The dollar that copper earns and the dollar the central bank holds are still different amounts, as 2020 closes.

By Kanisa Magazine · December 2020

London copper settled at US$7,893 a tonne on 18 December 2020 and at US$7,764.50 on 24 December, against US$6,183 on the last day of 2019. That is a rise of about 26 per cent in a year that began with a collapse to US$4,763 at the end of March. Business Standard, citing market reports on 24 December, described copper as near a seven-year high.

The Banque Centrale du Congo’s price table for the same dates shows the Congolese diamond at US$5.48 a carat in November, down from US$19.51 at the end of 2019, a fall of 72 per cent. Cobalt, the country’s other pillar, sat flat at US$32,000 a tonne on the LME. A single export basket produced three different years for three different industries.

What the price tape said

Copper’s gain is large, but the rest of the basket was flat or falling.

The BCC’s December table gives the final quotations of the year. Copper closed at US$7,764.50, zinc at US$2,775, cobalt at US$32,000, gold at US$1,876 an ounce, coltan at US$51 a pound and Brent crude at US$51.29 a barrel. Compared with the end of 2019, cobalt was down 4 per cent, coltan down 13 per cent and Brent down 22 per cent.

Copper’s recovery added roughly US$1,580 a tonne to the realised price over the year. Applied to the 1.32 million tonnes the BCC counts for the first ten months of 2020, that is about US$2.1 billion of extra gross sales compared with selling at the 2019 closing price. The figure is gross and sits mostly with mining companies, but it frames what the sector can absorb in royalties and taxes in 2021.

Why the central bank saw so little of it

Dollar receipts reach banks and the Treasury before they reach the BCC’s own book.

Broad international reserves were US$5,931 million on 16 December, 5.39 months of imports, up from US$5,857 million in early November. The central bank’s own position was US$730 million, or 0.67 months. On 15 December it had been US$687 million, so the mid-month reading jumped by US$43 million in one day, the largest move in the table’s recent columns.

The BCC’s position remains below the US$1,031 million of December 2019. Mining dollars move first through corporate accounts and commercial banks, whose foreign-currency deposits count in the broad figure. They reach the central bank when the Treasury sells or banks place surplus liquidity. The pattern is common in commodity exporters: the headline reserve rises first, the sovereign’s own cushion later, and in the interval the sovereign remains exposed to a price reversal.

A budget built on the metal

The 2021 plan needs copper’s good year to continue.

Deputies adopted the 2021 finance law on 3 December at CDF 14,620.5 billion, roughly US$7.4 billion at the year-end rate and a sum that only works if the revenue side delivers. Mining is the part of the economy with the most dollars to tax. A plan that leans on one sector is only as safe as that sector’s price, and December’s copper quotation is the best it has seen all year.

The coalition break of 6 December has not changed that arithmetic yet. It adds a different kind of risk: if a new majority takes months to form, the budget’s execution depends on a government whose composition is uncertain, and mining revenue is the line least likely to be affected by politics.

The decision for suppliers and lenders

Price the basket line by line, not by the copper headline.

A contractor in the Copperbelt, a logistics operator on the Dar es Salaam or Durban corridor, and a bank financing mining-services firms should all draw the same distinction. Copper-linked demand is strong and likely to be paid in dollars. Cobalt-linked and artisanal-linked demand is not, and diamond-linked trade in Kasai is shrinking.

For Zambian and South African suppliers who sell into Katanga, the signal is to extend credit to copper miners and to shorten it for exposures to consumer or artisanal trade. For investors, a prudent reading is that US$7,700 copper is a cushion worth using to retire debts and build stocks, not a base case to plan new borrowing on. The central bank’s own US$730 million is the number to watch for confirmation.