Slump in copper price weakening Kwacha

THE widening budget and electricity deficits that have affected mining production, coupled with falling copper prices on the global market, have resulted in the Kwacha to weaken against the United States (US) dollar, Zanaco Bank says.
Zesco Limited has cut 300 megawatt of power due to low water levels as a result of poor rainfall while Government has, unanticipated K10.5 billion budget deficit because of  dwindling copper prices and unplanned expenditure.
It says the poor performance of the Kwacha could be worsened by the mining companies staying out of the foreign exchange markets due to the excess local unit from the value added tax (VAT) refunds which currently stand at US$600 million.
“The Kwacha is expected to remain on the back foot against the dollar due to a widening budget gap, shortages of electricity that have affected mining and falling copper prices,” the bank said in its daily treasury newsletter yesterday.
Zanaco says the Kwacha is expected to trade in the range of K7.65 and K7.80 in the short term.
On Friday, the local unit weakened, dragged lower by growing demand for dollars from importers and interbank trades.
In the morning, commercial banks posted the local unit at K7.52 and K7.24, unmoved from Thursday’s close while increased dollar demand on the interbank witnessed the Kwacha dip to K7.56 and K7.58, on the bid and offer respectively.
Meanwhile, Finance Bank Zambia in its daily update says the Kwacha is expected to continue to trade in the current ranges K7.40 and K7.50.
The local unit on Friday opened trading at K7.54 and K7.56 and it continued on a depreciation path that followed on Tuesday when it became apparent that Greece would default on its debt settlement.
Access Bank, in its morning digest, also says the Kwacha on Friday opened trading at K7.75 and K7.77 and closed at K7.57 and K7.59.
On the commodity market, copper prices on the London Metal Exchange (LME) crashed to a six-year low on Tuesday as the dollar gained on the potential for financial instability created by the Greek debt crisis and Chinese equity market losses.
Benchmark copper on the LME fell nearly six percent to US$5,261.50 a tonne; its lowest since July 2009.
Copper prices fell 4.9 percent to settle to a six-year low of US$5,318 a tonne.

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