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Copper scales $9000.00/tonne mark

February 22, 2021by Nicholas Kabaso
  • Speaking in an interview on Friday, World Bank President David Malpass said that the bank and the International Monetary Fund (IMF) are working on ways to factor climate change into debt reduction with some poor countries.  Note, Ethiopia, Chad and Zambia have already initiat-ed talks with creditors under a new Common Framework supported by Group of 20 nations, which may lead to debt reductions in some cases and Malpass expects more countries to request debt restructuring. The two financial institutions are exploring how to combine the need to reduce or restructure large debts in many poorer countries with demands to reduce fossil fuel emissions to combat climate change.
  • It is a quiet start to the week in Zambia amid a lack of meaningful data. Later in the week there will however be the CPI and trade balance read-ings for February and January, respectively.  Note headline inflation in Zambia is sitting at a 5-year high and going forward, risks to the inflation outlook are tilted to the upside. Specifically, policymakers expect inflation over the next eight quarters to move further away from the upper bound of the target range as a result of the lagged pass-through from the depreciation of the Kwacha and sustained high fiscal deficits. That said, improved food supply and subdued aggregate demand to some extent could, however, mitigate inflation. On balance, the BoZ is likely to maintain a cautious policy stance amid risks to the inflation outlook. Recall at it is the last meeting the BoZ stated that it “stands ready to adjust the policy rate upwards further should inflationary pressures persist”.
  • Copper has scaled the $9000.00/tonne mark this morning in Asia for the first time since Sept 2011 extending the rally as supply concerns and hopes of an extended recovery in China drive price action. The red metal recorded its third weekly gain last week and is well on its way to reach the all-time high of $10190/tonne achieved in February 2011. 
  • LME cash copper remains at a $37.25/tonne premium over the 3m contract which demonstrates the tight supply conditions inherent in the copper market at present.
  • On the international front, comments from senior Chinese officials suggest that more effort will be made to normalise relations between China and the US. The stance has clearly softened, and although the Biden administration has given no indication that it will roll back on the tariff increases imposed by Trump or that the agreed upon phase 1 of the trade deal would be unwound, it is more likely that the Biden administration will seek to co-operate more with China. Matters related to the pandemic and the stimulus efforts, coupled with a renewed commitment to a climate change agenda may form a good foundational starting point.
  • US data released on Friday showed that the IHS Market factory index fell to 58.5 in mid-Feb. Although deep in expansion territory and still de-noting a recovery, the rate of expansion has moderated slightly. One would expect this to unfold, but there is a cautionary tail in this data in that cost of manufactured goods prices is also rising to further detract from the substance of this report.
  • The final trading session of the week saw Kwacha bears regain control as the USD-ZMW closed at fresh high north of the 21.600 mark, according to Reuters data. The Kwacha is seen as remaining on the defensive this week, given limited foreign exchange inflows amidst rising expenditures, especially on imports of farming inputs.
  • Meanwhile, the USD has yet to gain material directional momentum. Reflation expectations and positioning for the anticipated recovery means that the USD remains on the defensive as a safe-haven asset. Any data that disappoints, equally implies that the Fed will retain its ultra-loose monetary policy stance for the foreseeable future. The next result is that the USD is simply not gaining much in the way of traction, with the common perception ongoing that it will loose more ground as the year unfolds.

Nicholas Kabaso

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