On an annual basis, the 9% fall in South African mining output in November points to an overall contraction in output for 2022. The Minerals Council SA, the main industry group representing mining companies, said last week that it estimated South African mining production declined 6% last year. 

November marked the 10th consecutive monthly annual output decline in the sector, and it was the first month since June in which mineral sales fell on a yearly basis. Annual mineral sales had been rising, even as output fell, because of prices and time lags between output and sales. 

 It was the fourth consecutive month-on-month decline for both numbers.

With the two now dropping in tandem, the next spate of mining results will likely, with some exceptions, show shrinking profits — and this in turn will be reflected in lower tax and royalty revenues for strained state coffers. 

It also doesn’t bode well for South Africa’s trade surplus or current account balance, with negative implications for the rand’s exchange rate against major currencies. 

The declines have been broadly across the board.

The steepest stemmed from platinum group metals, which saw output tumble 22% in the year to November. In the past, this was a sign of things such as labour strife, but this is not currently a factor given that the major producers all have recent five-year wage deals in hand.

But the power crisis, Transnet’s worsening performance, flare-ups of social unrest and policy paralysis are all undermining the once towering sector. 

On a monthly basis, production fell 0.4% and 1.9% in the three months to the end of November. This will weigh on the fourth quarter gross domestic product figure.

“Load shedding occurred sporadically throughout the final months of 2022, which suggests a meaningful recovery in output is unlikely… While manufacturing recovered lost ground in November, mining’s performance thus far in Q4 has been disappointing, and the sector will likely weigh on overall GDP growth during the final quarter of 2022,” Jee-A van der Linde, senior economist at Oxford Economics Africa, said in a note on the data. 

Looking ahead, the Minerals Council has warned that the looming Eskom tariff hikes of 18.65% and 12.7% for the next two financial years will “materially squeeze” the profit margins of South Africa’s mining sector.

Read more in Daily Maverick: “Eskom tariff hikes will ‘materially squeeze’ mine profit margins — Minerals Council SA”

If there is a silver lining, it may be that declining South African mining production will further dampen global supplies of key commodities, a scenario that will support prices. That is the view of Goldman Sachs, which sees a “bullish concoction for commodities”.

Read more in Daily Maverick: “Goldman sees ‘bullish concoction’ for global commodities”

But with global economic growth widely expected to slow significantly this year, the ultimate concoction may also prove to be bearish. DM/BM