Mining activity in South Africa will probably be depressed for the remainder of the year, and drag economic growth even lower as the lingering impact of intensified power cuts and industrial action saw output falling more than expected in July.
Data from Statistics South Africa (Stats SA) yesterday showed that mining output plunged by 8.4 percent in July year-on-year following a downwardly revised 7.1 percent decline in June.
This was the sixth consecutive month of decline in mining production since February, with January being the only exception that saw a slight 0.1 percent increase in output.
The July mining print, which was slightly ahead of consensus expectations of a 5 percent year-on-year decline, was also the second-largest single decline this year after April’s 15 percent fall.
Stats SA’s principal survey statistician Juan-Pierre Terblanche said production in July was driven lower mainly by gold, platinum group metals (PGMs) and iron ore.
“Gold was the biggest drag on overall production, falling 19.7 percent year-on-year. Diamonds, coal, copper and chromium ore also performed poorly in July,” Terblanche said.
“Manganese ore production increased, however, with manganese output growing by 8.3 percent year-on-year.”
Mining production was also exacerbated by a two-week-long illegal strike action by Eskom workers which plunged the country to severe Stage 6 load shedding in July.
South Africa’s mining industry, an intensive energy user, is battling to hit production forecasts as a result of the country’s ongoing challenges with electricity supply.
Between March and June this year, South Africa's second-largest gold producer, Sibanye-Stillwater, experienced a three-month-long workers’ strike over wage increases.
Investec economist Lara Hodes said the declining production occurred at a time when demand for iron ore, an essential input into steel production, had been affected by the slowdown in global growth.
Concerns of a global recession have also grown over the second and third quarters of 2022.
Hodes said that domestically the mining industry continued to face a myriad challenges, notwithstanding the precarious global predicament.
“Load shedding was ramped up significantly in July, as a result of unlawful strike action, reaching Stage 6 at times. This would have weighed heavily on the highly energy-intensive mining sector,” Hodes said.
“Moreover, logistical constraints, including from ageing infrastructure, continue to impede optimal production.”
On a seasonally adjusted monthly basis, Stats SA said mining production grew by 2.3 percent in July following a downwardly revised 0.9 percent decline in June.
Nedbank economist Liandra da Silva said the outlook for mining remained clouded by intensifying domestic and global headwinds.
“For economies such as South Africa, a slowdown in global growth translates into lower demand for its commodity exports, which will negatively impact mining sales,” Da Silva said.
“The weakness in production largely reflects the ongoing bouts of power outages, which remain a severe constraint in the energy-intensive sector and will continue to weigh on long-term production capacity.”
BUSINESS REPORT