'Commodities slump to continue in 2016'

HARARE - Zimbabwean mining companies must brace for a further plummet in commodity prices on the international market this year, a World Economic Forum (Wef) report has said.

According to the report, released last week commodity prices for everything, from crude oil to industrial metals such as iron ore and copper, plummeted even further by the close of last week.

“The sector is contending with the lowest prices since the financial crisis, perhaps even this century.

“The situation was so dire that the Bloomberg Commodity Index, which covers a wide range of natural resources, dropped to its lowest level since June 1999,” the Wef report said.

The economic watchdog said countries like Zimbabwe which primarily depend on metal export earnings had to revise this year’s growth predictions, and issue conservative estimates.

Due to this situation,  the world’s mining giants have been forced to restructure their businesses in order to stay afloat as they battle declining profits.

“The market capitalisation of the top 40 global mining companies fell by nearly $300 billion in 2015.

“The crash is particularly devastating for economies that rely on export earnings from commodities. The oil-producing states of the Middle East, Russia, Brazil and a number of African nations have all been badly affected,” Wef said.

Gold slipped nine percent in 2015 and is on track for its third year of losses. Traditionally, gold has been viewed as a safe haven for investors, but analysts are watching carefully to see how prices will react to a predicted rise in US interest rates.

The gloomy forecast comes as Finance minister Patrick Chinamasa in his 2016 National Budget said Zimbabwe’s mining output was expected to grow by 2,4 percent in 2016 buoyed by increased output in gold, chrome, coal, nickel, platinum and diamonds.

“In 2016, the mining sector is expected to rebound, growing by 2,4 percent, on the back of planned investments, and largely driven by strong performance of gold, chrome, coal, nickel, platinum and diamonds,” he said then.

However, the treasury chief was quick to point out that the growth was also dependent on commodity price fluctuations on the global market.

“The projected growth takes cognisance of the constraints facing the sector, namely, depressed international mineral prices, falling demand in export markets, financing, as well as power shortages,” Chinamasa said then.

According to Wef, the free-fall is being caused by a combination of oversupply and weak demand that have wreaked havoc on the natural resources industry.

“The growth slowdown in China and other emerging economies such as Brazil has reduced demand for natural resources like steel, iron ore and crude oil.

“Meanwhile, on the supply side, cheap borrowing costs and a failure to predict China’s slowdown led producers to expand too much in recent years,” the report noted, adding that there was now a glut that analysts say might continue well into 2016, with prices unable to pick up until global supplies decrease.

 

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