How SA's mining sector is taking a beating from trade war
The mining sector took another beating at the start of the third quarter after slumping the most in three months, crippled by the evolving trade war between the US and China.
While the sector contributed positively to GDP in the second quarter, mining production fell 5.2% in July, the lowest level in three months. Gold, iron ore, coal and platinum group metals reported lower production volumes in July.
The trade war between the US and China, a major importer of commodities, has dented production in the sector.
A falling platinum price due to reduced demand for diesel vehicles and a volatile rand have added to pressure.
The US threat to up tariffs for Chinese imports could dent global growth, said FNB senior economic analyst Jason Muscat.
US President Donald Trump’s administration has invited Chinese officials for renewed trade talks, as the country prepares to escalate the trade war with tariffs on $200bn in Chinese goods.
Globally, commodity prices have been hard hit — as indicated by The Economist base metals index, which is down 16% since January — exacerbated by geopolitical tension.
Policy uncertainty has continued to linger around the Mining Charter. The various iterations of the charter have been hotly contested.
However, mineral resources minister Gwede Mantashe has said that the charter, about which public consultations are being held, will be finalised by the end of November.
These factors will continue to cloud investor confidence, impeding much-needed investment into the sector, Investec economist Lara Hodes said.
In fact, waning business confidence levels this week and data last week that showed SA is in a recession for the first time since the global financial crisis have been attributed to the persistent policy uncertainty.
The mining figures also indicate that growth did not pick up as expected in the second half of the year, despite positive data in the retail and manufacturing sectors this week.
"The shock decline in July’s mining production data is a stark reminder that although the mining sector moved out of a recession in the second quarter, it is by no means out of the woods yet," NKC economist Elize Kruger said.
SA is estimated to have the world’s fifth-largest mining sector in terms of its contribution to economic growth, contributing 8% in 2017.
However, the sector has taken strain from persistent uncertainty, which has adversely affected production.
"Should the trade war play out in a meaningful way, SA could be hit hard via lower Chinese demand and lower commodity prices," said Kruger.
The sector is expected to remain strained in the third quarter, Muscat warned.
About 9-million people have lost their income or source of support over the past 15 years, as a direct or indirect result of the contraction in the industry, Webber Wentzel estimates. As miners announce more job cuts, this figure is expected to grow greatly.
With Karl Gernetzky