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Mineral prices starting to recover — good news for rand strength, interest rates

Roelof Botha
By Roelof Botha
26 Jun 2024
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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 while remaining above pre-2020 levels. 

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. According to Trading Economics, China’s imports of iron ore increased by 7% year on year during the first five months of the year.

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.

Gold price hits record high


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.

Traditionally, an inverse relationship exists between US interest rates and the gold price, which may be at play again, with the yield on 10-year US government bonds having dropped by 70 basis points since mid-October last year and by 40 basis points over the past two months. This yield nevertheless remains 50 basis points higher than at the end of last year, which makes the continued rise in the gold price even more impressive.

Another reason for the excellent performance of the gold price is the sharp increase during the latter part of 2023 in global central bank purchases of gold, as these institutions start diversifying away from forex assets. During the fourth quarter of 2021, total central bank purchases of gold (to shore up official reserves) amounted to 34 tonnes. Two years on, and this demand shot up by almost 700% to a level of 229 tonnes, confirming, once again, gold’s status as a long-term safe haven. 

Rising mineral prices have a multi-faceted positive impact on the South African economy. First, 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 impact positively on 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. DM

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