SA’s mining production weakens in April

Mining production volume recovery in April was weak although it was a slightly better start to the second quarter of 2024. This implies that the sector still has some catching up to do after the poor performance in the first quarter.

Ongoing load-shedding reprieve suggests that positive momentum should continue to build gradually over the coming months, according to Jee-A Van der Linde, senior economist at Oxford Economics Africa.

“However, supply-side issues undermine South Africa’s mining industry and it will still be a few quarters before we can expect to see meaningful improvement once conditions have stabilised.”

According to Statistics SA, seasonally adjusted mining production rose marginally by 0.8% in April after falling sharply in March by -4.4%. Annual output was up by 0.7% after the sizable 4.8% decrease in March compared to March 2023.

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Meanwhile, seasonally adjusted mining production ticked higher by just 0.1% during the three months ending April compared to the previous three months. The largest positive contributors were iron ore (7.4% and contributing 0.9 percentage points) and gold (2.9% and contributing 0.4 percentage points).

Chromium ore is the star

Van der Linde says a closer look at South Africa’s mining production numbers reveals that chromium ore has been among the top-performing commodities so far this year, while output for other key commodities remained mostly flat.

“Meanwhile, the impact of higher gold prices was also evident in the latest statistics. Mineral sales at current prices rose by 11.8% in April compared to a year ago (6.2% in real terms). The recovery in sales is mainly attributed to stronger gold receipts (+226.5% and contributing 12.7 percentage points). That said, mineral sales remain lower than at the start of the year.”

He says the latest production numbers show a clear improvement from March, but the most recent uptick is somewhat disappointing considering that there were no scheduled power outages during April.

“However, the outcome does not change our view that real gross domestic product (GDP) will grow by only 0.7% this year, similar to the growth rate recorded in 2023. The broader picture continues to show that supply-side constraints undermine sectoral growth.

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SA’s industrial production flatlined

“Consequently, miners have increasingly relied on favourable price dynamics in recent years, unable to meaningfully boost output. In fact, South Africa’s industrial production flatlined during the period between the global financial crisis and the Covid-19 pandemic and authorities have since not been able to arrest the downward trend, with industrial output remaining 7% lower than pre-pandemic levels (down 1.5% in the first quarter compared to the previous quarter).”

Significant fixed investment is required to reverse this trend over the coming years, Van der Linde says. “A business-friendly coalition outcome would provide much-needed policy certainty and foster more stable economic conditions that should boost confidence and help unlock new investment.”

This graph shows that mineral sales recovered from the multi-year low recorded in March, with output inching higher in April”

Mining output rebound encouraging

Thanda Sithole, senior economist at FNB says despite the limited rebound in mining output at the start of the second quarter, the outcome is encouraging. “Along with the strong manufacturing output growth of 5.2% compared to the previous month and 5.3% compared to a year ago, this supports our view that GDP likely rebounded in the second quarter of 2024 after a mild 0.1% quarterly decline in the first quarter.”

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Sithole says the FNB economists remain cautiously optimistic about positive growth this year after the sector experienced an annual contraction in the past two years.

“This optimism is grounded on expectations of a stable global growth environment and notable improvements in the domestic energy sector. Despite some improvements in freight rail, persistent inefficiencies in ports and rail network industries remain a significant constraint on the sector’s productivity and profitability.”