Prices soared in the first quarter; reserves, dollar auctions and an SDR transfer decided what stayed.

By Kanisa Magazine · March 2022

Copper traded at US$10,420 a tonne on 25 March 2022, up 7.3 per cent since the last day of 2021, and cobalt on the London market closed the month at US$82,500 a tonne. Yet in the Banque Centrale du Congo’s weekly digest of 30 March, international reserves were US$2,755.0 million, about 2.4 months of imports, barely above the US$2,751.3 million of 31 December.

The external account of a commodity economy does not convert price into cushion in a straight line. The gap between the two numbers is the story of March: dollars arrive from mining, pass through the central bank’s hands, and leave again to defend a franc that has held near 2,000 to the dollar.

How a copper price becomes a reserve

Mining companies pay the state in dollars, and the BCC buys those dollars for francs.

The chain runs from mine to ministry to central bank. Producers pay royalties and taxes, much of it in US dollars. The Treasury receives them, and the BCC purchases them in exchange for francs. The BCC’s foreign-currency account records these as “rachats”, buy-backs: US$1,378.2 million of mining revenue in 2021, US$114.2 million in January 2022 and US$109.5 million in February. By 25 March the month-to-date figure was US$85.8 million. The World Bank’s December 2021 approval of the ENCORE project, US$250 million split equally between grant and credit, is aimed at exactly this leak-prone step: ensuring mining revenue reaches the public treasury.

Production was not the driver this quarter. January output of copper was 121,955 tonnes against 130,508 a year earlier, and cobalt 6,498 tonnes against 7,383, both provisional BCC figures. Price did the lifting.

What leaves the account

Dollar sales to banks and a US$300 million SDR transfer explain why reserves sat still.

The BCC sells dollars to commercial banks at auction to keep the franc steady: US$56.5 million in January, US$66.5 million in February and US$56.0 million in the first 25 days of March. A second outflow is visible in the digest’s table of foreign-currency operations. Spending jumped by about US$312 million on 23 March, of which US$300 million is booked as the retrocession to the Treasury of half of the IMF special drawing rights allocation, after US$715.7 million had been passed on in 2021. The digest does not say what the Treasury will spend it on, and the reserve line itself moved only from US$2,772.2 million on 22 March to US$2,772.8 million on 23 March.

Reserve cover, in the BCC’s own measure, was 2.61 months at year-end, 2.37 in January, 2.46 in February and 2.40 on 25 March. Gross inflows from mining are strong enough to fund the auctions and to keep the line stable. They are not yet strong enough to build a buffer.

The commodity mix behind the price

Cobalt moved faster than copper, and the cobalt move is the more fragile of the two.

London copper rose from US$9,710 to US$10,420. Cobalt on the LME (99.3 per cent grade) rose from US$70,195 to US$82,500 a tonne, up 17.5 per cent, and the London cathode price from US$30.15 to US$38.25 a pound. Cobalt output is concentrated in a few operators, and a price that jumps in three months can fall as fast; the BCC’s raw materials series shows how violently the metal has moved since 2020, when cathode traded near US$15.75 a pound.

For the Treasury the arithmetic is awkward. Higher prices lift mining receipts only with a lag, through advance tax payments and royalties assessed on later sales, while import bills rise at once.

What a business should do with the signal

Treat 2.4 months of cover as the working constraint, whatever the headline price says.

The conventional yardstick for an economy this import-dependent is three months of cover. At 2.4 months the BCC has little room to absorb a copper correction without either selling fewer dollars at its auctions or letting the franc slide. Importers should assume the auction supply is rationed to the cushion, and mining suppliers paid in francs should invoice in dollars or index their contracts to the BCC rate. A company that waits for the reserve line to follow the copper price may find that the franc moves first.