Exports look set to boost struggling economy
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THE surge in commodity prices has been an unexpected boost for the local economy with a rebound in global demand soaring.
Palladium, rhodium, iron ore, gold and coal prices this week saw the SA Revenue Service raking in a record R54.6bn trade surplus in May on the back of the commodity bull run.
President Cyril Ramaphosa this week said the surplus was primarily driven by minerals, precious metals and vehicle exports.
Ramaphosa said transport equipment, chemical products and agricultural products also contributed.
“High commodity prices and rising global demand is good for our economy, particularly the mining sector.
“Rising global metals prices will play a significant role in accelerating our recovery from the pandemic downturn,” Ramaphosa said.
The bull run has resulted in mining houses recording bumper profits.
Old Mutual Wealth’s Investment Strategist, Izak Odendaal, said South Africa has benefited from the soaring prices.
Odendaal said production had, however, been constrained by Eskom and Transnet infrastructure problems and local government inefficiencies.
He said the question was whether mining companies saw the prices as being high for longer. “A longer-term chart of SA mining production shows that output over the past decade is basically flat. Prices are cyclical. We are experiencing a commodity price boom that might last a few years or only a few months,” Odendaal said, adding that to create jobs mining needed to expand output, not just rely on price increases.
Platinum Group Metals (PGM) which include rhodium, palladium, platinum, osmium, ruthenium and iridium is a case of a bull market.
Statistics South Africa (StatsSA) said in a note in April that in 2020, prices for palladium accelerated 43.2 percent in dollar terms and rhodium by 222.6 percent.
StatsSA said for the first time in the last decade, PGM sales overtook coal to become the top contributor to mining sales reaching R190 billion in 2020.
However, Investec’s chief economist Annabel Bishop said the increase in commodity prices this year would be well below the acceleration experienced in the second half of last year.
Bishop said some modest increases could occur in some sectors of the commodity complex and that levels would remain supported.
“Commodity prices essentially retained their levels overall in June, but on a disaggregated basis show some slight weakness in industrials and metals, but some small strength in agricultural food, with resultant consolidation overall after a heady near twelve month run,” said Bishop.
Bishop said it followed on a moderation in the monthly pace of ascent of commodity prices this year, with the second half of last year having seen a quicker pace, “but commodity prices have still reached 10-year highs this year, very close to the 2011 peak of the 2000s commodity boom”.
“The economy is the start and end of everything. You can’t have successful education reform or any other reform if you don’t have a strong economy.”