Cape Town-based investment firm M&G Investments Southern Africa, previously Prudential Investment Managers, says mining companies are leading the charge in just energy transition, though China’s sluggish economy poses a challenge.
“Over the past few months, we’ve seen company announcements coming through on increasing planned capacity over the next few months and years. The mining sector accounts for about 50% of the planned announcements, which will help with energy security, transition and hopefully costs as well. The mining sector is meaningfully stepping up to the plate,” Aeysha Samsodien, senior equity analyst at M&G said.
However, she said one of the headwinds facing the sector is the slowdown in the Chinese economy, particularly the property crisis unfolding in the world’s second-biggest economy.
Current conditions in China, the world’s biggest consumer of commodities, is expected to bring woe to SA’s mining sector, which is already battling a crippled rail system that has curtailed exports.
China has been the main driver of the global economy the past two decades, particularly for emerging markets such as SA. But muted growth there could further depress commodity prices that are already off the peaks of 2022.
“China has been one of the integral drivers of commodity markets over the past 20 years with its focus on industrialisation and urbanisation. While the Chinese economy has slowed in recent years, it still consumes approximately 50% of global commodities, including iron ore, aluminium, copper, nickel, and zinc,” Samsodien said.
“China hasn’t yet reached its urbanisation goal of 65% (currently at 60%) and so their infrastructure spend is expected to continue in the short to medium term. However, China’s property market crisis remains a concern in the short term.”
M&G is part of the wider M&G Plc group, one of Europe’s biggest active investment managers. M&G Plc has £348.9bn in assets under management and operates in 28 markets around the world.
Siboniso Nxumalo, chief investment officer at Old Mutual Investment Group, said in a statement that dealing with China’s slowing GDP growth requires an agile approach.
“Given the size of China, and its importance to SA, we need to start paying a lot more attention to that economy than we do the US,” he said.
“The macros that have driven the Chinese economy over the last two decades are unlikely to continue to drive it in the coming years; and that has significant consequences for SA.”
The effect of the slowdown of the Chinese economy on SA’s equities was highlighted in the JSE’s performance in August.
Mining stocks were the biggest losers, shedding more than 10% as weak Chinese demand hit metal prices.
Platinum miners were hit especially hard, shedding 20%, according to Anchor Capital.
Samsodien said that the future government revenue collection will decline because of the falling commodity prices, particularly platinum group metals (PGMs).
“The sector is also a large employer with just under 500,000 jobs provided, or 4.8% of total jobs, which doesn’t include the indirect employment, through the various supply chains linked to the industry,” she said.
“The mining sector influences and is influenced by various macro and local dynamics, such as the global economic growth outlook, China’s commodity consumption, and home-grown challenges, like energy constraints, railway infrastructure challenges, etc,” Samsodien added.
“One of the ways we believe these local challenges can be addressed is through public-private partnerships. However, the just energy transition presents an opportunity for mining both locally and globally.”
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