Mining production in South Africa fell for the 10th month in a row in November 2022, and the prolonged power cuts which reached record levels last year, are expected to continue to hurt the sector.
This means that the mining industry which contributes about 9% to gross domestic product (GDP), will continue to be a drag on the economic output for the fourth quarter of 2022.
Statistics South Africa (Stats SA) said yesterday that mining output slumped by 9% year-on-year in November, following an upwardly revised 11% decline in October due to the Transnet workers’ strike.
Stats SA said the largest negative contributors were the platinum group metals (PGMs) which fell by 22% in November compared to the same month a year ago.
Platinum prices, according to data from the World Bank, have been affected by the same monetary and macroeconomic factors affecting other metals, notably high interest rates and weak industrial and jewellery demand amid a global economic slowdown.
The results from the S&P Global Steel Users PMI Survey for November also revealed the sharpest decline in the global steel-using sector since May 2020.
Stats SA said iron ore and diamonds were also 19.4% and 21.5% down in November, respectively.
The persistent rotational power cuts were ramped up to record level last year as Eskom continued losing generation units to unplanned breakdowns, and November was no exception.
According to Stats SA data, electricity generation eased by 1.7% year-on-year in November, while electricity distributed declined by 2.3% in the same period, depriving the energy-intensive industry the power it needs for production.
The mining sector consumes about 14% of Eskom’s electricity, and this goes up by 30% if smelters and refineries in the minerals sector are added.
Investec economist Lara Hodes said the hastened implementation of key reforms was needed to boost sentiment and attract investment back into the mining industry and the economy.
“Domestically, persistent, heightened load shedding continues to weigh heavily on the energy intensive mining sector and remains a key downside risk to the country’s growth potential,” Hodes said.
“Besides the dire electricity supply predicament, logistical challenges continue to impede operational performance, underpinned by amongst other factors ageing infrastructure and vandalism.”
On a seasonally adjusted monthly basis, mining production fell by 0.4%, following an upwardly revised 3% drop in October.
The increase in electricity tariffs is also expected to impede mining production even further this year after Eskom was granted a 18.65% hike from April and another 12.74% next year.
According to the Minerals Council SA, the recently announced tariff increases mean the mining industry’s electricity costs will increase by R13.5 billion, or 33.7%, to R53.5 billion by the end of 2024.
As a result, electricity costs will constitute around 12.5% of the sector’s expenses by the end of 2024 from about 9% now.
BUSINESS REPORT