Dollar’s bull-run end won’t benefit all emerging economy miners – BMI
JOHANNESBURG (miningweekly.com) – While the imminent, usually positive, end of the bull run for the dollar strength will stabilise mineral prices, not all emerging markets will benefit, Business Monitor International (BMI) Research said on Monday.
In a statement, the group explained that currency strength in some emerging markets, in conjunction with dollar weakness, would drag on domestic miners' earnings, while depreciation in others would further strengthen margins.
“We believe the strength of the US dollar relative to emerging market currencies has topped out and [we] are forecasting a gradual decline in trade-weighted terms over the coming years,” it said.
The strong dollar had, over the past five years, offset some of the negative impacts of low mineral prices on miners’ earnings, as input costs were denominated in domestic currencies and sales in US dollars.
Now, the dollar was expected to depreciate by an average of 1% a year over the next five years; however, some emerging markets’ currency strength, most notably the South African rand, Chilean peso and Russian rouble, would be a drag on earnings over the coming years.
The rand, peso and rouble were expected to appreciate 3%, 1.3% and 0.6% on average a year between 2017 and 2020, offsetting some of the gains resulting from mineral prices stabilising.
Even though the worst might be over for commodity prices – barring iron-ore, which would remain low owing to an oversupplied seaborne market – BMI expected the 2016 recovery to only be followed by a gradual multiyear uptrend, as opposed to a significant surge.
Further, the 2020 average forecast for the majority of industrial commodities, including copper and coal, were below the 2014 average prices.
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