Mining output down sharply in March

14 May 2024: Total mining production, not seasonally adjusted, declined sharpy by 5.8% y/y in March, after expanding by 10.3% y/y (upwardly revised from 9.9% y/y) in February, in part, due to unfavourable base effects, the mid-March and Easter holidays as well as water shortages. The outturn was worse than the Reuters consensus prediction of a more moderate 1.8% y/y decline. Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, fell sharply by 5.0% m/m, compared to a 5.3% m/m increase in the prior month. Overall, output declined by 1.7% q/q in 1Q24, after expanding by 2.4% q/q in 4Q23, confirming that the mining sector’s gross valued added (GVA) dragged GDP growth.

Mineral sales (revenue proxy) experienced a decline of 14.9% y/y in March, worse than the 2.5% y/y decline in February. Year-to-date (YTD) mineral sales are down by 12.4% compared to the corresponding period last year. This decline reflects reduced profitability attributed to lower commodity prices, logistics challenges and a global economic downturn. Gold mineral sales surged by 64.2% YTD, buoyed by a favourable gold price environment. The poor performance in total mineral sales does not bode well for the mining sector’s contribution to fiscal revenue and wage income.

Outlook

Despite the decline in output in March, the data does not alter our view that the mining sector’s GVA should recover this year after declining by 0.3% in 2023 and 7.1% y/y in 2022. Our cautiously optimistic view is grounded on expectations of a stable global growth environment and, notably, improvements in the domestic energy sector. With the intensity of load-shedding expected to diminish this year and beyond, following its peak in 2023, we anticipate a positive impact on the mining sector output. However, persistent inefficiencies in ports and rail network industries remain a binding constraint on the sector’s productivity and profitability.

Selected sector analysis

The 5.8% y/y decline in output reflected weak performance in eight out of twelve mining divisions.

Output decreased in the following mining divisions:

• Coal output declined sharply by 9.1% y/y in March, after increasing by 15.2% y/y in February, contributing -2.3 percentage points (ppts) to the headline number.
• Iron ore output experienced a 6.8% y/y decline, down from growth of 42.9% y/y in February.
• Manganese ore contracted by 12.2% y/y, worse than the 0.1% decline in February and detracted 1.0ppt.
• Platinum group metals declined by 3.6% y/y, reflecting a deterioration from the 1.4% growth in February.
• Other metallic minerals output declined by 15.6% y/y, worse than the 11.5% y/y decline in the prior month.
• Gold output was down by 4.5% y/y, marking the fifth successive month of annual decline, despite a favourable gold price environment.
• Output in the building materials division declined by 15.7% y/y, after increasing by 6.4% in February.
• Other non-metallic minerals experienced a 7.6% declined in output, down from 6.4% y/y increase in February.

While the following divisions experienced output growth:

• Diamonds increased by 6.7% y/y, after increasing by 16.8% y/y in February.
• Nickel output increased by 15.5% y/y, following a 37.3% annual increase in February.
• Chromium ore output lifted by 13.8% y/y, after increasing by 20.7% y/y.
• And copper output was up marginally by 1.3% y/y, after increasing strongly by 59.4% y/y in February.

By Thanda Sithole, FNB Senior Economist