Mining production increases 2.8% y/y in June

Mining production increased by 2.8% year-on-year in June, from a 1.8% decline in May, with the largest positive contributor being platinum group metals (PGMs), which rose by 28.2% and contributed 5.9 percentage points, says Statistics South Africa (Stats SA).

Other positive contributors were diamonds, which increased by 18.7% and contributed 0.9 of a percentage point, and iron-ore, which increased by 4.2% and contributed 0.6 of a percentage point.

However, gold was a significant negative contributor, with production down 19.2% and contributing -3 percentage points from topline growth.

“A stagnant gold price, continually rising input costs, operational challenges, and policy and regulatory uncertainty, were putting a strain on the gold mining industry,” according to the Minerals Council chief negotiator, quoted by Investec.

“Against this backdrop, Gold Fields, one of the world’s largest gold mining firms, recently announced its intention to cut up to 1 560 jobs at its loss-making South Deep mine. Notwithstanding June’s increase, year to date mining production is still down 1.5% year-on-year,” reported Investec.

The firm added that commodity prices have suffered of late amid geopolitical concerns and rising trade tensions which have reinforced investor concerns over global growth, threatening demand.

“This, coupled with a combination of other factors, including declining productivity and escalating costs have suppressed activity in the mining sector.

“Additionally, persistent regulatory uncertainty continues to inhibit essential investment into the sector, with the new, proposed mining charter yet to be signed off and issues around the possible expropriation of land without compensation still not resolved,” explained Investec.

Seasonally adjusted mining production increased by 5% in June, compared with May. This followed month-on-month changes of 5.9% in May and -3% in April.

Meanwhile, mineral sales increased by 9% year-on-year in June, with the main positive contributors being PGMs, increasing 32.2% and contributing 6.2 percentage points, coal increasing by 20.7% and contributing 4.9 percentage points, and manganese ore increasing by 11.5% and contributing 1.1 percentage points.

Seasonally adjusted mineral sales at current prices increased by 1.2% in June, compared with May. This followed month-on-month changes of 4.9% in May and 3.3% in April.

In the second quarter of 2018, the seasonally adjusted value of mineral sales at current prices was 5.4% higher compared with the first quarter of the year.

Nedbank commented that mining figures are volatile, but that stronger global demand and firmer international commodity prices should offer some support for production and exports for the full year. “The upside will still be tempered by a generally difficult operating and policy environment.”

The bank added that despite the latest mining figures suggesting improved activity, overall underlying economic conditions remain subdued, which would tend to support either steady or lower interest rates.

However, policy easing is unlikely in the medium term as inflation is likely to pick up in the coming months, on the back of higher fuel prices and a weaker rand.

These forces, against the backdrop of tightening policy globally, have increased the risk of an early hike in interest rates. However, the South African Reserve Bank will probably try to keep rates unchanged for as long as possible, given the weak economy.