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Copper underpinned by strong data out of China and renewed supply concerns

March 15, 2021by Nicholas Kabaso
  • Zambian financial markets reopen today having been closed on account of the Youth Day public holiday on Friday.
  • Prior to the holiday, Zambia and Angola on Thursday signed a communique of action plan aimed at strengthening bilateral cooperation in the agricultural sector. According to Zambia’s Minister of Agriculture Michael Katambo, the agreement will also provide the exploitation of various opportunities such as crop production, agriculture research and development as well as seed production among others.
  • Meanwhile, Zambia is reportedly on the lookout for further deals as it prepares to complete its acquisition of a majority stake in Glencore. According to the ZCCM Investment Holdings Chairman Mabvuto Chipata, the company would consider any opportunities to increase the mi-nority shareholdings it owns in Zambia-based companies.  Chipata was quoted as saying “we need to make sure we have participation in the mining sector, which controls the larger part of this economy”. On the acquisition of Mopani, Chipata noted that the elections were not a fac-tor and its decision was in line with its plan to move away from minority shareholdings.
  • On the base metals front, Copper prices are at a two-week high this morning driven by strong data out of China and renewed supply concerns. China’s Industrial Output grew by some 35.1% in the Jan-Feb y/y measurement period exceeding the 30% pencilled in by economists in the Reuters poll. This suggests that there is going to be a strong rebound in the first quarter of 2021 and makes the official government GDP growth target of 6% in 2021 seem like a done deal.
  • On the supply side, the global trading firm Trafigura stated that they see a significant supply deficit in the copper market and a prolonged high price cycle. According to Reuters -The Chief Executive Jeremy Weir was quoted as saying “We see a significant deficit, possibly in the region of 10 million tonnes of additional copper is required to balance the market by 2030,” at the Fastmarkets Copper seminar. Weir said China would remain a key driver of demand but the decarbonisation goals of the European Union and the new U.S. administration mean a lot more copper will be needed to meet their new infrastructure and electrical grid needs.
  • On the global front, the main event this week will undoubtedly be the FOMC decision and statement. No change is anticipated; however, the focus will be on the Fed’s expectations for inflation and how it might respond. It is widely accepted that inflation will rise relatively strongly through the middle of the year. The Fed now enjoys a relatively flexible mandate and can afford to look through the spike if it deems it tempo-rary. However, it will need to control the narrative of the inflation debate and ensure that its credibility as an inflation fighter is not damaged. Investors should therefore expect the Fed to start talking about inflation, but to ensure that the market understands that any spike will be temporary. Economic policy will however remain ultra-accommodative for a while to come.
  • In other news, the US has crossed a milestone and managed to administer over 100mn doses. This implies that the US is on track to be able to double that by summer which will make a significant difference to the prevalence of the virus. As the vaccination drive gathers momentum, so the authorities will gain the room to open up their economies once more and further ensure that growth is enhanced.
  • In the FX markets, US Treasury yields have spiked and in turn given the USD something to cheer about. After slumping in the second half of last week, the USD has found its footing and regained some lost traction. Technically, it is likely to enjoy some support and nudge a little higher through the course of the next few trading sessions, but some caution will naturally be expressed ahead of the FOMC decision that is an-nounced on Wed and the guidance and communication that is offered.
  • In the week ahead, a bearish bias is expected to remain entrenched on the Kwacha amid sustained demand for hard currency and scanty in-flows.

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Nicholas Kabaso

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