The rand fell to its lowest level against the dollar in almost six weeks after Anglo American Platinum Ltd. said it will idle shafts and cut output, fueling concern South Africa’s current-account deficit will widen.
The rand slipped 0.9 percent to 8.7716 a dollar, the weakest level since Dec. 6, as of 3:16 p.m. in Johannesburg, the worst performer of 16 major currencies monitored by Bloomberg. Yields on benchmark 10.5 percent bonds due December 2026 climbed 2 basis points, or 0.02 percentage point, to 7.13 percent.
Anglo Platinum, the biggest producer of the metal, said today it will shut four shafts, cutting output by 400,000 ounces and putting 14,000 jobs at risk. Metals and other minerals accounted for 61 percent of South Africa’s exports in the first 11 months of 2012, according to government data. The trade deficit in the same period was 112.7 billion rand ($13 billion), more than six times bigger than a year earlier, putting pressure on the current account and undermining the rand.
“One of the key risks for the rand is the extended current-account deficit, and a large portion of that is related to raw material output,” Mohammed Nalla, head of strategic research at Nedbank Group Ltd. in Johannesburg, said by phone. “The fact that we’re shutting down production will certainly affect our ability to contract that deficit.”
Mining production contracted for a third straight month in November, declining by 4.5 percent, Statistics South Africa reported today. Shipments of precious metals and stones slumped 15 percent in the first 11 months of 2012, while base-metals exports dropped 3.2 percent, even as total exports grew 1.4 percent, according to South African Revenue Service data.
“From an immediate foreign-exchange impact, clearly this reduces the supply from local miners that generate the bulk of South Africa’s export earnings,” George Glynos, a Johannesburg-based analyst at ETM Analytics, and colleagues wrote in an e-mailed note to clients. A further contraction in mining production “could come as a reminder to investors of the disruptive impact that all the current strike activity is exerting on the South African economy,” the analysts wrote.
A wave of strikes over pay that started at South African platinum mines and spread to gold, iron-ore, diamond and coal producers, cut mining output by 10.1 billion rand last year, costing tax revenue, exports and jobs, according to the National Treasury. At least 46 people were killed in violent clashes.
The Amplats review “is part of a much larger reassessment of the competitiveness of the sector,” Peter Attard Montalto, a London-based emerging-markets economist at Nomura International Plc, wrote in an e-mailed comment. “It also increases sovereign risk through increasing further the probability of unrest this year. The rand’s negative bias could therefore continue.”
The extra cost of options contracts granting the right to sell the rand over those to buy it in the next three months jumped 41 basis points today to 3 percentage points, based on the currency’s three-month risk-reversal rate, indicating traders are at the most bearish on the rand since Dec. 12.