South Africa's rand slumped to a five-year low on concerns that labour disputes at the world's three biggest platinum producers will weigh on mining output and dent the nation's exports.
The Association of Mineworkers and Construction Union (Amcu), the most powerful labour group at the South Africa's platinum mines, plans meetings with its members this week to test whether workers want to strike over pay. Growth in mining production, which accounts for more than 50% of South Africa's exports, slowed in November, a report showed today.
"While the weaker currency is certainly helping to prop up the local mining sector, we remain concerned over the prospects for further labour unrest," Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities in Johannesburg, said in a note. "This has the potential to be another tumultuous year for the mining sector and therefore warrants close attention in the coming weeks."
The rand declined as much as 0.7% to 10.8952 per dollar, the weakest level since October 2008, before paring its decline to trade 0.1% weaker at 10.1621 by 4pm in Johannesburg. Yields on benchmark rand bonds due December 2026 climbed six basis points, or 0.06 percentage point, to 8.24%.
A coordinated strike by Amcu members would paralyse production at Anglo American Platinum, Impala Platinum Holdings and Lonmin. The union won the legal right in the final quarter of last year to down tools at the companies.
"Sentiment is extremely negative and the risk of ongoing rand losses is obvious," John Cairns, a currency strategist at Rand Merchant Bank in Johannesburg, said in an email. "The list of local negatives is long," including the prospect of strikes, he said.
Platinum accounts for about 8% of South Africa's export earnings, with mining commodities making up more than 50% of the country's exports, according to government data. South Africa is world's biggest producer of platinum.
Mining output increased 5.1% in November from growth of 23% the month before, a report showed today. The median estimate of four economists in a Bloomberg survey was for an expansion of 7.1%.
The Reserve Bank left its benchmark repurchase rate at a three-decade low of 5% since July 2012 to help stimulate growth. Even so, the rand's weakness hasn't yet improved exports, Governor Gill Marcus said on January 7.
"The rand seems intent on moving toward 11 per dollar as importers continue to scramble for dollars and exporters are quite happy to sit on the sidelines," Mohammed Nalla, head of strategic research at Nedbank in Johannesburg, said in emailed comments.
Foreign investors bought a net R664-million of South African bonds yesterday, snapping seven straight days of outflows, according to Johannesburg Stock Exchange data. – Bloomberg