Metal prices are down and fuel is up, so output growth is what keeps the reserve cushion near 2.4 months.

By Kanisa Magazine · October 2022

Congo is shipping more copper and cobalt than a year ago and earning less per tonne. The BCC’s October digest records London copper at US$7,660 a tonne on 30 September, 26 per cent below the US$10,390 of 31 March, and the cobalt quote it tracks at US$51,520 a tonne, 37 per cent below its March level of US$81,840. Reserves, meanwhile, stood at US$3,938 million on 21 October.

The external account is a race between those two forces. Price is falling; volume is rising; and which one wins decides how much dollar cushion the central bank has over the winter.

What the price decline looks like

Copper is down about a fifth since December and cobalt by more than a quarter.

From US$9,710 at the end of 2021, copper reached US$10,390 at the end of March, slipped to US$8,500 at the end of June and sat at US$7,585 on 21 October, after a low of US$7,415 the day before. The BCC’s cobalt series, which it sources from the London market, shows US$70,195 at the end of 2021, US$81,840 at the end of March and a flat US$51,505 to US$51,520 for most of October. That flatness suggests an indicative quote rather than a traded price, so the level should be read as an approximation of a weak market.

Oil points the other way. Brent rose from US$85.25 on 30 September to US$93.24 on 21 October, a gain of about 9 per cent. Congo imports its refined fuel, so each dollar of crude is a dollar of import cost, and the October move came in the same weeks as the pump-price increase.

The volume offset

Producers are making up for price with tonnes, though not everywhere.

Tenke Fungurume, owned by CMOC, reported first-half output of 125,387 tonnes of copper and 10,465 tonnes of cobalt, up 24.4 and 49.3 per cent on the first half of 2021. Glencore’s third-quarter report, issued on 28 October, showed a more mixed picture for its African copper business: nine-month cobalt output of 30,400 tonnes, up 45 per cent because Mutanda restarted in the second half of 2021, but copper metal of 174,900 tonnes, down 17 per cent as Katanga contended with geotechnical limits in its open pit and more acid-consuming ore.

The company said Katanga’s third-quarter output of 56,700 tonnes of copper and 7,600 tonnes of cobalt was above its first-half run-rate. Cobalt volume is therefore a cheaper source of growth than it looks. Cobalt volume up 45 per cent against a price more than a third below its March level only partly offsets the fall, while copper at Katanga has contracted twice, once in tonnes and once in price.

How the dollars reach the reserves

Mining receipts must be repatriated to banks in Congo before they become reserves.

Reserves reached US$4.16 billion on 28 September, then fell to US$3.92 billion two days later. By 21 October they were US$3,938 million, or 2.36 months of imports against 2.61 months at the end of 2021. The digest does not attribute the move, but a lower copper price and a higher fuel bill both point the same way.

The mechanism is the chain from mine to Treasury. An export is paid in dollars into a Congolese bank account, taxes and royalties are paid in dollars or francs to the revenue agencies, and the BCC’s foreign-currency budget lists purchases of mining receipts that it sells back for state payments and market interventions. A lower price shrinks every link at the same time, while a higher volume only partially replaces it.

Who gains and who loses

Suppliers to the mines are better placed than the mines’ own shareholders.

Mining volumes feed demand for trucking, power, reagents, explosives and local services regardless of the price, so contractors with dollar contracts are insulated. The Treasury is more exposed. The IMF’s second review in June said the external position had improved, a judgement made when copper was near US$8,500 and cobalt above US$70,000.

For businesses outside mining, the practical lesson is to treat 2.4 months of import cover as a floor to monitor, not a comfort. A copper price below US$7,000 or a Brent price above US$100 would test the cushion quickly. Importers should buy forward cover on fuel-intensive inputs now, and exporters of agricultural goods and timber, whose prices have not fallen, can negotiate better dollar terms.