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How Do Commodities Prices Affect Trade in South Africa?

As of 2021, the mining industry in South Africa was worth 1 trillion rand for the first time in history. This was thanks in part to the increased price of commodities linked to mining along with a strengthening of the currency.


But how do commodities and their prices affect the trade of goods in South Africa? Let’s take a look.


What are Commodities in South Africa?


As you may already know, a commodity is a good produced in a country that can be traded for other goods. Generally, we refer to raw goods as commodities, as they’re often involved in the production of other goods and services. This means commodities align with the primary and secondary economic sectors.


In the Southern Africa mining industry, some examples of commodities include:


· Gold

· Platinum

· Coal

· Iron

· Manganese

· Chromium

· Diamonds


Of course, this is by no means an exhaustive list, but is simply meant to highlight what we mean by mining commodities.


Effects of Commodities and Prices


Understanding economies, stocks and trading isn’t necessarily easy, but commodities are one of the simpler aspects. The price of commodities can have positive and negative impacts on trade due to the following reasons.


Supply


Commodities, generally, are finite. South Africa might have some of the richest deposits of gold and uranium, but they will end eventually. However, a more accurate consideration of supply is the mines themselves. If a mine were to run dry, the costs of surveying and setting up new mines will impact the supply of commodities.


If a commodity is in plentiful supply, its price drops. When it’s not, the price rises. In turn, this impacts trade in South Africa because a plentiful supply reduces the likelihood that people will need to buy from the same sources.


Demand


Demand is the other key aspect of pricing economics. Take coal, for example. Demand is still high but is constantly falling as national economies look for renewable fuel alternatives. Prices remain stable as long as demand exists. But when demand drops, so do prices.


A good example was the price of oil in 2020. As the world went into lockdown, the price of crude oil plummeted to its lowest price in nearly 20 years. Similarly, issues with platinum mines in South Africa recently raised prices and massively reduced demand.


Global Factors


Another important factor in commodities pricing is global issues. For example, the war in Ukraine has impacted the industrial commodities markets across the world. It’s made prices more volatile and changed demand for raw materials. In turn, this impacts trade and prices in countries like South Africa, where many of its commodities are linked to energy markets and production of goods.


Final Thoughts


Although commodities will always be volatile, many mined commodities remain stable due to consistent demand. This is particularly true in South Africa because there are plentiful supplies and established industries. If you’d like to know more about mining commodities in Southern Africa, get in touch with Scribante.

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