Statistics South Africa (Stats SA) has reported that mining production decreased by 28.2% year-on-year in June.
The largest negative contributors were platinum-group metals (PGMs), with output down 42.5% and contributing -10.6 percentage points; and iron-ore, with output down 54.2% and contributing -6.7 percentage points.Advertisement
Coal also dragged down mining production in June, with output down 10.9% and contributing -2.7 percentage points, while the production of ‘other’ nonmetallic minerals was down 38.2% and contributing -2.4 percentage points.
Seasonally adjusted mining production decreased by 1.4% in June compared with May. This followed month-on-month changes of 46.6% in May and -37.8% in April.Advertisement
Moreover, Stats SA says seasonally adjusted mining production decreased by 30.2% in the second quarter of the year compared with the first quarter.
The largest contributors were PGMs, with output down 43.1% and contributing -10.4 percentage points; gold with output down 37% and contributing -5 percentage points; and iron-ore, with output down 51.2% and contributing -4.9 percentage points.
Chromium ore also impacted on seasonally adjusted mining production, with output down 56.8% and contributing -2.3 percentage points; and coal, with output down 7.8% and contributing -2.1 percentage points.
Meanwhile, mineral sales decreased by 14.2% year-on-year in June.
The largest contributors were gold at -45% and contributing -5.5 percentage points; coal at -9.9% and contributing -2.4 percentage points; ‘other’ nonmetallic minerals at -26.5% and contributing -1.2 percentage points; and PGMs at -4.5% and contributing -1.1 percentage points.
Stats SA reports that seasonally adjusted mineral sales at current prices decreased by 5.1% in June compared with May. This followed month-on-month changes of -27.9% in May and -37% in April.
For the second quarter, the seasonally adjusted value of mineral sales at current prices was 28.5% lower year-on-year.
Nedbank comments that mining production remains weak, but a recovery seems underway as production is much improved from the 51.2% year-on-year drop reported in May.
“The speed of any further recovery in the industry will depend on how quickly the country moves through the various stages of lockdown towards some semblance of normal operations.
“Which, depending on the source, could be as soon as September or sometime in 2021. Either way, mining production will probably end 2020 lower, hurt by much weaker global demand and commodity prices,” Nedbank states.
Additionally, FNB says that, looking ahead, the sector will likely continue to face headwinds, particularly in attracting greenfield investment owing to a number of factors.
These include declining global competitiveness – South Africa’s increasingly deeper ore reserves are more expensive to extract compared to other regions; electricity supply and cost constraints; regulatory uncertainty; and logistical bottlenecks such as lack of adequate railway networks and port infrastructure.
FNB economist Geoff Nolting explains that these factors increase the risk premium for investors on the back of a highly uncertain operating environment.
“Despite the challenging backdrop, there are some green shoots worth noting. We believe that the easing of lockdown restrictions by many of South Africa’s trade partners should bode well for PGM exports and prices – particularly palladium and rhodium – owing to the commodity’s use in automotive catalytic converters and the resultant demand due to more stringent carbon emission regulations.
“In addition, gold producers will benefit from higher prices due to low global real rates as well as the commodity’s ‘safe haven’ appeal among investors,” he adds.
Asset manager Investec quotes data from a presentation made by Minerals Council of South Africa – in support of Business for South Africa’s intiative to revitalise the South African economy – which finds that if eight essential actions are undertaken by government, it could lead to a marked $3.6-billion increase in 2024 primary mineral sales, as well as 26 000 more direct jobs by 2024.
These actions include regulatory reform, modernisation of the industry, reliable energy supply, rail and port capacity infrastructure development, exploration strategy and community investments.
By Marleni Arnoldi