Mining may help SA out of recession

The mining sector may help steer SA out of recession, following positive growth in the sector in the second quarter, but the industry remains under increasing pressure. Mining production increased 3.6% year on year in May after rising 1.6% in April.

The mining sector may help steer SA out of recession, following possible positive growth in the sector in the second quarter, but the industry remains under increasing pressure.

Mining production increased 3.6% year on year in May after rising 1.6% in April, surprising many economists.

Old Mutual Investment Group economic strategist Rian le Roux said on Wednesday at a media briefing in Sandton that he expected a stronger second quarter based on the economic data released so far in 2017 with a forecast of 2.5%.

SA entered a recession after the first-quarter GDP results indicated that the economy had contracted for two consecutive quarters. The only two sectors to show growth in the first quarter were agriculture and mining. While the sector is seeing growth, it faces headwinds from policy uncertainty.

Investec economist Kamilla Kaplan said that the lift in commodity prices in conjunction with increased global growth momentum should continue to support mining production.

But she said operating costs as well as continued regulatory and policy uncertainty remained a constraint to the performance of the sector. Despite a lift in commodity prices and higher global growth, there has not been a material increase in mining sector investment in production capacity or employment, she said.

BNP Paribas economist Jeff Schultz said policy uncertainty “continues to damage sentiment in the sector and is unlikely to spell good news for investment, activity and employment in mining for at least the remainder of the year”.

But Chamber of Mines economist Henk Langenhoven said the stronger numbers were just a base effect and that “things look grim for the sector”.

“A year ago, we were in the doldrums, but if you look from January to now, you get a different picture altogether.

“Commodity prices are softening, the exchange rate is a little volatile and costs are rising quite substantially. The combination of those factors is hitting us.”

Input costs for mining increased 12% in 2016 from the year before.

“Profits are coming down and the expectations are not good for the next couple of months or quarters.”

Mining should manage to grow by 1% in the second quarter and help keep GDP positive, Langenhoven said.