Rumbidzayi Zinyuke Senior Business Reporter
Zimbabwe and many other sub-Saharan economies that rely on commodities could be set for a year of mixed fortunes as some market fundamentals of supply and demand seem favourable to price increases in 2018 while some metals like gold and platinum are headed for a tough year. Economic activity in the region has been slow since 2014 when commodities registered record lows, especially in the price of oil.
In the case of Zimbabwe, the economy was hit hard by the low commodity prices exacerbated by the El Nino- induced drought that had a significant impact on agricultural output. Mining and agriculture are the key drivers of the Zimbabwean economy. But gains recorded in commodity prices for the better part of 2017, coupled with a good harvest, brought relief to Zimbabwe and indeed most African countries. The World Bank, in its October Commodity Markets Outlook released last year forecast a slight recovery in the price of some commodities in 2018.
A good agriculture season is expected to play a major part in the projected economic growth of 4,5 percent for Zimbabwe this year. Experts are predicting another bumper harvest this season owing to favourable rainfall patterns and the continuation of targeted interventions through the Command Agriculture programme that has been expanded to include other crops and livestock.
Crude oil prices are expected to average between $48/barrel to $68/barrel by March this year. OPEC members announced that they would aim to cap production at around 33 million barrels of oil per day, signalling the potential end to two years of unrestrained production. For Zimbabwean consumers, there has never been much joy as pump prices remain higher than most countries in the region despite a decrease in global crude oil prices.
Market watchers believe the projected gain in oil prices will not change much on the local scene as fuel prices remain guided by some forces other than global price changes.
For precious metals, which recovered some ground in 2016 and part of 2017, Zimbabwe is set for some declines. The rally in precious metals came as interest rates moved toward or below zero making metals more attractive to investors.
Zimbabwean platinum miners were smiling for most of 2016 as prices continued to firm well into the fourth quarter. Platinum, however, had a lacklustre 2017 as prices fell on lower demand from the auto industry.
The metal reached $1 036,10 per ounce, its highest point of the year, on February 27, but quickly fell to $943 on March 13. It tumbled even further in the next couple of months, hitting $905 on May 4. Mine supply was expected to fall by 1 percent in 2017, partially due to a 2-percent reduction in South African mine supply caused by mine closures during the second half of 2017. But the platinum outlook for 2018 appears to be brighter.
Experts expect platinum prices to rise in 2018 to an average of $1,057 in the fourth quarter. Coupled with Government’s initiative, this could be a slightly better year for Zimbabwe’s platinum mining firms.
Gold, which was responsible for pushing most precious metals suffered a series of slumps for the better part of last year. Because gold does not pay dividends or generate interest income, prices struggle when interest rates rise. The investment bank Goldman Sachs predicts gold prices to fall to $1,200 per ounce by mid-2018 “amid falling concerns of market participants, as marketplace fears generally make gold a safe haven for investors”.
In the long term, analysts expect gold demand to rise on strong growth in emerging markets. So the road might be rocky for most gold producers in Zimbabwe who have worked hard to grow the production figures. More so for the small scale producers who continue to contribute a huge portion of that gold output.