Alarm bells ring for critical South African sector

South Africa’s mining production is on a downward trend, and this is set to materially affect the country’s economic growth for the first quarter of 2025.

FNB senior economist Thanda Sithole recently commented on South Africa’s mining production data for February, which was released on 15 April 2025.

Statistics South Africa reported that non-seasonally adjusted mining production declined sharply by 9.6% year-on-year in February.

This marks the fourth consecutive month of mining production declines, with January having reported a 1.5% contraction. 

Sithole said the February outcome was notably weaker than expectations, surprising to the downside by 5.8 percentage points compared to the Reuters consensus forecast of a 3.8% decline. 

In fact, excluding gold, mining output fell by an even steeper 10.0% year-on-year. Gold has had a very strong few years, with prices at record highs.

Sithole added that seasonally adjusted mining production, which feeds directly into quarterly GDP calculations, dropped by 4.4% month-on-month in February, following flat growth in January. 

“Over the three months to February, mining output contracted by 6.7%, indicating a likely material drag on GDP growth in the first quarter of 2025,” he said.

“While the weak performance may partly reflect refurbishment and stocktaking activities, it was further exacerbated by heavy rainfall and flooding that materially disrupted operations.” 

“These factors suggest the decline may be temporary, with potential for a rebound in the coming months.”

Looking forward, Sithole said that while mining output expanded modestly by 0.4% in 2024, the year-to-date decline of 5.6% remains a concern.

It is particularly concerning in light of the current global environment facing downside risks from potential Trump 2.0 reciprocal tariffs. 

Sithole said a challenging global trade landscape, subdued commodity prices, and slowing growth in China continue to pose significant headwinds for the sector. 

“Nevertheless, ongoing reforms aimed at easing infrastructure constraints, particularly in energy and logistics, should help prevent these from becoming binding limitations on productivity over the longer term,” he said.

Mining in trouble

Investec economist Lara Hodes said heightened global uncertainty due to continued geopolitical tensions and the disruptive trade war remains a key risk to global growth and demand for essential commodities.

She said this weighs on South Africa’s export potential, something the Minerals Council of South Africa has also raised as a potential concern.

The council raised its concerns after United States President Donald Trump’s ‘Liberation Day’, when he announced wide-ranging tariffs on the world economy, including South Africa.

Trump has since decided to pause his tariff plans for 90 days but kept the global 10% tariff on all imports to the United States.

While South Africa was one of the hardest hit countries under Trump’s original tariff plan, with a 31% levy, some products were exempt.

Most of South Africa’s minerals and metals sold to United States consumers were excluded from the tariffs, including platinum group metals (PGMs), coal, gold, manganese and chrome.

However, even with the 90-day pause on reciprocal tariffs and the exclusions of certain products from a higher levy, Trump’s 10% tariffs will severely affect global trade.

“Despite the exclusions, we remain concerned about the adverse impact on business and consumer sentiment and the resultant feedthrough to business investment, consumer spending and ultimately global real GDP growth caused by this unprecedented upheaval in world trade.” 

“Global growth coming under threat is bad news for the entire South African mining industry,” Minerals Council chief economist Hugo Pienaar said.

In addition, Trump’s 25% tariff on all automotive imports into the United States is still in effect and will impact demand for resources used in auto manufacturing.

Therefore, even minerals excluded from the new tariffs could still see their demand drop due to indirect effects.

For example, PGMs were on the list of products excluded from Trump’s severe tariff increases.

However, platinum, palladium, and rhodium are used to make autocatalysts for vehicle exhausts that scrub out pollutants. 

Therefore, vehicle prices in the United States will increase because of the 25% tariff the Trump administration has imposed on all vehicle imports.

“Not only will this slow demand for automobiles in the US, but car makers in other countries are likely to moderate production as a result,” Pienaar said.

He explained that if car and truck sales slow, demand for PGMs will reduce, resulting in volatile near-term prices.