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Angola American to invest in Zambia for the first time in two decades

May 13, 2022by Nicholas Kabaso
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Local Market Commentary

  • Speaking in an interview, Mines Minister Paul Kabuswe reiterated that Glencore Plc must renegotiate the “bad deal” the previous administration struck when Glencore bought Mopani Copper Mines last year. According to Kabuswe, “We have to renegotiate. The details are so bad, I can’t even talk about it. They’re the only off-taker and they even charge you marketing fees for taking their copper.” Kabuswe stopped short of saying what would happen if Glencore refused to renegotiate the deal. Recall Glencore pulled out of Zambia after clashing with former President Lungu’s administration on the future of Mopani, which has been unprofitable for years. Under the accord, cash generated by Mopani will be used to repay Zambia’s outstanding $1.5bn of debt to Glencore. The company will retain offtake rights to the operation’s copper output until the full amount is settled.
  • Trade between China and Africa surged 23% y/y to $64.8bn in the first three months of 2022, according to China’s General Administration of Customs data. The marked rise in trade was underpinned by increased imports of minerals and metals from Africa. Chinese imports from Africa jumped 29.3% to $29.7bn, while exports to Africa rose by 18.2% to $35.16bn in Q1.
  • While the Q1 trade number between China and Africa is encouraging, the reintroduction of lockdowns in Shanghai and the closure of Chinese ports are likely to weigh on trade in the months ahead. Adding to the headwinds will be the supply disruptions linked to the flood-hit port of Durban in South Africa, where almost 20% of Africa-China trade passes through. This includes minerals from the DR Congo and Zambia.
  • Trade between South Africa and China in the first three months of the year stood at $12.3bn, an increase of 13.5% y/y. China’s imports from South Africa consisted mainly of minerals and metals. Other top African trading partners include oil-rich Angola and the DR Congo, where China imports most of its cobalt, a component of batteries for electric vehicles, smartphones, and laptops. Meanwhile, trade with Nigeria and Egypt stood at $5.45bn and $4.9bn, respectively.
  • The increase in trade came on the back of GDP growth of 4.8% in China, the strongest economic growth rate among major economies in Q1. The strong GDP reading was driven in part by growth in imports and exports of 7.5% and 13.4%, respectively. Looking ahead, growth risks have intensified amid the reintroduction of lockdowns, which will undoubtedly weigh on China’s import demand. This will have a notable impact on African exports, given that China is Africa’s largest trade partner.
  • Up one day, down the next. 3m LME copper finished 2.71% lower yesterday with the fears of a global economic slowdown favouring the bears once again. The metal is currently trading marginally lower in the Asian session which sets it up for its 6th consecutive weekly decline.
  • A strong dollar and weakening Chinese demand as a result of the COVID-19 lockdowns have resulted in the price of base metals returning to pre Russian/Ukraine conflict levels. There is a risk of further weakening in the short term however some stability is expected to return in the second half of 2022.
  • On the news front, Reuters reported – Arc Minerals shares jumped 6.7% on Thursday after it announced an agreement under which Anglo American would take majority control of the junior exploration firm’s Zambia copper-cobalt licences.  Under the deal, which was first reported by Reuters, Anglo will take 70% of a joint venture with Arc that will own licenses to explore Zambia’s copper-rich North-Western province, an area Anglo previously explored in the late 1990s. It would mark the first new investment by Anglo in Zambia in 20 years.  Major mining firms are searching for new sources of the battery metals copper and cobalt, especially following the war in Ukraine and sanctions on Russia which have sent metal prices soaring.
  • Moving over to the FX markets, positive sentiment amid rising investor confidence in the local economy should see the Zambia firm next week. Note that the first meeting of Zambia’s creditors is expected to occur next week, Finance Minister Situmbeko Musokotwane said this week, adding that debt talks should be concluded by June. The improving mining outlook and credit talks are set to boost sentiment.

 

Rand and International FX Commentary

  • The ZAR’s unpredictable nature was on full display yesterday and overnight. While the USD had popped higher, load shedding resumed, and oil prices rose to erode SA’s terms of trade. Against the backdrop of falling commodity prices, this seemed like a perfect recipe for the ZAR to weaken. Yesterday afternoon it looked set to test levels closer to 16.3000 when it began its reversal, and overnight it has even broken back below the 16.00 handle.
  • Furthermore, the gold price dropped and remains on the defensive, other commodity currencies such as the AUD are trading to two-year lows, and cryptocurrencies have come under immense pressure. Equity markets are selling off, and overall levels of risk aversion remain elevated, with the VIX still trading comfortably above 30. There will be a lot of head-scratching taking place this morning to explain this dislocation.  
  • Confounding the ZAR bears even more, would be the disappointing manufacturing production stats, which, although slightly better than expected, were still down y/y as the effects of load shedding and strikes became more prominent. Worse still was the mining production data for March, which contracted 9.3% y/y vs the 5.8% y/y contraction in Feb. These are not good data, and even though trade with China ramped up in Q1, Q2 will not have been much better given the lockdowns that China has experienced. 
  • It is difficult to understand the move in the ZAR overnight, and one questions whether it will indeed be sustained when the local market starts trading. Against this backdrop, importers might feel encouraged to buy up some USDs, although any long USD positions over the past week have not proved fruitful. When looking at the day ahead, there appears to be nothing more in the way of significant local data to focus on and only second-tier data out of the US. In all likelihood, the ZAR will give back some of its overnight gains, especially into the weekend when so much could happen from a geopolitical perspective.

Nicholas Kabaso

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