Global Investing

South African rand slides as labour unrest grows

May 16, 2013

The South African rand has lost most ground amongst emerging market currencies, according to Reuters data, falling almost 10 percent so far this year to hit 4-year lows against the dollar.

That is perhaps not so surprising given the country’s high level of dependence on the minerals and mining sectors, which have been disrupted by labour strikes along the same lines evident in the summer of 2012. Lonmin, the world’s third largest producer of metal, said it stopped its production of its Marikana mine near Rustenburg following strikes over wages.

 

Net commodity exports – Morgan Stanley and UNCTAD

With the metals and mining sectors accounting for 60 percent of South Africa’s exports, the strong relationship between these sectors and the rand is not surprising. A falling currency has a knock-on effect of facilitating inflation, especially as imports grew faster than exports for the first quarter of 2013. Meanwhile platinum prices have been in a gradual downwards trend since February.

The currency could be in for a deeper slide if mining companies’ wage negotiations are not made within the July 1 timeframe, while the central bank is not expected to act. According to Phoenix Kalen, CEEMEA Economist at RBS:

The central bank of South Africa trusts that the currency will eventually stabilise. I don’t think they will intervene in the currency via interest rates hikes, and furthermore, rand weakness is a consideration against cutting interest rates.

RBS added in a note:

We believe that the SARB will keep interest rates on hold at 5 percent for the remainder of the year.

Amplats, a unit of Anglo American and the world’s biggest platinum producer, said last week it would cut 6,000 jobs from its mines near Rustenburg, less than the 14,000 originally planned.

Mining-related strikes last year that resulted in the death of 34 workers reduced growth at the country’s factories and lead to credit rating downgrades. More unrest will be most unwelcome for the country’s economy. But with falling platinum prices and persistent inflation. the rand could be in for more of a slide.

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