Mining output drops amid hopes that new charter will boost investment

Mining production decreased by 4.3% year-on-year (y/y) in April 2018, Statistics South Africa announced on Thursday.

The largest negative contributors were platinum group metals (PGMs), which declined -6.5%; "other" metallic minerals (-36.3%); diamonds (-24.1%); and gold (-5.7%).

Seasonally adjusted mining production decreased by 2% in April 2018 compared with March 2018. This followed month-on-month (m/m) changes of -3.5% in March 2018 and 0.2% in February 2018.

Seasonally adjusted mining production decreased by 3.4% in the three months ended April 2018 compared with the previous three months. Ten out of the 12 mineral groups and minerals reported negative growth rates over this period.

Iron ore, PGMs and "other" metallic minerals were the largest negative contributors.

Mineral sales

Mineral sales increased by 6.1% y/y in April 2018. The main positive contributors were manganese ore (116.5%); coal (10.6%); "other" non-metallic minerals (78.1%); and iron ore (12.3%).

The PGM category (-18.6%) was a significant negative contributor.

Seasonally adjusted mineral sales at current prices increased by 3.0% in April 2018 compared with March 2018. This followed m/m changes of -0.8% in March 2018 and -4.1% in February 2018.

In the three months ended April 2018, the seasonally adjusted value of mineral sales at current prices was 6.2% lower compared with the previous three months.

Investec economist Lara Hodes said the rate of contraction in mining production decelerated by -4.3% y/y in April, from -8.5% y/y in March. This was below consensus expectations of a -3.6% dip.

She said in the first quarter of the year, the decline in mining production was a significant contributor to the contraction in gross domestic product (GDP). Specifically, the mining and quarrying sector fell by 9.9%, translating into a negative contribution of -0.8% to first-quarter GDP in 2018.
"Looking at a disaggregation of the data for April 2018, while most of the mineral groups contracted over the period, the 4.3% y/y deterioration was primarily underpinned by a 6.5% y/y decline in PGM production. Based on their substantial weighing of 23.3% of the minerals basket, PGMs, therefore, detracted 1.5% from the headline outcome," said Hodes.
She said that, according to a representative from the Department of Mineral Resources, it has “(c)oncluded its public engagements on the Mining Charter and has begun the process of drafting a revised charter”.

The representative further advised that a draft will be open for public comment, once it has been finalised, with a target date set for the end of June.
"Hopefully the redrafted charter will assist in decreasing policy uncertainty that has been weighing on the sector, allowing it to attract much-needed investment and take full advantage of the recovery in global commodity prices," she said.

Jason Muscat, FNB senior economic analyst, said mining production contracted -2.6% year-to-date.

"While historical headline data remained unchanged, there appears to have been revisions to the historical prints of various commodities," he commented.

He said it is not entirely surprising, given persistent uncertainty around potential changes to the yet-to-be-announced Mining Charter, growing concerns of a global trade war, and relatively weak commodity prices.

"With a third of the sector’s 2018 data having already been released, it is going to take an extraordinary turnaround of fortunes for the industry to contribute positively to growth this year," said Muscat.

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