Copper, Glencore send Zambian kwacha into freefall

Zambia’s kwacha went into freefall on Monday, hit by a worsening outlook for key export copper as the metal’s price hit a one-month low, amid fears that mining giant Glencore might further rein in its extensive operations in the country.

The currency fell more than 17%, its biggest one-day fall on record, with a rating downgrade by credit agency Moody’s that the government criticised as unsolicited also weighing. “We have a double-whammy happening, meaning copper prices continue to soften, and production targets are really at risk because of the Glencore news,” said Kevin Daly, portfolio manager at Aberdeen Asset Management in London.

Glencore’s Mopani Copper Mines is the second largest employer in Zambia after the government, but fears over the mining and trading company’s ability to withstand a prolonged fall in metals prices sent its shares tumbling 25% on Monday. Moody’s, which cut its sovereign rating to B2 from B1 on Friday, said it expected Zambia’s fiscal and debt positions to worsen, and Daly said on Monday the country might now have “little choice but to turn to the IMF”.

The International Monetary Fund said in May the economy risked being hit by large fiscal imbalances, lower copper prices and policy uncertainties, and Finance Minister Alexander Chikwanda told Reuters this month it was likely to grow less than 5% this year. The kwacha fell to as low as 12.69 to the dollar at around 1225 GMT on Monday before recovering slightly to 12.54, still down 16%. Zambian policymakers did not immediately comment on the kwacha’s slide. Zambia’s Eurobonds also felt the reverberations, with the dollar-denominated issues falling as much as 1.2 cents across the curve to hit record lows.

The 2022 issue and the 2024 bond weakened by around 1 cent to 73.891 and 83.490 cents in the dollar respectively, according to Tradeweb data. The 2027 issue chalked up the biggest losses, shaving off 1.232 cent to 83.018 cents. All of them were yielding well above 10%. LAYOFF AND PRODUCTION CUTS Mopani Copper Mines (MCM) last week notified the government that it plans to lay off more than 3,800 workers due to lower metal prices and high production costs.

The global mining firm and commodities giant said on Sept. 7 it plans to take 400,000 tonnes of copper out of the market to try to boost prices. Three-month copper on the London Metal Exchange fell 0.6% on Monday to its lowest in a month on worries about upcoming data that may show weak industrial activity in top metals consumer China. Aberdeen Asset Management’s Daly said Zambia was particularly vulnerable to market declines as around 70% of its foreign earnings came from copper. “You could see a double-digit fiscal deficit very easily this year,” he said.

While mindful of the need to maintain debt at sustainable levels, Zambian authorities said the Moody’s downgrade “should be ignored because its correctness was not discussed with any authorized representative of the … government.” Analysts suggested criticising Moody’s was ill-advised. “A better way would be for Zambia to assure investors that they are taking steps to alleviate the rampant power crisis,” Irmgard Erasmus, Cape Town-based Zambia analyst at NKC African Economics said.

“The central bank will have to step forward and we also need to see some vocal concern from the government… We expect (the central bank) to tighten liquidity. Absent of that you will see a panic-buying increase. The kwacha has halved in value over 18 months and hit a series of record lows recently amid a sharp selloff in commodity-linked currencies as top global consumer China’s economy has weakened. Other foreign firms running mines in Zambia include Barrick Gold Corp and Canada’s First Quantum Minerals.

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