Zim mining takes hit amid falling global metal prices

01 Mar, 2024 - 00:03 0 Views
Zim mining takes hit amid falling global metal prices Apprehensions regarding demand growth for platinum stemming from China’s tepid economic recovery have further dampened market sentiment of the metal.

eBusiness Weekly

Martin Kadzere

A steady decline in prices of key metals such as lithium and platinum group of metals since early 2022, fuelled by slowing economic activities in China and other advanced economies, is threatening the profitability and viability of local mining projects, Business Weekly can reveal.

So distressing is the situation to the extent that some mining firms including well-established ones (names supplied) majoring in formerly lucrative metals, are reportedly considering rolling out massive workers retrenchment.

It emerged the decline in metal prices globally, might have far-reaching consequences for Zimbabwe, where about 75 percent of export earnings come from some of these key minerals.

The World Bank’s Metals and Minerals Price Index saw a slight 0,13 percent drop in the last quarter compared to the same period a year earlier.

This continued steady decline since early 2022 due to slowing economic activities in major economies, is reducing demand, despite supply recoveries for some selected base metals.

According to the World Bank estimates, prices are expected to fall another 5 percent in 2024, following a nearly 10 percent drop in 2023, before stabilising in 2025 and there is no a clear duration when recovery is expected.

Risks to this forecast include weaker-than-expected demand from China and advanced economies, significant production disruptions and potential trade impacts from escalating conflicts in the Middle East.

Platinum price is at a current level of 925,86, down from 935,47 last month and down from 1 053,25 last year. This is a change of -1,03 percent from last month and -12,09 percent from one year ago.

Palladium decreased 138,80 USD/t oz. or 12,64 percent since the beginning of 2024, according to trading on a contract for difference (CFD) that tracks the benchmark market for the metal.

Platinum and palladium are key minerals used in the Information Technologies, automobile business and the health sector.

“The current situation is very concerning,” said economic analyst Carlos Tadya.

“The decline in metal prices has significantly eroded profit margins, leaving companies with no choice but to explore cost-cutting measures.”

The most immediate and concerning consequence of this situation is the potential for widespread job losses and the stalling of ongoing mining projects and prolonged delay in bringing new ones online.

Last year, Tharisa, a South African mining company, announced a delay in the commissioning of its Karo Mine in Zimbabwe.

The mine, located on the country’s Great Dyke, was originally scheduled to begin operations in July 2024.

However, due to weak platinum group metal prices and an uncertain global economic outlook, Tharisa has pushed back the commissioning date to June 2025.

Sandawana Mines, citing falling lithium prices, laid off 300 workers to streamline operations, raising concerns on the future of the minerals taunted as the mineral of the future.

General manager, Godwin Gambiza, said the move to retrench protects the business by minimising costs during a market slump and there are fears more workers might lose jobs moving into the future if no changes in the affirmative lithium prices are realised.

Lithium prices have dropped 80 percent in 2023, despite historically high demand for battery production for both electric and hybrid vehicles as well as massive power storage in the energy sector.

A glut of lithium and battery materials is likely to continue throughout 2024, putting further pressure on market prices, according to industry leaders.

The oversupply issue plaguing the market in 2023 is expected to carry over into the current year. This comes after global supply of lithium, a key component in electric vehicle batteries, significantly outpaced demand in the past year.

The oversupply has led to a significant drop in lithium prices, impacting major producers across the globe.

Analysts predict that the current market imbalance will likely create challenges for lithium producers in the near future.

While the long-term outlook for the lithium market remains positive due to the continued growth of the electric vehicle industry, the short-term pressure on prices is raising concerns about the immediate financial health of producers and the potential impact on future production levels.

This is further evidenced by the recent financial struggles of mining companies, as seen in Zimbabwe’s platinum giant, Zimplats, which posted a tax loss of US$8.8 million from a profit of US$159.6 million prior year. This is Zimplats’ first loss in nearly a decade.

Zimplats has attributed the loss to lower average US dollar metal prices during the period.

Beyond Zimplats, the decrease in platinum prices also impacts Zimbabwe’s national export revenue and mining makes up over 75 percent of the country’s export earnings, with platinum being the second-largest earner after gold.

As the world’s third-largest platinum producer, Zimbabwe also relies heavily on this precious metal as a major source of tax revenue for the Government.

“The biggest and most worrisome consequence of this situation is the very real possibility of widespread job losses and the halting of ongoing mining projects, which would have a devastating impact on both workers and local economies,” said a Harare-based international mining consultant.

The current situation puts bare the vulnerability of Zimbabwe’s mining sector to external factors such as global commodity prices.

It thus underscores the need for diversification within mining-dependent economies to mitigate the impact of fluctuations in commodity prices.

“The country’s current account is expected to worsen because declining global prices will reduce export earnings, leading to a wider trade deficit and potentially devaluing the local currency,” said Tadya.

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