Power cuts hit mining sector production

SA’s mining output contracted by a bigger-than-expected 5% year on year in February, yet another indication the country’s production sectors are reeling from ongoing power cuts.

Coal and diamonds were hit hardest, falling 12.6% and 45% respectively, Stats SA said on Thursday. However, iron ore output rose 30.6% compared with the same period a year ago.

On a monthly basis, mining production adjusted for seasonal factors fell 4.9% in February, after increasing 3.3% in January.

Mining output, as is the case with manufacturing, has been heavily affected by an unreliable energy supply.

Energy-intensive users such as miners have an arrangement with Eskom to reduce electricity usage by load curtailment. However, the mining industry has 9GW of renewable projects worth about R160bn due to come on stream over the next five to 10 years and will help to take pressure off Eskom’s grid.

The industry has also been grappling with rail capacity constraints to move commodities from mines to ports, where they are exported to countries as far afield as China and India. The miners heavily rely on Transnet’s rail network that has been hobbled by a shortage of locomotives and copper cable theft, among other challenges.

Mining’s contribution to GDP grew 4% to almost R494bn in 2022, according to the Minerals Council SA, keeping its percentage contribution to GDP at 7.53% versus 7.56% in 2021.

“This data, together with weaker electricity production and manufacturing output in February, corroborate our view that the economy experienced a mild technical recession,” said FNB economist Thanda Sithole.

The reading on the mining production figures followed the release of the equally disappointing manufacturing figures earlier in the week. Manufacturing output fell 5.2% year on year in February in its steepest decline in about a year and was worse than the market forecast.

On a month-on-month basis, seasonally adjusted manufacturing contracted 1.3% in February compared with January.

Both sets of data were against the backdrop of increased uncertainty about global growth to which SA was exposed as a relatively small and open economy. Global economic growth is now expected to come in at 2.8% in 2023, according to the IMF this week, compared with 3.4% in 2022. Growth in advanced economies such as the US is expected to slow to 1.7% from 2.7%.

But China, the world’s second-largest economy, is expected to rebound to 5% in 2023 off a very low base of 3% in 2022, when its economy was marred by lockdown restrictions.