Mining production slumped for a fifth straight month in June, Stats SA announced on Thursday, by more than economists predicted.
The biggest contributors to the 8% year-on-year decrease were gold, platinum group metals (PGMs) and coal. According to Trading Economics, the market had forecast a 5.4% decline after the 7.2% contraction in May.
Gold fell 28.6% year on year, resulting in a 4.7 percentage point fall, which was higher than the expected 26.5%.
Year on year, PGMs sank 9.8% and coal 6%, contributing to a 2.4 and 1.6 percentage point fall respectively.
The mining sector has been under pressure in 2022 due to load-shedding, a three-month strike in the gold sector and infrastructure bottlenecks, cementing it as a laggard of economic growth in the second quarter.
The data is not good news for finance minister Enoch Godongwana, who relied on tax income from mining companies from the previous fiscal year. The Treasury used revenue overruns in excess of R100bn to fund the Covid-19 social relief of distress grant.
Mineral sales at current prices decreased 6.1% year on year, the first contraction since January. The biggest negative contributors were PGMs (-12.8 percentage points), gold (-7.9 percentage points) and iron (-3.4 percentage points). Coal was the biggest boost, adding 11 percentage points.
Strong commodity prices and global demand propped up sales over the past few months before the June decline, but commodity prices are now easing.
“Momentum in the mining sector is expected to deteriorate in the coming months on the back of intense domestic and global headwinds,” Nedbank said in a note.
According to FNB senior economist Thanda Sithole, moderating global growth in SA’s major trading partners “implies that the external trade environment is less favourable for commodity export volumes”.
The JPMorgan Global Manufacturing PMI was at a 22-month low in June, indicating the demand for metals remains at risk from the weakening global growth outlook.
Less activity and the loss of global growth momentum will weigh on demand, pushing commodity prices up and affect mining sales.
“However, on the upside, miners will continue to benefit from a weaker domestic currency amid the increasingly risk averse global environment and uncertainty ahead of the ANC’s elective conference in December,” Nedbank added.
President Cyril Ramaphosa is expected to seek re-election for a second term when the party meets for the conference in December.
Updated: August 11 2022
This article has been updated with additional information
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.