Mining output growth leaves analysts cold
GROWTH in annual mining production in South Africa accelerated in September while all industrial metals advanced on the London Metal Exchange after Donald Trump’s win on Wednesday.
In his victory speech, Trump promised spending on roads, bridges, schools and hospitals, boosting copper prices to 16-month highs and lending support to commodity producers.
He signalled spending of more than $500 billion (R7 trillion) to rebuild US infrastructure.
Separately, South Africa’s manufacturing output was flat in September from a year ago, contrasting strong second-quarter economic growth and increasing the risk of a credit rating downgrade.
Data from Statistics SA showed yesterday that output increased by 3.4 percent year on year in September from an upwardly revised 0.1 percent in August.
But analysts said this was not sustainable as commodity prices struggled to recover.
On a seasonally-adjusted basis, growth in mining production increased by 0.9 percent month on month in September and was up 1.5 percent in the third quarter.
The biggest drivers in the annual increase were iron ore, platinum group metals and coal. These were partly countered by decreases in the production of gold, chromium ore, manganese ore, nickel and other non-metallic minerals.
Nedbank said average mining production had declined by 5.7 percent over the first nine months, reflecting subdued conditions.
It said the outlook for the sector remained poor on the back of low commodity prices, weak global and local demand, domestic infrastructure constraints, and an uncertain policy environment – all factors that could limit production in the short to medium term.
Trump’s promise to revive the US infrastructure means commodities that are used to build everything from airports to bridges will benefit under his presidency, according to Goldman Sachs.
Spending by the Republican would support construction activity, analysts – including Damien Courvalin and Jeffrey Currie, said in a report on Wednesday.
“The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the US. Without specific details, it is hard to quantify the impact on commodity demand. However, such policies would support steel, iron ore, zinc, nickel, diesel and cement.”
Prices of raw materials and shares of the companies producing them recovered after being whipsawed as investors wrestled with the implications of Trump’s win.
Manufacturing output was flat year on year in September, after expanding by 2.2 percent in August, Statistics SA said. Economists had forecast a 0.1 percent year-on-year increase in manufacturing volumes.
On a month on month basis, factory production was up 1.5 percent but edged down 1.3 percent in the three months to September compared with the previous three months.
Capital Economics Africa economist John Ashbourne said in a note that retail figures due next week would give a better idea of how the economy was performing but “the available survey data suggest that consumer spending probably remained weak”.