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SA mining sector falling short

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The South African mining sector continues to underperform despite international commodity prices stabilising at higher levels versus the lows reached in January.

This data comes at a time thousands of jobs have been lost in the sector. In May, the rate of contraction in mining production decelerated to 4.4 percent year on year from minus 7.7 percent in April.

Kamilla Kaplan, an economist at Investec, said in the first quarter the decline in mining production was a significant contributor to the contraction in gross domestic product (GDP).

“Activity in the mining sector fell by 18.8 percent quarter on quarter seasonally adjusted and 9.9 percent year on year, translating to negative contributions to GDP of 1.3 percent and 0.7 percent respectively.”

She said labour market activity remained at risk, with platinum sector negotiations under way. “The Association of Construction and Mineworkers Union is seeking double-digit wage increases and a one-year wage agreement, instead of the typical three-year deal.”

In its figures released yesterday, Statistics SA said the main negative contributors to the mining production decrease were iron ore and manganese ore. It said platinum group metals (PGMs) contributed a positive 3.9 percentage points.

Seasonally adjusted mining output decreased by 0.6 percent in the three months ending May compared with the three previous months. Gold and iron ore were the largest contributors to the 0.6 percent decrease. PGMs was the largest positive contributor.

Hanns Spangenberg, an analyst at NKC African Economics, said while the year-on-year rates appeared to be discouraging at first glance, the small month-on-month increases in April to May were set to see the mining sector expand on a quarter-on-quarter basis in the second quarter, compared with the sharp 18.1 percent quarter-on-quarter contraction of the mining and quarrying sector in the first quarter.

“Furthermore, some improvement was seen in mineral sales in April, which grew by 1.6 percent month on month (seasonally adjusted) during the month compared to the 0.5 percent month-on-month decrease in March. As such, the mining sector is heading for a small recovery in (the second quarter) when compared to the first quarter… which would help the overall economy to narrowly avoid a technical recession, in line with our baseline view.

“In order to cope with sinking commodity prices, the mining companies warned that they were prepared to cut costs and close troubled mines.

Employees in the mining industry are hit hardest, with 36 companies that have been engaged in retrenchments during the past year, and with 29 261 employees facing retrenchment in the sector.

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