SA’s annual mining output sees a sixth consecutive decline

South Africa’s annual mining output registered a decline of 8.4% for the sixth time, although seasonally adjusted mining production increased on a monthly basis in July.

The consensus forecast was for a 5.0% year-on-year decline in mining production.

The war in Ukraine and sanctions against Russia opened the way for a resource-rich country such as South Africa to use the opportunity to fill its coffers by selling commodities, but this has not happened. Instead, the current account balance unexpectedly reverted to a deficit in the second quarter while load shedding continues.

According to research group Oxford Economics Africa, precious metals and iron ore weighed most on both production and prices in July, while coal prices remained red-hot.

“After ending the second quarter on the back foot, annual mining production declined by 8.4% in July. However, seasonally adjusted mining production increased by 2.3% compared to June, following an upwardly revised 0.9% monthly contraction in June,” Jee-A van der Linde, economist at Oxford Economics Africa, says.

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Gold, PGMs and Iron ore the culprits

The largest contributors to this annual fall from a sectoral perspective were gold (-19.7% and contributing -3.1 ppts), platinum group metals (PGMs) (-12.2% and contributing -2.8 ppts) and iron ore (-20.4% and contributing -2.7 ppts).

Van der Linde notes that seasonally adjusted mining production increased by 0.2% in the three months ending July 2022 compared with the preceding three months.

Mineral sales at current prices rebounded by 7.3% compared to June (versus -15.9% in June compared to May) and were up 4.3% compared to a year ago. The annual increase in July can mainly be attributed to higher coal, chromium ore and manganese ore prices, Van der Linde says.

“Having said that, PGMs and iron ore prices were notable negative contributors at the start of the third quarter. Recessionary fears are weighing on the key base metals and subdued demand for steel and iron ore means the outlook is bearish. Meanwhile, aggressive monetary policy tightening by the US Fed is exerting downward pressure on precious metal prices.”

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Mining output remains a laggard

Van der Linde says the latest national accounts data revealed that mining remained among the laggards during the second quarter, contracting annually as well as monthly.

“Looking ahead, power outages and ongoing logistical constraints will continue to undermine the mining industry. Moreover, regulatory uncertainty, infrastructure inefficiencies and theft sullies South Africa’s attractiveness for mining exploration investment.”

South Africa has not been able to boost mining production in recent years, which implies the industry is unable to fully exploit favourable price developments. Between 2016 and 2021, annual mining output dropped by an average rate of 0.4% per year, Van der Linde points out.