Mineral prices starting to recover

The recent recovery of mineral prices is a most welcome development for the South African economy, which remains reliant on commodity exports for the bulk of its foreign exchange earnings.

Since the recent lows recorded between March and April, the prices of the top six minerals produced by South Africa (in value terms) have all edged upwards. Manganese has been the top performer with a price increase of 36%, followed by gold, which remains in record-breaking mode. Since the beginning of the second quarter of 2024, platinum, iron ore and coal have all experienced price increases above 5%, with chromium ore also moving up slightly.

Several research agencies, including BMI, share an overall positive view on metal and mineral price forecasts for 2024, with some key commodities starting to gain on last year’s price levels, whilst remaining above pre-2020 levels.

Exhibit 1 | Total mineral sales at current prices for January to April

Source: Statistics South Africa. Data as at end April 2024. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.

Source: Statistics South Africa. Data as at end April 2024. Past performance is not a reliable guide to future performance. For illustrative purposes only and not indicative of any investment.

Iron ore is expected to lead gains in ferrous metals, mainly due to positive sentiment over China’s recently announced economic stimulus measures. Despite the Chinese economy being hamstrung by over-supply in its property sector, China remains the world’s largest consumer of metals.

Even a marginal uptick in the demand for minerals from the world’s second largest economy is bound to exert a positive impact on prices. The sectors for energy and construction will also continue to drive demand for a variety of metals and minerals, with a robust US economy likely to boost prices in 2024 and beyond.

Precious metal prices have already responded to the return to price stability in most key economies, with lower interest rates on the cards in the US and Europe. Gold is a shining example of the recovery of precious metal prices and has reached new record highs for several months in succession.

Rising mineral prices have a multi-faceted positive impact on the South African economy. Firstly, despite the problems still being experienced with the efficiency of transport logistics, higher prices will boost the country’s trade balance, which has been in surplus for eight successive years and is now likely to retain this feat.

A stronger balance of payments will positively impact the rand exchange rate, which has been the strongest global currency against the US dollar since the beginning of March. Currency strength, in turn, should do its bit in easing inflation via the easing of import cost pressures.

Ultimately, this fortuitous scenario will assist the quest for lowering inflation to a point where monetary policy will be relaxed, something that millions of indebted South Africans have been eagerly waiting for.

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Author: Dr. Roelof Botha

Economic Advisor of the Optimum Investment Group. He navigates complex topics with clarity and optimism and with more than 40 years of experience, including  Finmedia Economist of the Year winner and Advisor at National Treasury, offers insightful perspectives on South Africa’s economic and political landscape.