South African miners consider price hikes as rand bounces back

By William Clarke
Published: Wednesday, 06 February 2019

The recovering rand is putting pressure on margins for South African miners.

By William Clarke and Jon Stibbs

South African miners are bemoaning the strengthening rand, up by nearly 9% against the US dollar so far this year, because it is eating into their profit margins.

This represents a change in fortunes for miners, who have long enjoyed the benefit of an ever-weakening rand.

Miners benefit from a weaker currency as they pay their costs in rand, while receipts are denominated in dollars.

The South African currency finished 2018 down by nearly 15% against the dollar.

The currency has been under pressure from an increasingly bearish attitude to emerging market debt, uncertainty over Chinese demand for minerals, and turbulent local politics.

South Africa is going into its 2019 general election with increased calls for land reform, and an ongoing corruption scandal rocking the ruling ANC party.

But the currency changed direction in 2019. It has been the beneficiary of a weakening dollar, with the US Federal Reserve suggesting that it may take a more cautious approach to quantitative tightening and interest rate hikes.

As of February 6, the rand was 13.40 to the dollar, compared to 14.41 to the dollar on January 1. 

This is bad news for the rand-denominated profits of miners.

A trader working for one major mining group told Fastmarkets that "we are hurting and have raised prices to compensate for the currency movements."

"The rand has been a shock," he added. "The dollar weakness is killing our business."

And a South African producer of metallurgical and non-metallurgical chrome products said: "The rand has been strengthening against the dollar, which may mean that producers could try to increase their dollar-based selling prices to maintain the same margin in rand".

However, non-metallurgical chromite prices remain under long-term pressure from low demand.

Fastmarkets price assessment for chemical-grade chromite, 46% wet bulk, was $220-270 per tonne fob South Africa on February 5, unchanged week on- week, but down from $230-290 per tonne at the start of 2019.

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