Mining activity in South Africa has been plunged into a crisis by more than a week-long strike at Transnet, and could remain depressed for the remainder of the year weighed down by deteriorating domestic and global economic conditions.
This comes as mining output in the country shrank for the seventh months in a row year-on-year in August, dragged down by heavy-weights platinum group metals (PGMs), gold and iron ore.
Data from Statistics South Africa (StatsSA) yesterday,showed that mining production fell by 5.9% year-on-year in August, slowing from a downwardly revised 8.2% slump in July.
This subdued mining print in August marked the seventh consecutive month of falling mining activity, with January being the only exception since the beginning of the year.
Although this was the softest contraction observed so far in 2022, production remained dismal relative to the figures recorded in 2021.
StatsSA’s principal survey statistician, Juan-Pierre Terblanche, said PGMs production fell by 12.9% in August, while gold output shrank by 17.4% and iron ore by 15.2%.
“On the upside, the country produced more manganese ore, chromium ore, and nickel. Manganese ore recorded an increase of 25.4% year-on-year,” Terblanche said.
The ramping up of Eskom’s rotational load shedding in the country has weighed heavily on the energy-intensive sector as production stalls during power cuts.
The strike over wage demands by thousands of workers at Transnet has also brought economic activity on its knees as export cargo remains stuck at the ports, with vessels bringing imports also struggling to berth.
The mining industry is the hardest hit by the strike as Transnet declared a force majeure, with bulk mineral exporters losing R815 million worth of exports per day as they are unable to rail and load 357 000 tonnes of iron ore, coal, chrome, ferrochrome, and manganese onto ships daily.
Nedbank economist Liandra da Silva said the outlook for the mining sector remained gloomy and uncertain on the back of domestic as well as global challenges.
Clear evidence of a global slowdown has emerged, with the International Monetary Fund (IMF) warning that several economies will slip into recession in 2023.
“A slowdown in global economic conditions will weigh on demand for commodities, pushing prices lower and ultimately impacting both mining production and sales negatively,” da Silva said.
“On the domestic front, productivity remains constrained by ongoing intense electricity shortages and lack of sufficient mine-to-market infrastructure. Production is expected to be further constrained by the current industrial action by Transnet employees.”
Meanwhile, StatsSA said that mining production was flat in August compared to July on a seasonally adjusted monthly basis, following an upwardly revised 3.1% rise in July.
However, mining production increased slightly by 0.6% in the three months ended August compared with the 2.9% decline in the previous three months, with manganese ore and coal making the largest positive contributors.
FNB senior economist Thanda Sithole said that while mining output likely rebounded in the third quarter, the near-term outlook appeared dire.
Sithole said the ongoing load shedding and transportation disruptions from the labour strike at Transnet bode ill for mining activity, with the subdued global growth outlook adding more pressure.
“Furthermore, the prices of South Africa’s major export commodities have already peaked and could moderate further as global demand slows,” Sithole said.
“This will impede mining sector export earnings, which over the past months firmly underpinned government revenue overruns.”
BUSINESS REPORT