Mining production showing downward trend

Mining production surprised on the downside dropping to its lowest level since February.

Data released by Statistics South Africa shows that mining production fell by 3.6% year-on-year in July 2023.

The largest negative contribution came from platinum group metals, coal, and diamonds.

On a month-on-month basis, mining production decreased by 1.7% in July 2023 compared with June 2023.

The data shows that mineral sales at current prices decreased by 24.7% year-on-year in July 2023 with platinum group metals and coal making the largest contribution to the decline in the year.

Analysts say the weak production numbers will have a negative impact on economic growth in the third quarter of the year.

Senior Economist at Econometrix, Laura Campbell says the steep contraction in mineral sales presents a threat to the government’s spending outlook as corporate tax collections continue to erode.

“Production has consistently declined in recent months and this is a function of persistent structural impediments. We saw an intensification of load shedding in July and enormous capital outlays need to be made by miners to secure productive ability in the face of Eskom’s crisis. This only reinforces the reality that South Africa is an unattractive jurisdiction to deploy new exploration investment. On the global side growth is slowing, particularly China, and this is weighing on the prices of the minerals and commodities that SA mines are exposed to.”

Local economic challenges including load shedding and freight rail limitations are cutting into miners’ profits as they are forced to invest in their own energy and logistical solutions.

Independent Economist Elise Kruger says, “This was now the third month of the first quarter and indications already are that the mining sector might be a negative contributor to growth in this quarter. Yet to date, mining production is down by 1.4 percent and that compares to last when the sector was down by 7%. So, executive consecutive difficult year for the mining industry. Factors that on this worst performance include less demand for commodities from the Chinese economy, ongoing rail freight troubles and challenges and also the high levels of load shedding.”