Zambia economy: Fluctuating copper prices unsettle mining sector
Zambian Copper producers had been upbeat about the sector’s future, forecasting that production would more than double to 1.5m tonnes by 2016, but fluctuating prices have unsettled the industry. This anxiety was expressed at a recent meeting of the Chamber of Mines of Zambia (CMZ, the industry body) and could have serious implications for the wider economy as mining companies attempt to cut costs. Higher cost producers like Konkola Copper Mines (KCM) and Mopani Copper Mines are particularly at risk if the price continues to trend downwards. Changes to existing mining tax laws and implementation of new policies – including compelling mining companies to repatriate foreign exchange back to Zambia after export – complicate the challenges faced by mining companies and could deter investment.
A strong indication of anxiety and uncertainty in the copper sector came in July, when the CMZ warned that further price declines on the London Metals Exchange (LME) would compel mining firms to review all aspects of their operations. Between February and June the average price fell by over 13%, and now hovers around US$7,000/tonne. The CMZ statement implies that mining companies could be prompted to cut jobs, despite public and government opposition. KCM has already attempted to cut 2,000 jobs in May, but backed down in the face of popular opposition. However, the mining companies are likely to be more resolute in their decisions should prices continue to fall. It is not just direct mining jobs that are at stake, as another way for the mining companies to cut costs would be to reduce the award of contracts to local companies. This would depress economic activity in mining towns, many of which have grown strongly in recent times as copper prices boomed. The social implications are widespread, and are what the government will be especially worried about given that it draws much of its support from mining areas. Increases in crime and poverty would see the government’s support dwindle.
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