Chamber of Mines chief economist Henk Langenhoven
JOHANNESBURG (miningweekly.com) – South African mining production growth slipped back into negative territory in October, falling 2.9% year-on-year after growing by an upwardly revised 4.7%.
This, BNP Paribas Securities economist Jeffrey Schultz explained in a note released Thursday, was evidence that mining activity continued to struggle to lift itself “out of the doldrums”.
Production growth is still down a cumulative 5.2% year-to-date, despite an absence of strike activity this year, and commodity prices seem to have found a floor, noted BNP.
“Encouraging, at least, is the fact that mining production momentum has been in positive territory for five consecutive months now, having, no doubt, been bolstered by the strong bounce in the iron-ore price this year,” said Schultz.
This has helped the country’s terms of trade position and, if sustained, will bode well for a modest improvement in mining activity in 2017, though BNP fears that a lack of policy certainty in the mining sector, such as the long-awaited promulgation of the Mineral and Petroleum Resources Development Act Amendment Bill, will continue to hinder production and investment prospects in the sector over the medium term, according to Schultz.
Commenting on Thursday’s production statistics, the Chamber of Mines of South Africa (CoM) noted that the industry’s performance in October painted a gloomy picture for the sector, despite its positive contribution to the economy.
“Growth in mining production depends mostly on demand for its [exported] products emanating from growth in the international economy. South Africa exports close to 50% of its minerals to western, eastern and southern Asia; with China’s growth forecast at a steady 6.5% and Japan at about 0.5% until 2018, not much acceleration in demand should be expected from those parts of the world economy,” noted CoM chief economist Henk Langenhoven.
He added, however, that with better growth expected in the US, some improvement could be expected, albeit small, with South Africa exporting around 20% of its production to the EU and about 10% to the Americas.
Langenhoven pointed out that the latest sales data for minerals was an early indication of some positive feedback into the local mining sector.
“The considered view is that it is much too early to come to such a conclusion, especially when the impact of ever-rising domestic production costs is [taken into account]. An improvement in the situation cannot come too soon, though, as employment numbers continue to fall,” he cautioned.
All indications are that commodity prices are bottoming out this year and mild worldwide growth will lift prices over time. Langenhoven noted, however, that the exchange rates of commodity exporters usually strengthened when their export prices improved, which could neutralise some of the expected price windfalls.
“There seems to be some hope that neither demand nor prices will fall further, but to engineer the recovery will take much patience and perseverance,” he said.
On a seasonally adjusted month-on-month basis, mining production growth slipped 1.2% in October on the back of a 7% decline in iron-ore production, a 4.6% fall in platinum-group metals (PGMs) and a 0.6% and 0.4% contraction in coal and gold production respectively. Other nonmetallic mineral production climbed nearly 14% in October and was the largest positive contributor to the monthly production print.
In year-on-year growth terms, the major contributors to the headline contraction in production came from PGMs, which declined 12% year-on-year; manganese ore, which was down 10.5% year-on-year; other nonmetallic minerals, which were down 14%; and gold, which was down 3.7%.
Iron-ore production, however, was the strongest positive contributor, up 5.9% year-on-year, which is not surprising given that iron-ore prices are up nearly 100% year-to-date. Coal production growth was also up 4.3% from a year ago, contributing 1 percentage point to the headline production growth print.