Johannesburg - The mining industry’s fortunes are unlikely to improve any time soon as there is little hope that the drop in demand from China for commodities can be replaced by another country.
“There is not going to be a substitute to China. India is much smaller than China. The economic slowdown in that country is critical for commodities,” said Clem Sunter, the director of Mind of a Fox, in Johannesburg yesterday at a commodities conference, adding that China had increased demand for metals substantially over the past few years.
“In the longer term, there will be difficulties in the commodity market until an alternative market is found. In the short term, technology can provide alternative uses for commodities,” said Sunter.
Jacques Botha, a director and chief economist at Afriforesight, expected tough times ahead for commodities, citing for example that iron ore prices should decline as demand for steel falls.
“This year is worse for steel, steel is under pressure,” said Botha.
Most commodities suffered dramatic price declines as worries intensified that China’s economic slowdown would slash demand.
Platinum, used for jewellery and in the car industry for making catalytic converters, is at a six-year low, and gold has hit its lowest levels since 2010.
The price of iron ore has tumbled from $190 (R2 461) a ton four years ago to around $50 a ton amid the global glut as the slowdown in Chinese steel demand saw major producers raising their output.
Marian van der Walt, spokesperson for Harmony Gold, said that a weaker rand meant higher rand a kilogram price received for gold sold by the company. “Although the increase in the rand a kilogram gold price provides a welcome relief to us, our focus remains to increase our margins through an increase in production,” Van der Walt said.
Chris Ntithe, spokesperson for Anglogold Ashanti, said on Monday that weaker currencies have a temporary benefit on cost, but inevitably lead to producer inflation, which would impact future profit margins and the sustainability of the business.
“Stability in the currency is always preferable for long-term planning purposes,” Ntithe said.
In terms of specific interventions to mitigate against the sliding rand, the Chamber of Mines said very little to nothing could be done.
Monique Mathys, the head of economics at the Chamber of Mines, said should the rand weakness persist until the end of the year and result in sustained improvement in profitability of the mining sector then perhaps job losses could be limited or reduced. However, she said this assumed that dollar commodity prices do not continue to weaken.
“The mining industry is in survival mode – without drastic interventions, restructuring and cash preservation, we could see a significant portion of our sector at risk of closures or curtailment. The industry is working closely with stakeholders to ensure a sustainable sector in a way that limits job losses. As an industry we need to be globally competitive to thrive – we have some work to do to get there, but we are all up for the challenge.”
Turning to the steel industry, Henk Langenhoven, a chief economist at the Steel and Engineering Industries Federation of Southern Africa (Seifsa), said little could be done to mitigate the decline of the rand.
“The movement of the rand has more to do with what is happening in international markets as opposed to what is happening domestically,” said Langenhoven.
He said while the rand slid, the import prices of machinery increased and so did all imported product prices.
BUSINESS REPORT