Mining production climbs 3% year-on-year in May

Cape Town - Mining production increased by 3.6% year-on-year in May 2017, but the rest of the quarter may be disappointing on the back of softer commodity prices. 

Statistics South Africa released the latest mining production and sales figures for May 2017, indicating that the main positive contributors to production were iron ore – up 28.6% and contributing 4.1 percentage points – and diamonds with a 61%-increase and contributing 1.7 percentage points.

Platinum group metals (PGMs) however contracted by 17.5%, contributing -4.3 percentage points.

Seasonally adjusted mining production decreased by 0.2% in May 2017 compared with April 2017. This followed month-on-month changes of -1.4% in April 2017 and 3.7% in March 2017.

Mineral sales increased by 11.2% year-on-year in April 2017. The largest positive contributors were PGMs with a 39.3%-increase, contributing 7.9 percentage points, chromium ore – up 96.3% and contributing 3.5 percentage points); and coal with an increase of 11.4% and contributing 3.1 percentage points.

Seasonally adjusted mineral sales at current prices decreased by 1.8% in April 2017 compared with March 2017. This followed month-on-month changes of 2.1% in March 2017 and -4.1% in February 2017.

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Gerrit van Rooyen, analyst at NKC African Economics, said in a company note that the improved performance is welcome, especially in light of the “dismal prospects for the rest of the economy”.

“The mining sector has benefited from a moderate recovery in industrial and precious metal prices since the fourth quarter of 2016.”

Although international crude oil prices have trended lower this year due to a persisting global oil supply glut, other industrial commodity prices, such as iron ore, coal and copper prices have been supported by robust Chinese demand.

“A possible slowdown in the commodity-hungry Chinese property sector and increased Sino-US trade tensions (over issues such as China’s trade surplus with the US and Chinese trade relations with North Korea) are moderate risks to Chinese import growth and global commodity prices for the rest of 2017,” Van Rooyen says.

Jeffrey Schultz, economist at BNP Paribas, says an improved terms of trade environment for South Africa, which is commodity price-driven, alongside still favourable base effects, continues to prop up headline mining production growth.

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“Although it seems likely that the sector will register its second consecutive quarter of positive contribution to second quarter GDP growth, momentum growth in the quarter is likely to have slowed given the recent softness in global commodity prices,” Schultz says.

The mining sector in South Africa however continues to face headwinds due to ongoing policy uncertainty with the launch of legal action from the Chamber of Mines to challenge the implementation of the new Mining Charter.

“This is unlikely to spell good news for investment, activity and employment in mining for at least the remainder of the year,” Schultz says.

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