Good news for mining – but not out the woods yet

South Africa’s mining production rose significantly in November, but subdued global demand and domestic challenges continue to weigh on the sector.

This is the view of Investec economist Lara Hodes, who said November’s significant increase was buoyed in part by base effects.

Mining output increased by 6.8% year-on-year in November, following October’s 3.6% lift. This was stronger than Bloomberg consensus expectations of a 3.0% increase.

Hodes said a disaggregation of the mining production data for November indicates that platinum group metals (PGMs) were the largest positive contributor.

PGMs added 3.9 percentage points to the headline outcome on the back of 15.2% growth.

In addition, the production of iron ore and coal grew by 20.1% and 10.6%, respectively, adding a further combined 4.6 percentage points.

However, a further notable slide in diamond production was logged, as output fell for the fourteenth consecutive month in November.

Diamond output plunged by 33.3% in November and, as a result, detracted 1.2 percentage points from the overall outcome. 

Declines were also recorded in the production of manganese ore and gold.

Hodes explained that, despite November’s positive result, the fragile global environment continues to weigh on commodity demand. 

“The global manufacturing sector ended 2023 on a lacklustre footing,” according to the latest JP Morgan Global Manufacturing PMI survey results. 

The Eurozone region “remained the main source of weakness”, with manufacturing production sliding, on average, for the ninth consecutive month.

“Moreover, international trade conditions deteriorated. A deceleration in trade, exacerbated by the effects of an escalation in geopolitical tensions, remains a further downside risk to the already subdued global growth environment,” Hodes warned.

“Domestic challenges, likewise, continue to weigh on South Africa’s optimal export potential.”

Commodity price movements are largely influenced by dynamics in global markets and are, therefore, outside the miners’ control.

However, Hodes said costs could be significantly reduced and operational efficiencies improved by urgently resolving the country’s electricity supply and logistics crises. 

“Indeed, electricity production and consumption fell by 3.3% year-on-year and 2.7% year-on-year, respectively, in November,” she said.

Following the release of November’s data, RMB also cautioned that this is not likely to be the start of a recovery in the sector, “particularly given that the structural hurdles remain problematic”.

Minerals Council of SA chief economist Hugo Pienaar recently revealed the close correlation between the country’s electricity production and mining production, seen below.

Pienaar said Eskom’s load-shedding and load-curtailment have severely undermined real mining production in South Africa.