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Rumbidzayi Zinyuke
ZIMBABWE and many other sub-Saharan economies that rely on commodities could be set for a windfall thanks to the market fundamentals of supply and demand that seem favourable to price increases in 2017.

Economic activity in the region has been slow since 2014 when commodities registered record lows, especially in the price of oil.

In the case of Zimbabwe, the economy was hit hard by the low commodity prices exacerbated by the El Nino induced drought that had a significant impact on agricultural output. Mining and agriculture are the key drivers of the Zimbabwean economy.

The World Bank, in its fourth quarter Commodity Market Outlook released last year, forecast a slight recovery in the price of most commodities.

Food prices are forecast to rise modestly as a decline in grains prices is expected to offset a rise in prices for other food commodities.

It is on the back of such projections that Finance and Economic Development Minister Patrick Chinamasa last year forecast the Zimbabwean economy’s turnaround from its slowdown mode to about 1,7 percent in 2017 led by the mining and agriculture sectors.

Already, experts are predicting a bumper harvest this season owing to the above normal rainfall  being recorded in most parts of the country.

“Overall GDP growth is therefore projected at a moderate 1.7 percent in 2017, also against the background of anticipated moderate improvements in international commodity prices, fruition of planned mining investments and benefits from the ease of doing business reforms,” Minister Chinamasa said in his 2017 National Budget statement.

While the prospect of better prices is good for economies, analysts say the extent of the rise is largely dependent on China, among other issues.

The Asian country has huge stocks of many key mineral and agricultural commodities, with estimates suggesting it holds 60 percent of global cotton supplies, 40 percent of wheat and 21 percent of soya beans.

So if China decides to start selling some of its reserves, it could put a damper on global commodity prices. That said, there are other factors that could push prices.

The World Bank said oil, which suffered the worst drop in prices in the past two years to as low as below $30 per barrel, is forecast to rise about 27 percent in 2017.

The bank says the decision by the Organisation of Petroleum Exporting Countries (Opec) to resume limiting oil production is an important factor behind the higher price forecast.

“When Opec members announced that they would aim to cap production at around 33 million barrels of oil per day, it signalled the potential end to two years of unrestrained production,” said the World Bank.

The bank forecast oil prices to rise to $55 per barrel in 2017 from $43 per barrel in 2016. This could trigger better economic growth in oil exporters, which include Angola and Nigeria that suffered major economic setbacks in the slump period.

However, coal prices which averaged $58 per tonne in 2015 and 2016 are expected to drop slightly to $55 per tonne in 2017 due to higher supply and weak demand.

Natural gas prices are also projected to fall 31 percent in 2017 as a result of large production declines in Europe and Japan and subdued demand.

For precious metals, which recovered some ground in 2016, market watchers say 2017 holds a bag of mixed fortunes.

The rally in precious metals came as interest rates moved toward or below zero making metals more attractive to investors. The group also got a boost in June last year after the UK’s vote to leave the European Union sent investors looking for haven assets.

Zimbabwean platinum miners were smiling for most of 2016 as prices continued to firm well into the fourth quarter.

The market fundamentals for platinum were favourable, going up 15 percent during the first six months of 2016. This was after prices had plunged as much as 48 percent from 2014, hurting mining companies’ profits.

In March last year, the metal surpassed the $1 000-per-ounce mark for the first time since October 2015 and steadily rose to reach a new high of $1 182 in August.

Platinum is expected to maintain the positive gains, but with caution, due to the known price volatility of the metal. It is forecast to average between$1 040 and $1 100 an ounce in 2017 and reach $1 225 the following year.

However, if wage negotiations in South Africa are successful, Zimbabwean companies might not benefit from the price gain as much as they did in previous years following the strike that caused huge disruptions in South Africa’s platinum industry.

Gold, which was responsible for pushing most precious metals prices, suffered a series of slumps for the better part of last year.

Because gold does not pay dividends or generate interest income, prices struggle when interest rates rise. Other reasons for the slump included the sluggish gold trading in India, the second biggest trader in gold, and the discord in the EU, particularly in Greece. The price was further impacted by China offloading its bullion.

Prices for the precious metal dropped to just over $1 161 a troy ounce in December recording a fifth consecutive weekly loss, the longest losing streak in 13 months.

Zimbabwe Miners’ Federation spokesman Dosman Mangisi says small scale miners suffered great losses towards the end of 2016 owing to the continuous drop in bullion price.

“Miners are lost at the moment. Prices declined by about 15 percent from the first day of November 2016 to mid-December.

“This stresses the small-scale mining operations whose production is measured using the grammes they produce. The cost of production is already high due to high cost of fuel and power (at $0,12 per kilowatt),” he said.

Analysts say gold bugs who are looking for another buying opportunity this year may not be disappointed, with prices forecast to drop further due to a strong dollar and interest rate hike expectations.

Gold is expected to dip to $1 219 an ounce from $1 250 an ounce. Other analysts see prices averaging as low as $1 180 in 2017 and then dropping to $1 100 in 2018.

So the road might be rocky for most gold producers in Zimbabwe who have worked hard to grow the production figures to 23 tonnes of gold worth $900 million in the past year.

More so for the small-scale producers who continue to contribute a huge portion of that gold output. — Zimpapers Syndication.