to extract value — will lose value compared to alternative renewables.
According to Bloomberg New Energy Finance outlook for how fuel and electricity markets will evolve by 2040, it is estimated that solar already rivals the cost of new coal power plants across Europe, and by 2021 this will be the same in Asia.
This means strategically, nations that pin hopes on the value extracted from coal must be prepared to pivot towards other value resource deposits they may possess.
For instance, At least $239 billion will be invested in lithium-ion batteries in the next two decades.
It means that supply chains from exploration, extraction and delivery to market must be prepared to efficiently supply prospective markets at favourable pricing.
We must be responsive to these price influencing factors.
Initiatives trying to be taken by the MMCZ such as having flexible supply chains that are responsive to the fluctuations in prices must be commended.
Moreover, nations such as Zimbabwe must consider diversifying their economies.
We cannot rely on the same industrial output as four decades ago, as suggested by the often misplaced rhetoric of a lot of our economic governance representatives.
Diversifying our economies may require structural adjustments that funnel the value of resource and commodity prices into other predetermined sectors or socio-economic ventures. For instance, revenues from traditional commodities can stimulate and develop service sectors such as healthcare, finance, and education.
Commodity rich nations in Asia have taken up sovereign wealth funds that near trillion dollars in value.
This makes these nations more immune to price dependency as the value of their resources and commodities is structurally stored, and positioned for reinvestment into further wealth creation.
There is a purpose in resource and commodity value, it must be understood and defined, and from there structural efforts must be made to store and derive consistent benefit from that value.
As a nation we should start to develop that acumen and vision to capture the purpose of value through price fluctuations of our resources and commodities. Factors that influence resource and commodity demand include technology.