The BCC’s reserve line kept rising in July while its commodity table showed copper down 30 per cent.

By Kanisa Magazine · July 2022

Congo’s reserve cushion passed US$4.17 billion in July 2022 just as the copper price that funds it dropped through US$7,000 a tonne. The Banque Centrale du Congo recorded gross reserves of US$4.17 billion on 22 July, US$240 million more than a month earlier and US$1.4 billion above the end of 2021, while its commodity table shows copper at US$6,998 on 18 July, down from US$10,390 on 31 March. The buffer was built at one price and is now being tested at another.

The test came faster than most forecasts allowed. Copper sold off on recession fears through early July; Bloomberg reported on 5 July a 17-month low, and by 18 July the BCC’s table had the metal below US$7,000. For a country where extractive exports equal roughly 44 per cent of GDP in the IMF’s projection, a fall of nearly a third since March is a macroeconomic event.

The cushion keeps growing

Reserves held above US$4.15 billion all month, which answers the first question a copper crash raises.

From US$3.93 billion on 24 June, the reserve line moved to US$3.99 billion at the end of the month, then to US$4.16 billion on 8 July, and held between US$4.15 billion and US$4.17 billion through 22 July. Import cover on the BCC’s reckoning improved from 2.35 to 2.50 months. The central bank was still adding dollars while prices fell, because the volumes sold in April and May are being repatriated and converted now.

The programme path asks for more. In the IMF’s staff report, published on 5 July, the authorities commit to accumulate US$1.14 billion in net reserves in 2022 and ask for the end-June target to be reset to US$960 million, citing higher reserves already built in the first half.

What the BCC’s prices say

Copper fell 14 per cent in three weeks, cobalt a good deal more, and oil barely moved.

The BCC’s table prints copper at US$8,500 on 29 June, US$7,215.50 on 15 July, a low of US$6,998 on 18 July and US$7,321 on 22 July. Zinc fell from US$3,449 to US$3,004 over the same dates. Cobalt on the BCC’s exchange series slid from US$70,000 to US$50,010 a tonne, a 29 per cent drop, though a Londres cathode quote in the same table was held flat at US$69,536, which suggests the two markets are not pricing the same grade or date. Gold ended at US$1,728 an ounce.

Brent crude stayed high at US$107 on 22 July, down only from US$111 on 29 June. That asymmetry is the point. Congo sells copper and cobalt and buys fuel and food, so a fall in the first without a fall in the second squeezes the net dollar flow.

The channel from price to reserves

The lag between a metal sale and a dollar in the vault gives the cushion about one quarter of grace.

Mining exporters repatriate a defined share of proceeds, which banks convert and the BCC buys at auction. Sales priced at US$9,500 copper in May settle into the vault in June and July. That is why reserves can rise during a price drop, and why the real read on July’s price fall will come in the August and September digests. The IMF staff report warned that the favourable effect of rising copper and cobalt prices would be offset by the cost of oil imports, with food and fuel imports at 12 per cent of GDP.

If copper stays near US$7,300, the dollar inflow from the same tonnage is about 30 per cent below the late-March price. Output growth, such as the Kamoa phase expansion the IMF cites, offsets part of it.

What a business does with a test in progress

Plan for a smaller dollar inflow from the fourth quarter, not for a crisis in July.

For importers, the cushion means dollar availability is not the near-term worry; price is. Lock fuel and fertiliser purchases where dollar prices are fixed. For mining suppliers, a US$7,300 copper price squeezes the marginal operators first, so watch payment terms from smaller contractors and shorten credit lines to the weaker names.

For anyone modelling the second half, use the BCC’s weekly reserve line as the decision signal. If it flattens while copper stays under US$7,500, the buffer has begun to shrink, and the central bank’s next move on reserve requirements will matter as much as the metals market.