Ashly DhaniProductivity in South Africa’s mining sector slumped by 3,5 percent in June compared to the same period last year amid a weak global environment.
Analysts said the key sector’s reclining output had a dragging effect on the country’s gross domestic product (GDP) in the second quarter.
Data from Statistics SA yesterday showed that gold was the biggest contributor to the 3,5 percent plunge in mineral productivity after it fell by 12,6 percent year-on-year in June.
Platinum Group Metals (PGM), which are battling low prices and roiled by retrenchments and reduced investment, also recorded a 5,8 percent slump in output in June.
Investec chief economist, Annabel Bishop, said that the contraction in mining output had come against the backdrop of a “weak global environment” characterised by low commodity prices, inflation and elevated interest rates.
Bishop said South Africa’s manufacturing production also contracted by 5,2 percent on a year-on-year basis in the second quarter of 2024, adding “to weakness in demand for metals and minerals products, as did lower demand for coal” from surplus electricity capacity.
Nonetheless, stronger demand for commodities “is anticipated once the US interest rate cutting cycle” becomes entrenched.
“Its delay has added to the malaise in SA’s mining sector, with global metal prices are down -5,0 percent since April,” said Bishop.
Thanda Sithole, senior economist at FNB, said South Africa’s mining sector falling by nearly 1 percent in the second quarter of the current year, after a 1,3 percent decline in the first quarter, confirmed that the “mining sector dragged on GDP growth” in the second quarter.
Sithole said this was clouding expectations of a GDP rebound in the second quarter period to June, although analysts were maintaining a bullish outlook.
“This partially clouds our expectation of a GDP rebound in the second quarter, following the unexpected decline in the first quarter,” Sithole said.
“However, given the relatively smaller contribution of the mining sector to GDP compared to the manufacturing sector, our outlook remains intact at this stage.”
Despite the June and second quarter mining production slump, South Africa’s minerals productivity rose marginally by 0,3 percent in the first half compared to the same period last year.
Sithole said this aligned with projections for a moderate recovery in the sector’s economic activity, especially as easing energy constraints and a stable global growth environment are projected to support activity over the medium term.
Although there have been some improvements in freight rail, persistent inefficiencies in the ports and rail network continue to constrain productivity and profitability in the sector.
South Africa’s minerals sales at current prices increased by 18,2 percent year-on-year in June 2024, with the largest positive contributors being gold which rebounded by nearly 100 percent and contributed 14,8 percentage points, manganese ore which was 42,4 percent stronger in June and contributed 2,8 percentage points.
Coal also surged 7,8 percent, contributing 1,9 percentage points.
Seasonally adjusted mineral sales at current prices increased by 21,8 percent in June 2024 compared to volumes for May 2024. This followed month-on-month changes of a negative 7,3 percent in May 2024 and 15,8 percent in April 2024.
This came as global metals’ prices fell by 2,1 percent m/m in June, with the GEP Global Supply Chain Volatility report noting “excess capacity across global supply chains” while “weak global demand conditions and continued destocking of warehouses” continued to affect metals prices.
Iron ore and coal were the largest detractors from South Africa’s mining production outcome, with domestic production falling in Q2,24 by -12,1 percent quarter-on-quarter for iron ore, and by -2,6 percent quarter-on-quarter for coal.
The contraction in mining production aided this outcome, while delays at the ports and rail lines continued to be reported, weakening mining production of bulk commodities such as iron ore and coal. — Business Report
Bongani Ndlovu