Lower fuel prices have kept mining input cost inflation on a downward trend since late last year, offsetting high financing costs and electricity tariff hikes.
According to the latest data published by Minerals Council SA, mining input cost inflation was recorded at 3.4% year on year in March, averaging 3.6% over the first quarter. This is about half the 7% recorded for the first quarter of last year.
The improvement in fuel costs provided some relief to the local mining sector in the first quarter. However, most of this relief was for SA’s coal producers, which experienced the lowest input cost inflation of all major commodities in March.
Coal miners disproportionately benefited from lower fuel-related costs, with prices for coke and refined petroleum products falling by 10% year on year, while transport equipment costs shrunk about 5.2%. However, the relief was not evenly distributed across the broader mining sector, with gold and chrome recording the highest average increases in input cost inflation for March.
Financing costs remain a burden as the Reserve Bank’s 11% lending rate — the highest prime rate in more than 15 years, excluding the period 2023-24 — continues to elevate borrowing costs.
“Domestically, political and economic uncertainty have further dampened sentiment, weighing on capital markets and prompting the Reserve Bank to maintain a cautious monetary stance, delaying much-needed interest rate relief,” Minerals Council economist Andre Lourens said.
Additionally, electricity tariffs remain a constraint, with the National Energy Regulator of SA approved 12.74% tariff hike for direct Eskom customers coming into effect from April 1 and expected to drive a “notable rise” in power costs.
Despite the rising costs of financing and electricity, the gradual easing of fuel prices offered some encouragement in the first quarter, together with a stronger rand making imported inputs more affordable.
“Costs appear to be stabilising at levels well below the long-term pre-Covid average for the mining sector,” Lourens said, adding that moderating fuel prices and the prospect of lower interest rates may provide some relief to the industry.
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