Business Maverick

Business Maverick

Mining output decline slows in May to almost 30%

A pedestrian walks along a street as the Impala Platinum Holdings Ltd., also known as Implats, shaft 9 mine tower stands beyond in Rustenburg, South Africa, on Wednesday, April 22, 2020. (Photo:: Waldo Swiegers/Bloomberg via Getty Images)

After very limited operations in April, South Africa's mining sector underwent a gradual reboot in May. The result was that production in the sector that month "only" fell 30% year-on-year after plunging a revised 50.3% in April, according to data published by Stats SA on Tuesday, 14 July. 

The reboot of the mining sector in May, championed by DMRE Minister Gwede Mantashe, was a lifeline of sorts thrown to a sector that was sinking like a stone. Production for the month fell 29.8% year-on-year. This was after an ear-popping descent in April, which Stats SA initially pegged at around 47% but has now revised to 50.3%. 

The decline was across the board. Gold production was 20% lower in May after plummeting 60% in April. Iron ore output was 66% lower, platinum group metals (PGMs) 27%. Coal production only declined 9.6% as mines that supply Eskom have been allowed to operate since the lockdown hit in late March. 

Worryingly but not surprisingly, mine production of building materials was down 54%. There is not a lot of construction and building going on at the moment, which has significant consequences for investment and employment. 

Aside from the April collapse, “the level of activity was still the lowest in years in May,” NKC African Economics noted in a commentary on the data. 

Of course, any kind of recovery from the horror show that was April will be welcome. But the data adds to a distressing economic picture for Q2. Mining accounts for about 8% of South Africa’s gross domestic product (GDP)  and in April half of that was taken out, and then a third in May – and this was a sector that was given more leeway to operate than most. The overall Q2 GDP contraction may have been well north of 30%. 

Another depressing thing about this data was that it covers a period when Eskom was not load shedding for the simple reason that demand for power had careened off the cliff.  Now load shedding is back with a vengeance, which will be an obstacle to further recovery. And because of policy inertia, several mining companies still lack self-generating capacity to fall back on.

The South African mining sector has long been in a state of decline, but it is not all doom and gloom. The fall in mineral sales has not been as sharp as the fall in production – in May it was 13.4%, in April 29.3%. 

This is in part attributable to perky prices. Gold in recent days has scaled eight-year peaks above $1,800 an ounce and has generally been on the boil this year. Palladium is down from its record highs of over $2,700 an ounce reached a few months ago, but at over $1,900 an ounce it is still high by historical standards. 

And data this week showed that China’s iron ore imports jumped 17% in June to their highest levels in almost three years, suggesting demand from the world’s top consumer of the key steel ingredient is picking up. 

Still, because of Eskom and other issues, don’t expect production to magically ramp up to take advantage of prices. The June and July data will give a fuller picture of the mining sector’s recovery from the April crash. DM/BM


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