While SA mining companies’ profitability remains under pressure, the Minerals Council SA’s latest index has provided some encouragement for the sector, with input costs reaching their lowest level this year in October and November.
A stronger exchange rate was a key factor in helping to ease input cost inflation in recent months, with SA’s nominal exchange rate appreciating by 5.3% year on year in November, bringing down the cost of imports.
As a result, intermediate mining and quarrying input prices fell 4.9% year on year.
The primary driver, however, was a drop in oil prices, with Brent crude falling to $73.50 a barrel in November from $82.20 a year earlier. The drop in oil prices significantly eased the costs of coke and refined petroleum products, which fell by 15.2% year on year.
Since exchange rates and oil prices are key drivers of input costs across many sectors of the economy, this reading was in line with Stats SA’s producer price index (PPI), which recorded deflation in October and November due in the main to lower fuel prices.
Interest rate cuts also played a role by bringing down financing costs for miners, with the repo rate being cut for a second meeting running by the SA Reserve Bank in November, to 7.75%.
Despite the improvement, the National Energy Regulator’s (Nersa’s) double-digit tariff hike for the 2024/25 financial year saw the cost of power rising 12.2% in November.
Electricity remains a key driver of input cost inflation and, with some municipalities having delayed the implementation of this tariff hike, the Minerals Council’s reading could climb higher in the coming months.
Expenses for mining chemicals, prepared explosives and chemical catalysts also continued to climb in November, increasing 8.2% year on year, while wholesale and retail trade prices rose 1.4%.
Rising rail costs have added to the recent pressure on mining profitability as Mozambique’s ongoing civil unrest saw operations at the Lebombo port of entry — critical to SA’s coal and chrome exports to Maputo — suspended several times over the past two months.
On a monthly basis, November’s cost inflation was primarily driven by higher transport and storage costs, which rose by 1.5% month on month despite road and rail payloads remaining mostly unchanged.
Minerals Council economist Andre Lourens warned that the border closure, as well as uncertainty surrounding the upcoming Trump administration and geopolitical tension could see input costs rising again next year.
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