South African mining output falls 6% year on year in February
South African mining output fell by a steep 6% on an annual basis in February, the biggest drop since November 2020. The reading suggests that the sector’s logistical and other challenges are mounting, preventing it from taking full advantage of red-hot prices — a point underlined by the fact that mining sales still managed to rise by 6.4% in the month.
The mining sector, for all its problems, has been a bright spot amid the wreckage that is the South African economy. Its performance and profits last year translated into taxes and royalties that made South Africa’s fiscal situation less awful.
So it’s worrying to see a sharp and unexpected fall in production when prices are still cooking. Mining production in South Africa sank by 6% year-on-year in February, Statistics South Africa (Stats SA), said on Thursday, its biggest fall since November of 2020. On a monthly basis, the drop reached 6.4%.
On an annual basis, iron ore production slumped by 29.2%, while PGMs — platinum group metals — fell by 16.5%.
The reason behind the slide is not immediately apparent, though a range of scenarios come to mind. Transnet prevented the sector from getting much of its product to ports. A rise in social unrest affecting production in 2021 was flagged by several companies during the last spate of results. Both unwelcome trends have almost certainly remained on track in 2022. There has also been a renewed focus on safety — which is welcome — and that may have cut into productivity during the month. Load shedding could also have been a factor.
What is depressing about this state of affairs is that South Africa is, as a result, not taking full advantage of the current commodity cycle, which is cracking. Indeed, despite the 6% decline in production, South African mineral sales at current prices increased by 6.4% year-on-year in February and by 7.1% from January. And commodity prices have risen even higher since the Russian army blundered into Ukraine.
The Department of Mineral Resources and Energy (DMRE) is finally making headway on some of the bureaucratic issues that have hampered the mining sector.
Still, the inability of the industry to make hay while the sun shines has huge consequences for the wider South African economy.
Other data sets from February have also been fairly dismal, notably for retail trade sales and manufacturing. Maybe it was just a kak month all round. But it bodes ill for the gross domestic product number for the first quarter of 2022.
It also means that South Africa’s strong terms of trade and current account surpluses — which have held up the rand and are containing the potential damage from the country’s debt burden ( see Sri Lanka, for example) — are not as robust as they could be. The March and April mining numbers will reflect the NUM and Amcu strike at Sibanye-Stillwater’s gold operations, and the logistical bottlenecks stemming from the KZN floods.
The bottom line is that economic potential is being squandered against the backdrop of an unemployment rate of more than 35%. South Africa cannot afford to lose these kinds of opportunities. DM/BM