South Africa’s annual mining output registered a sixth straight decline of 8.4%, although seasonally adjusted mining output rose on a monthly basis in July. The consensus forecast was for a 5.0% year-over-year decline in mining. The war in Ukraine and sanctions against Russia opened the way for a resource-rich country like South Africa to use the opportunity to fill its coffers through the sale of goods, but it did not happen. Instead, the current account balance unexpectedly returned to deficit in the second quarter, while load shedding continues. According to research group Oxford Economics Africa, precious metals…
South Africa’s annual mining output registered a sixth straight decline of 8.4%, although seasonally adjusted mining output rose on a monthly basis in July.
The consensus forecast was for a 5.0% year-over-year decline in mining.
The war in Ukraine and sanctions against Russia opened the way for a resource-rich country like South Africa to use the opportunity to fill its coffers through the sale of goods, but it did not happen. Instead, the current account balance unexpectedly returned to deficit in the second quarter, while load shedding continues.
Precious metals and iron ore weighed heavily on both production and prices in July, while coal prices remained hot, according to research group Oxford Economics Africa.
“After ending the second quarter on the back end, annual mining production fell 8.4% in July. However, seasonally adjusted mining production increased by 2.3% compared to June after an upwardly revised 0.9% monthly contraction in June,” said Gee-A van der Linde, economist at Oxford Economics Africa.
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Gold, MPG and iron ore are the culprits
From a sectoral point of view, gold (-19.7% and a contribution of -3.1 pp), platinum group metals (PLG) (-12.2% and a contribution of -2.8 pp) contributed the most to this annual decline. pp.) and iron ore (-20.4% and contribution – 2.7 pp.).
Van der Linde notes that seasonally adjusted mining production rose 0.2% in the three months ended July 2022, compared with the previous three months.
Mineral sales at current prices were up 7.3% from June (vs. -15.9% in June from May) and up 4.3% from last year. The annual increase in July can mainly be attributed to higher prices for coal, chrome ore and manganese ore, says Van der Linde.
“Having said that, IPG and iron ore prices were a notable negative contributor at the start of the third quarter. Recession fears are weighing on key base metals, while subdued demand for steel and iron ore means the outlook is bearish. Meanwhile, the US Fed’s aggressive tightening of monetary policy is putting downward pressure on precious metal prices.”
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Mining output remains a laggard
Van der Linde says the latest national accounts data showed that mining remained one of the laggards during the second quarter, contracting both annually and monthly.
“Looking ahead, power outages and ongoing logistical constraints will continue to undermine the mining industry. Moreover, regulatory uncertainty, infrastructure inefficiencies and theft undermine South Africa’s attractiveness for mineral exploration investment.”
South Africa has failed to increase mining production in recent years, meaning that the industry has not been able to take full advantage of favorable price developments. Between 2016 and 2021, mining production fell by an average of 0.4% per year, Van der Linde notes.
