South Africa's mining production increases 0.5% y/y - Stats SA

Mining production lifted marginally, by 0.5% year-on-year, in October, primarily on the back of strong growth in platinum group metals (PGMs), diamonds and manganese ore output, according to Statistics South Africa (Stats SA).

Production of PGMs, which occupy the second-highest weighting in the minerals basket at 23.5%, increased by 21.4%, adding 4.3 percentage points to the headline number.

Meanwhile, diamond production increased by 27.2%, adding 1.4 percentage points, while manganese ore production increased by 19.9%, contributing 0.9 of a percentage point.

This performance was partly able to counter the negative affect of production declines in the gold and iron sectors, which dipped by 15.1% year-on-year and 22% year-on-year, respectively.

Commenting on the statistics on Tuesday, Investec noted that the country’s mining sector continues to face multiple challenges, including access to and mounting costs of fundamental inputs.

As a highly energy intensive industry, rising electricity tariffs, coupled with escalating load-shedding concerns, weigh heavily on this significant sector, it stated.

Subdued commodity prices, demonstrated by the more than 13% decline in the Economist’s base metals index since January 2018 and a notable slide in the World Bank’s Precious Metals Price Index, together with exogenous factors, including mounting trade and geopolitical tensions and the imposition of import tariffs, continue to afflict commodity markets and impede export potential.

Various measures have been enacted under the new leadership in government in an attempt to improve transparency and policy and regulatory certainty.

Moreover, the economy has moved out of recessionary territory, with a modest uptick in growth expected next year.

Investec hopes a strong surge in confidence will follow, which will, in turn, attract integral investment into essential sectors of the country’s economy.

Mining production is forecast to recover some lost ground off a low base in the final quarter of this year, before stabilising in 2019.

Global trade conditions are predicted to remain broadly supportive, with most forecasts pointing to steadier commodity prices over the next year.

However, the downside risks are expected to remain significant, owing to the escalating trade war between China and the US, rising US interest rates and persistent domestic cost pressures.

Domestic operating conditions are also expected to remain tough.

Commenting on the figures on Tuesday, Nedbank Group Economic Unit indicated that the mining output figures supported its forecast of a further recovery off a low base in economic growth in the final quarter of this year.

The recovery it is forecasting, however, does not point to significant underlying upward momentum yet, which means that demand pressures on prices will remain relatively subdued, it indicated.

Further, the collapse in the oil price has also reduced upward pressure on inflation.

Owing to this, it believes that the Monetary Policy Committee will likely keep interest rates unchanged at its January meeting and maintain this neutral stance for much of the year before resuming the upward cycle in November 2019.