Mining and manufacturing: a tale of two industries in October

It was a tale of two industries in October, with a slump in mining while manufacturing increased at the beginning of the fourth quarter of 2024.

Overall, industry production volumes continue to trend sideways, but they still expect a gradual rise in 2025, Jee-A van der Linde, senior economist at Oxford Economics Africa, says.

After being one of the star performers in the third quarter, increasing by 1.2% compared to the second quarter, mainly driven by stronger manganese and chromium ore production, the mining sector had a slow start to the fourth quarter, as seasonally adjusted output fell by 3% month-on-month in October.

However, Van der Linde points out that production was up 1.4% compared to October 2023. The largest positive contributors to the annual increase were platinum group metals (PGMs) which increased by 3.3% and contributed 1.0 percentage points, chromium ore which increased by 14% and contributed 0.7 percentage points, diamonds increased by 27.9% and contributed 0.5 percentage points and coal that increased by 1.8% and contributed 0.4 of a percentage point.

Seasonally adjusted mining production increased by 4% during the three months ending October compared to the preceding three-month period. After an unusually strong third quarter for mining, the initial numbers are pointing to a comparatively weaker fourth quarter, Van der Linde says.

ALSO READ: Weekly economic wrap: Rand dives, mining and employment up

Manufacturing fared better after two months of contractions

According to Statistics SA, manufacturing production increased by 0.4% in October compared to September, after two successive months of contractions. Output was up by 0.8% compared to a year ago after September’s 1.4% decline.

The biggest positive contributions to the annual increase were made by petroleum, chemical products, rubber and plastic products which increased by 4.5% and contributed 0.9 of a percentage point, food and beverages which increased by 2.9% and contributed 0.7 of a percentage point, and basic iron and steel, non-ferrous metal products, metal products and machinery that increased by 2.7% and contributed 0.6 of a percentage point.

Van der Linde says consequently, the subsector for motor vehicles, parts and accessories and other transport equipment that decreased by 16.6% and shaved off 1.7 percentage points was the largest detractor to annual growth during October.

Seasonally adjusted manufacturing production increased by 0.3% during the three months ending October compared to the preceding three-month period. Five of the 10 manufacturing divisions recorded growth over this period.

ALSO READ: Weekly economic wrap: manufacturing down, mining looking better

Mining and manufacturing show no clear trend

October’s mining and manufacturing data represents partial reversals from the previous month and does not indicate a clear trend (up or down), Van der Linde says. “Instead, production volumes continue to shuffle sideways as has been the case since the pandemic.

“However, industry is benefiting from the absence of load shedding, despite the ebb and flow of logistical constraints. We expect domestic demand conditions to improve heading into 2025, which should lead to somewhat stronger economic activity and in turn lift manufacturing output.”

Meanwhile, he says, Oxford Economics believes that it will take several quarters for the mining sector to reap the benefits of improved power supply and the possible efficiencies of the new government.

“Moreover, the ongoing economic weakness in China and elsewhere is constraining non-gold commodity prices, keeping the mining sector under pressure.”

ALSO READ: Decline in GDP unexpected and disappointing – economists

Modest improvement to growth in 2023

Thanda Sithole, senior economist at FNB, says mining’s increase of about 1% from January to October is a modest improvement compared to flat growth in 2023. “While the mining sector benefits from easing energy constraints and improving logistics, growth in the near term is expected to remain moderate due to a subdued external demand environment.

“Over the medium term, accelerating reforms in ports and rail infrastructure will be critical to enhance productivity and profitability in the sector.”

Sithole says the manufacturing sector remains under pressure, constrained by weak domestic demand and a challenging global environment. “Despite reduced energy constraints and modest input costs as reflected in subdued producer price inflation and lower fuel prices), year-to-date manufacturing production is down 0.4%.

“The leading PMI business activity indicator declined to 49 points in November from 55.6 in October, suggesting that monthly output could remain subdued. Nonetheless, the manufacturing PMI’s expected business conditions index was decent at 62.3 points, indicating that manufacturers foresee modest improvements in operating conditions in the near term.”

She says FNB anticipates a gradual and uneven recovery as demand strengthens, supported by easing cost-of-living pressures and a stabilising global growth environment. The anticipated rebound in private sector fixed investment from next year should support manufacturing activity.