The impact of the Rand value on Distillers.

Published on 10-12-2015

NOTE: The article below was written on the 2nd of September 2015 with the Rand hitting a low of R13.00 to the US Dollar. 

At 09.15pm On the 10th of December 2015 (only 3.5 months later) the Rand weakened further to R15.25 to the dollar and only recoved slightly.  That's another 17.3% value loss in less than 4 months!

The impact of the Rand dropping.

Distillique just received a new shipment of amazing equipment and it was with a sense of shock that we calculated the new prices. Although the US Dollar prices remained almost the same, the landed costs increased dramatically from our previous large shipment. WHAT WENT WRONG?

The dramatic price increase is directly a result of the worsening Rand-Dollar exchange rate,  increased custom fees, clearing and transport costs. However, it the worsening Rand/Dollar exchange rate that has had the greatest influence.

The SAD STORY:

Over the last 4 years, the Rand dramatically lost more than 50% of it value against the dollar. Forget about the "world-wide economic slowdown". Our Rand is falling like a rock compared to the currencies of other "emerging markets" and loosing its value in an almost "planned manner", almost a linear decline, as if planned. The earlier devaluation last month of the Chinese Remnin (Yuan) received much publication and was even cited as the reason why the Rand devalued so fast. However, the facts shows a different story: The Chinese Renmin devalued less than 6% over the last 2 years compared to the more than 25% drop in the Rand over the same period.

A POSITIVE SLANT TO THE SAD STORY: 

For distillers, the picture can however be viewed also in a positive manner: The faster you buy distilling equipment, the more valueable it will become. By buying equipment now, and just waiting for four years, it will double in value... even if it is not used...  Sadly, that is a reality. On the other hand, that gives distillers not only the benefit of good profit margins on their sales, but also an inherent appreciation of the value of their equipment and increasing the barrier for later entrants to enter the distilling market.   In short: If you even consider distilling, the faster you buy your equipment the more value you will be able to derive from it. Stange but true.

The following graph shows the cost of buying 1 USdollar since August 2011 - from R6.53 to more than R13.00 (24 August). A loss of more than 50% during this period!

And this graph shows the decline of the Rand since February this year - a loss of almost 18% (or 36% if annualised!)

 

Reference: SA Reserve Bank.