Kenya, Zimbabwe and Your $$
Wall Street reports (print version) that Zambia President and SADC Chairman Levy Mwanawasa invited 15 South African countries for a submit on the Zimbabwean crisis. How does Zimbabwe affect your $$? Kenya is having their problems too. Zimbabwe itself does not cause that much of a problem. When the political instability gets Zimbabwe’s neighbour Zambia nervous, then it will affect your $$. And how does Kenya play into this? Well, most of the copper from central Africa are mined from land locked countries. And they, just happen so, export through Kenya.
http://edition.cnn.com/2008/WORLD/africa/04/10/zimbabwe.election/index.html
Zambia and Zimbabwe shares a long border. Zambia and Kenya also share a long border. Zambia would get nervous because it sees a refugee crisis down the road. And that is where the problem begins. Zambia is still a major producer of copper. This Zimbabwean political instability may create political instability in Zambia as well. This will drive up the prices of copper. Kenya may not create a refugee problem. However, the seaports may not be working and we will get a real back log on copper. That can be the same story as oil having its backlog created by Katrina, just a copper version of it. And from there goes into your alloy producers, manufacturing, construction tools, …
Copper prices have been falling lately (as in days). However, copper is around the historical highs (2008.04.09’s LMX cash ~8650/MT vs. 2006.05’s LMX cash ~8800/MT).
Who is the biggest buyer of copper right now? You got it right: China and India. And they are importing for their infrastructure needs.
In addition, this Zimbabwe will increase pressure to push up inflation. And the inflation effect may not be a cascading effect by imports. If the Chicago market recognizes this risk quickly, the price level may get worked into it fairly quickly. That affects the bonds market right away. And any movement in bonds affects stocks of FIs.
This may lead people to think about the exchange rate of US dollars. The exchange rate of US is not affected much by this crisis. The US exchange may be experiencing some psychological sell off due to US’ recent fall against Chinese Yuan. US has fallen across the psychological barrier of 1US vs. 7Yuan, read Forbes’ story here.
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