Mine production shrinks in June
Mining production fell in June, even though the mining industry ramped up to full capacity under lockdown level 3, according to Stats SA data released on Thursday. The contraction suggests the sector will weigh on growth, said economists, while it was likely to continue to face challenges in its recovery, not least from the lack of reliable electricity supply.
Mining production fell in June, even though the mining industry ramped up to full capacity under lockdown level 3, according to Stats SA data released on Thursday.
The contraction suggests the sector will weigh on growth, said economists, while it was likely to continue to face challenges in its recovery, not least from the lack of reliable electricity supply.
On Thursday, power utility Eskom announced renewed bouts of load-shedding after increased breakdowns at some of its power plants.
Mining production dropped 28.2% year-on year in June, somewhat worse than the revised 27.6% contraction recorded in May,
At the beginning of June, the government eased its Covid-19 lockdown restrictions, which enabled the industry, including deep-level mines, to open up full production.
After a sharp recovery in May on a month-on-month, seasonally adjusted basis, production fell 1.4% in June.
Meanwhile production fell 30.2% in the second quarter of 2020 compared with the first quarter of 2020, suggesting the sector will continue to be a drag on growth.
During the first quarter of 2020 — before the pandemic set in — mining was the biggest drag on GDP growth, in an economy already in recession, according to Stats SA data. The largest contributors to the annual production reductions, which have now run for four successive months, were platinum group metals, iron ore and coal, according to Stats SA.
The industry would continue to face headwinds particularly in attracting greenfields investments, FNB Economist Geoff Nölting said in a note.
This was due to factors including falling global competitiveness due to SA’s increasingly deeper ore reserves that are more expensive to extract.
Electricity supply, regulatory uncertainty and logistical bottlenecks due to lack of adequate railway networks and port infrastructure were also likely to weigh on the industry.
“These factors increase the risk premium for investors on the back of a highly uncertain operating environment,” said Nölting
Though mining production remained weak, some recovery seemed to be under way, given that it had improved from the 51.2% fall year on year in May, said Nedbank economists Nicky Weimar and Busisiwe Radebe. The speed of any further recovery will depend on how quickly the country moves through the various stages of lockdown and “towards some semblance of normal operations.
“Either way, mining production will probably end 2020 lower, hurt by much weaker global demand and commodity prices,” they said.