THE high copper prices on the international market may not translate into an improved Zambian economy because the global macroeconomic environment remains volatile while mining companies’ cash flow position is still constrained, says the Zambia Chamber of Mines.
The Chamber also says that electricity supply to mining companies has remained stable despite the lapsed Bulk Supply Agreement (BSA) between Copperbelt Energy Corporation Plc and Zesco Limited, but that the situation has heightened uncertainty about the security of power supply for the long-term.
Copper prices on the international market have surged to US $6,454.50 per tonne by July 17, 2020, the highest since April last year, according to the London Metal Exchange (LME).
The rise in copper prices comes in the wake of huge supply disruptions in Chile, the world’s largest producer of the red metal, following continued industrial disputes and the ravaging Coronavirus pandemic that has disrupted supply chains.
Commenting on the sharp rise in prices, Chamber president Goodwell Mateyo observed that increased prices may not necessarily translate into an improved local economy owing to the ongoing volatile global economic environment.
“Copper prices have risen in recent times, but the fact of the matter and the reality is that the global macroeconomic environment still remains fairly volatile. The global economy is in recession at the moment; China is getting back to production, but who’s buying the products being produced? Although we have an upswing in copper prices, we can’t say that’s going to be sustained for the long run. We can only see that it’s going to remain high in the short-term, but in the long-term, no one knows what’s going to happen,” Mateyo said in an interview.
“So, because of that volatility, we are getting the benefits at the moment, but even with this high price environment, there isn’t sufficient stability for operations to manage their production around what the copper prices are at the moment.”
Asked if the high copper prices on the international market would eventually translate into improving mining companies’ cash flows in view of anticipated higher foreign exchange earnings, Mateyo said only short-term gains were likely.
“I would say yes, in the short-term. If the prices are sustained, and the global macroeconomic environment gets some level of stability, yes, it will be good for our investment and for production. But my sense at the moment is that, there’s still a lot of volatility, if the macroeconomic fundamentals in the global environment don’t seem to give the impression that they would support a high price environment in the long-term. And as long as volatility continues, it’s difficult to state that that’s going to be good for our economy in the long run. In the short-term, yes, it has significantly improved cash flows for a lot of the local mining companies,” he replied.
And asked whether power supply to mining companies had been maintained amid the ongoing dispute between CEC and Zesco, Mateyo, who is also Mopani Copper Mines’ general legal counsel, confirmed that mines had stable supply, but cautioned that the issuance of Statutory Instrument Number 57 of 2020, which declared CEC’s infrastructure as common carrier, had heightened uncertainty about the security of power supply for the long-term.
“To be fair, the supply of power has been stable and has continued as it was prior to the (CEC-Zesco) impasse. I think the only challenge with the impasse is the level of certainty. So, what’s going to happen next year? Is CEC going to supply us power? Or are they going to be our service providers with respect to wheeling charges of power supplied from Zesco? The biggest negative effect that this impasse has had is a lack of certainty with respect to security of supply. In terms of what’s going to happen with the declaration of CEC’s assets as common carrier and the litigation that commenced as a result of that, it obviously brings on certain levels of uncertainty with respect to what’s going to happen in the long-term,” said Mateyo.