Mining did well in February, but manufacturing slipped

Mining did well in February and did not seem to be affected by the intensification in load shedding, with output volumes up 5.0% compared to January and 9.9% compared to a year ago. However, manufacturing slipped, contracting 0.3% compared to January although favourable base effects meant that production was 4.1% higher than a year ago.

According to Statistics SA, seasonally adjusted mining production looked much better than in January, when it decreased 0.4% compared to December. Annual output was up by a staggering 9.9% after the previous month’s 2.8% decline compared to a year ago.

The largest contributors to the annual increase were:

• iron ore that increased by 42.9% and contributed 5.1 percentage points
• coal that increased by 14.6% and contributed 3.7 percentage points
• chromium ore that increased by 20.6% and contributed 1.0 percentage points.

However, seasonally adjusted mining production decreased by 1.4% during the three months ended February 2024 compared to the preceding three months. The largest detractors were manganese ore that decreased by 9.1% and contributed -0.7 percentage points and gold that decreased by 4.2% and contributed -0.6 ppt.

ALSO READ: Manufacturing did better than mining in January

Manufacturing did not do so well in February

Seasonally adjusted manufacturing production dipped by 0.3% in February compared to January after a 0.4% increase in January, according to Statistics SA. The latest monthly decrease comes despite an expansion in South Africa’s seasonally adjusted Absa PMI, which the Bureau for Economic Research, conducted during February. The headline index dropped back to contractionary terrain in March.

Favourable base effects meant that manufacturing production was up 4.1% compared to a year ago, after the increases of 2.9% in January. The largest positive contributors to the annual increase were:

• wood and wood products, paper, publishing and printing that increased by 14.9% and contributed 1.5 percentage points
• food and beverages that increased by 5.8% and contributed 1.3 percentage points
• petroleum, chemical products, rubber and plastic products increased by 4.7% and contributed 1.0 percentage points.

However, seasonally adjusted manufacturing production was flat in the three months ended February 2024 compared to the previous three months.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says as things stand, the contribution of mining and manufacturing to gross domestic product in the first quarter of 2024 will likely be mixed and insubstantial from a growth perspective.

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Figures for March will determine impact on GDP

“Much will depend on the numbers for March. The latest industry numbers suggest that mining’s performance was less disrupted by Stage 6 load shedding during February than that of the manufacturing sector.”

He says a likely reason for this is load curtailment which Eskom imposes on large power users such as mines.

“Still, electricity supply constraints undermine sectoral growth. Factories across the country are subject to loadshedding, which can occur at short notice and tends to be disruptive to general economic activity.”

However, Van der Linde says, increased private sector production capacity means businesses are becoming less dependent on Eskom for electricity supply. That is why load shedding is expected to improve incrementally over the near term and because generating units will come online and reach full synchronisation at Medupi and Kusile. This should provide valuable baseload to the national grid over the coming quarters.

ALSO READ: Mining production lowers odds of recession, manufacturing remains weak

Erratic load shedding will persist as Kusile goes offline

However, Eskom also plans to take three units offline at Kusile from October (sequentially) to conduct maintenance, basically offsetting the aforementioned gains, meaning that erratic power outages continue to be a risk factor, he says.

“Our economic forecasts assume that load shedding will persist over the medium term, although it is expected to be less intense (oscillating intermittently between Stage1-3), with fewer disruptions to general economic activity.”

Broadly speaking, Van der Linde says, increased cooperation between the private sector and government should help to address several supply-side issues over the near term.

“That said, it will still be a few quarters before we can expect to see meaningful improvement once conditions have stabilised.”