Raw material prices have exploded this year as rapid economic recoveries in Europe, China and the United States, coupled with a supply chain disruption linked to the pandemic, pushed up raw material prices.
This has been a bit of a boon to export-oriented economies during a very difficult time, with South Africa’s trade surplus reaching record levels in recent months.
For South African exporters, movements in commodity markets can present both opportunities and challenges. So how do you capitalize on the commodities boom while limiting downside risks?
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Keep an eye on the markets
Chances are, you are already up to date on the commodities markets, allowing you to navigate material price fluctuations that affect your exports.
It is also worth keeping a close eye on other developments in the global economy so that you are prepared for events that could have a ripple effect on your margins.
The recent debt crisis of Chinese real estate developer Evergrande, for example, has caused prices for iron ore and copper to plummet amid fears of an impending collapse threatening to reduce demand for building materials.
By monitoring global economic events that could affect your exports, you can plan for declines and capitalize on opportunities.
Diversify to manage risk
Since commodities are quite volatile, it is a good idea to diversify your exports. If you are too dependent on a small selection of commodities, you are more vulnerable to price fluctuations.
This is particularly important in developing and commodity-based economies, such as South Africa.
The good news is that South Africa is rich in a variety of commodities, allowing exporters to expand their commodity portfolios. In addition, South African manufactured exports are increasing, providing opportunities for further diversification.
Use a specialized currency provider
For any exporter who trades in more than one currency, it is essential to use a specialist foreign exchange supplier.
Exchange rates are volatile, especially for the South African Rand (ZAR). Specialized currency providers offer services and tools that allow you to capitalize when the market moves in your favor.
With a futures contract, you can lock in an exchange rate for up to one year. This means you can get a strong exchange rate, protect yourself from volatility, and budget accurately.
Specialized currency providers are also generally able to offer more competitive exchange rates than many banks, which means you get more from your transfers.
If you want to know more about how your business can save money on your transfers by explore your currency options.