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Manufacturing contracts for 8th straight month, but mining sees surprise jump

Manufacturing production in South Africa decreased for the eighth consecutive in January 2020 as sectors such motoring, wood and as chemicals producers extended declines that they’ve registered in the past few months.

Production fell by 2% in January, which was, however, better than the 5.9% contraction recorded in December, when Eskom implemented unprecedented stage 6 load shedding. Nine out of 10 manufacturing divisions in the country experienced a drop in activity, said Statistics SA’s director of industry statistics, Nicolai Claassen.

Wood, paper, publishing and printing divisions registered the biggest decline at -6.7%, followed by the automotive division, which produces motor vehicles, parts and accessories, and other transport equipment, where production declined by 5.6%. Claassen said there was a "noticeable slump" in the production of motor vehicles.

The last time year-on-year manufacturing production in the country increased was in May 2019, when it went up 1%. The last seven months of manufacturing contraction saw South Africa record a 0.9% decrease in production for the full year of 2019.

The contraction in manufacturing production comes as firms are grappling with regular electricity interruptions, as Eskom has intensified load shedding since late last year.

Iron ore, platinum surge

Yet mining production surprised on the upside, increasing by 7.5% year-on-year in January 2020, as iron ore production surged 27.9% and platinum group metals production increased by 10.2%. Coal production went up 2.3%.

The market had expected a slowdown in mining production, given that the 1.8% year-on-year in December 2019 was due to a surge in gold production.

The FNB economics team anticipated that because of the persistence of power outages, production in both mining and manufacturing would be more depressed in the first quarter of 2020. Mining sales, in particular, were expected to be adversely affected by decline in demand from China as the coronavirus spread.

But Statistics SA data showed that mineral sales increased by 24.2% year-on-year in January 2020. platinum group metals sales surged 85.3%, contributing the most to the overall increase in mineral sales. Iron ore sales went up 43.4%, gold was up 9% and nickel sales surged 108%.

After the release of January statistics, FNB said it anticipated that mining production would likely slow down in the coming months due to load shedding as well as continued spread of the coronavirus.

"According to the South African Revenue Service, 31% of mineral product and 14% of iron & steel product exports in 2019 were to China. However, we remain emboldened by the continued expansion in gold production and have confidence that the high prices of certain PGMs should incentivise increased production," said the bank’s economics team.

It added that manufacturing production was also likely to remain subdued in the near term.

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