SA mining production shrank more than the market expected in September, falling for an eighth consecutive month as a result of strikes in the sector and power cuts.
Stats SA said on Thursday that mining activity fell 4.5% year on year, after a drop of 6.4% the previous month and by more than market forecasts of a 4.05% contraction.
Data show output declined mostly for iron ore, which fell 23.1% compared with 15% in August, and gold. Mining production numbers provide an indication of the sector’s contribution to the quarter’s GDP outcome and some of the tax overrun from the sector have been used to finance demands from the fiscus.
SA’s mining industry faced a myriad of challenges in 2022. Illegal mining, closures of operations, as well as large-scale, unregulated mining of virgin deposits cost the country tens of billions of rand in export earnings and taxes.
The Minerals Council said criminal enterprises are not only attacking the mining industry but also target Transnet’s rail infrastructure and Eskom, effectively sabotaging the economy, resulting in losses of billions of rand to the fiscus.
The mining industry lost revenue of R35bn in 2021 because rail deliveries of minerals fell short of targeted tonnages, the Minerals Council said.
The Transnet strike, ageing infrastructure and bottlenecks at ports and the rail network, as well as higher production costs and the lingering effects of a three-month strike in the gold sector affected the sector.
The value of mining production reached more than R1-trillion for the first time in 2021, an increase of more than 30% on 2020, which was already 14% higher than 2019. The sector contributed R480.9bn to GDP in 2021.
It was also hindered by power outages. September had 25 days of power cuts and, according to Stats SA, the country’s electricity production and consumption numbers in that month show that generation contracted 8.2% year on year, while electricity distributed fell 7.5%. Eskom’s energy availability factor remains below 60%. The country has a 75% target.
FNB economists said the near-term outlook for the sector “appears dire”. Load-shedding and transportation disruptions from the labour strike at Transnet, though this has been resolved, bode ill for mining activity, the economists said.
The IMF has warned that several economies will slip into recession in 2023. A slowdown in global economic conditions will weigh on demand for commodities, pushing prices lower and ultimately affecting mining production and sales.
The numbers will crystallise third-quarter GDP numbers and require economists to update their GDP tracking estimates.
Nedbank economist Liandra da Silva said demand conditions will deteriorate given the expected slowdown in the global economy, particularly in advanced countries, some of which are key markets for SA.
“China, which faces recurring Covid-19 waves and consequent restrictions further exacerbates the weaker demand outlook,” Da Silva said. “The prices of most of SA’s key commodities have moderated over the course of the year, indicating that the country is benefiting less on the value front.”
Meanwhile, manufacturing production defied expectations, increasing for a third straight month in September. Stats SA reported on Thursday that industrial activity rose 2.9% year on year, well above market expectations of a 2.4% drop.
Nedbank economist Isaac Matshego said the recovery in manufacturing in the third quarter was encouraging and points to the sector making a positive contribution to aggregate GDP after the negative contribution in the second quarter.
“We expect the industry to show further improvement in the final quarter,” he said, but warned that momentum will be weaker due to the intense power outages and the effects of the Transnet labour strike in October.
Manufacturing contributes 14% to GDP.
Stats SA said the largest positive contributions came from the manufacture of motor vehicles, parts and accessories and other transport equipment, as well as the food and beverages category.
Update: November 11 2022
This story has been updated with additional information and comment from economists.
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