Although mining output increased by 21.9% year-on-year in May, the year-on-year comparison remains distorted owing to the low base recorded at the height of the Covid-19 crisis a year ago, and analysts deem it better to look at three-month percentage changes.

To this effect, analysts at Rand Merchant Bank say the message remains positive. Although the pace of growth in volumes moderated from 6.3% in April to 5.6% in May, it is still noticeably faster than the rate recorded in the first quarter of the year.

“Strong growth in real output also contrasts with the initial stages of the boom in mining exports that were price-driven, while volumes contracted. Now that production is catching up, if commodity prices stay high, we could see a positive double whammy in the period ahead.

“In May, mineral sales were 50% higher than in February 2020 before the pandemic struck South Africa. Besides, the huge trade surpluses aiding mining exports have been key in bringing about super profits mining companies have been making, as well as boosting government revenue,” they comment.

Looking at a month-on-month perspective, the Nedbank Economic Unit notes that the mining output decline of 3.5% in May had marked the first drop in production levels since December.

The production of all mineral products fell over the month, except for “other metallic and other nonmetallic” minerals, which were up 11% and 11.6%, respectively.

Notably, heavy-weights iron-ore and gold recorded decreased output for the second successive month, while coal and platinum group metals (PGMs) output slumped by 5.5% and 5.9%, respectively.

Moreover, the Nedbank Economic Unit says the mining sector remained 4.6% and 3.4% below its 2019 and 2017 to 2019 May average levels. Most subsectors remained in the red, although increased production of chrome, manganese ore and other metallic minerals limited some of the drag on overall output.

Gold and diamond output were also higher than the May 2019 levels.

Mineral sales were down 3% month-on-month in May, from the preceding two months of growth, which is likely owing to normalisation in global demand. By the 2019 levels and the three-year average, sales are 63% and 82.6% higher, driven by solid growth in PGMs and coal.

Simultaneously, nickel and other metallic mineral sales were also exceptionally strong, the Nedbank Economic Unit states.

It says mining output was likely hindered by unreliable power supply in May and, looking ahead, June’s production numbers will likely follow a similar trajectory, given the extent of load-shedding during the month.

“Although the recovery in industrial activity and high commodity prices remains supportive of the sector's recovery, the materialisation of the third wave of infections (worse than anticipated) and associated lockdowns, combined with planned load-shedding in the months ahead, pose significant downside risks to the pace of recovery,” the Nedbank Economic Unit avers.

Looking at the year-to-date production levels, from January to May, analysts at FNB say output is up by 20.6%, compared with the corresponding period in 2020, and up 1.6% compared with the corresponding period in 2019.

FNB says seasonally adjusted mining production, which declined sharply by 3.5% month-on-month after a mere 0.2% growth month-on-month in April, does not bode well for real gross domestic product growth.

The bank’s near-term outlook for the mining sector remains positive. It believes mining activity should be supported by sustained high commodity prices and ongoing economic recoveries globally, mainly from South Africa’s major trading partners.

The year-on-year growth in total mining production for May was driven by PGMs, which grew by 27% year-on-year, followed by gold, which grew by 44.5% year-on-year and iron-ore, which grew by 48.4% year-on-year.  

A negative contributor had been coal, which declined by 6.2% year-on-year.