SA mining production recorded a surprise decline in January, the first since September last year and the steepest decline since July, according to data published by Stats SA on Thursday.
The agency said mining production fell 3.3% year on year in January compared with downwardly revised 0.2% increase in December and confounding market forecasts of a 0.2% rise.
On a monthly basis, output shrank by a seasonally adjusted 0.8% after a revised 4.6% slump in December.
The agency also released manufacturing production data for January, which shows output grew 2.6% year on year, adding to an upwardly revised 1.3% increase in the previous month and surpassing market forecasts of 0.7% growth.
That is the fourth consecutive month of increases in industrial activity and at a solid pace. On a monthly basis manufacturing output rebounded by a seasonally adjusted 0.8% after a revised 1.3% fall in December, beating market estimates of a 0.5% rise.
Senior economist at Oxford Economics Jee-A van der Linde said the uptick in manufacturing came despite a sharp drop in SA’s manufacturing PMI for January.
Still, Van der Linde said, the recovery in headline PMI to 51.7 points in February implied manufacturing activity might have expanded in that month even though Eskom escalated load-shedding to stage six.
“Manufacturing’s starting point for the year is slightly better than that of mining, but both are visibly weak,” he said.
Thursday’s industrial output data provides clues on the outlook for the overall economy in the first quarter after official data showed SA narrowly escaped recession in the fourth quarter, with a mere 0.1% quarter-on-quarter increase in real GDP.
For the year, the economy grew 0.6%, proving relatively resilient given severe power outages, logistical constraints and strong cyclical headwinds. The electricity-intensive mining and manufacturing sectors managed to eke out increases over the quarter in line with a 45% quarter-on-quarter reduction in load-shedding, adding value of 2.4% and 0.2% to output, respectively.
But overall, output performance in the mining and manufacturing sectors was volatile in 2023, likely reflecting the effects of infrastructure constraints, especially electricity supply shortages.
RMB analysts said the two sectors had been plagued by a long list of structural challenges, preventing investment and exploration, affecting production and threatening exports.
Slow growth
Van der Linde said overall, the latest numbers for 2024 “align with the trend of choppy economic data we have seen throughout 2023, indicative of a lateral moving economy”.
“Our base case remains for the SA economy to grow by 0.7% in 2024 as undue supply-side issues continue to undermine growth for most of the year,” he said. “We believe that the current state of affairs is expected to persist, in varying degrees, over the near term.”
Stats SA data shows the largest negative contributors to mining were manganese ore and diamonds.
Iron ore was a positive contributor, increasing 9.8% and contributing 1.3 percentage points to the headline number.
In manufacturing, the largest positive contributions were made by petroleum, chemical products, rubber and plastic products, which increased by 13.6% and contributed 2.9 percentage points to the headline number.
Nedbank economist Crystal Huntley said the operating environment was expected to remain broadly unfavourable for producers, undermining output, driving up production costs and eroding profits. Furthermore, the global business cycle would be challenging, she said.
Huntley added that while worldwide demand and international commodity prices were forecast to remain lacklustre in the first half, they were expected to gradually pick up as global disinflation intensified. “That would create space for central banks to start easing monetary policies, thereby lifting global confidence and demand towards year end,” she said.
Update: March 14, 2024
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