Mining production staged a surprise rebound in October, driven mainly by platinum group metals (PGMs), manganese ore and chromium ore.
Stats SA data released on Tuesday shows mining production expanded 3.9% from a year ago after a 1.9% drop in September, surpassing market forecasts of a 1.5% rise.
October marks the first upturn in industrial activity after three consecutive months of declines. The October outcome is also the strongest since November 2021, when output expanded by 6.5% year on year.
PGMs were the biggest contributor, with output increasing by 16.9% and contributing four percentage points to the headline number. Manganese production increased 8.9% and chromium ore 13.8%.
According to Minerals Council SA, mining’s contribution to GDP eased to 7.53% in 2022 from 7.56% in 2021 as full-year mining output last year declined 6.9% from 2021. Production in 2022 was 6.7% lower than pre-Covid levels.
The sector was also one of the main reasons for SA’s economy contracting 0.2% in the third quarter compared with the previous three-month period, suffering from tepid international demand, infrastructure bottlenecks and load-shedding.
On a month-on-month basis, a breakdown critical for the calculation of quarterly GDP growth, mining production expanded by 2.1%, rebounding from an upwardly revised 0.1% monthly contraction in September.
FNB senior economist Thanda Sithole said that while it is too early to draw conclusions about the sector’s likely contribution to fourth-quarter GDP, Tuesday’s outcome is encouraging.
“It aligns with our view that the mining sector’s gross value added likely rebounded in the fourth quarter after a 1.1% quarterly decline in the third quarter,” he said.
Globally, slowing demand — particularly from China — continues to weigh on the price of the minerals and commodities that SA exports. That is evident in mineral sales for October, which were 0.7% lower year on year.
Stats SA data shows that on a monthly basis mineral sales at current prices increased by 12.6% in October.
RMB analysts said that while China has stepped up stimulus measures to boost economic growth, they have yet to bear fruit. “Positively, coal prices appear to be bottoming out, which may provide support for mineral sales,” they said in a note.
Still, the investment bank warned that the outlook for SA’s mining sector remains challenging, given the persistent structural impediments.
“A new investment-friendly approach by the government is needed, one that updates the regulations and restrictions that have dramatically reduced the competitiveness of SA’s mining industry,” RMB said.
Senior economist at Oxford Economics Jee-A van der Linde is more positive. He said the upswing in mining output sets a favourable starting point for the final quarter of this year and lowers the odds of a recession in the fourth quarter.
“That said, with commodity price tailwinds fading, [the] high input costs and numerous supply-side issues erode mining companies’ profitability. There is risk for further layoffs within the mining sector over the coming quarters, after the industry shed 35,000 jobs in quarter three, with large mining companies having recently accelerated job cuts.”
He said while Oxford Economics expects the SA economy to avoid a recession in the fourth quarter, growth is expected to remain weak with the economy forecast to grow by a meagre 0.5% in 2023.
Stats SA also released manufacturing activity on Tuesday. Production rebounded in October, increasing by 2.1% year on year after September’s downwardly revised 4.1% fall. The outcome was above market estimates of a 1.8% increase.
The petroleum, chemical products, rubber and plastic products category added 1.5 percentage points to the headline outcome on the back of growth of 7.8% year on year, while the motor vehicles, parts and accessories and other transport equipment grouping contributed 0.6 of a percentage point.
On a month-on-month basis, manufacturing output shrank by 0.2% in October after shrinking by 0.8% in September.
“This marked a poor start to the fourth quarter but aligned with the [Absa] manufacturing purchasing managers’ index [PMI] business activity index, which fell to 40.3 points in October from 43.1 the month before,” Sithole said.
He added the index recovered to 46 points in November, signalling a likely rebound in monthly output.
RMB analysts said load-shedding remains a significant constraint, as do rising inefficiencies and delays at SA ports.
RMB said that while rand weakness has boosted the competitiveness of SA exports, domestic demand is still weak. “Unfortunately, global factors are not in SA’s favour. Global growth is slowing, weighing on the demand for SA exports,” RMB said.
Investec economist Lara Hodes said October’s result shows the sector remains lacklustre.
“The headline PMI moved further into contractionary territory, below 50 at the start of the fourth quarter. The unfavourable outcome was largely underpinned by a slump in the business activity index,” Hodes said.
She added the weak manufacturing activity reading most likely reflects continued strained demand conditions in SA.
Update: December 12 2023
This article has been updated throughout.
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