Mining production shrank further in June even as industry ramped up operations
Production fell 30.2% in the second quarter of 2020 compared with the first — suggesting the sector will continue to drag on growth
Mining production declined in June, even as the mining industry ramped up to full capacity under alert level 3, according to Stats SA data released on Thursday.
The contraction suggests the sector will weigh on growth, said economists, while it is 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 a number of it power plants.
Mining production declined 28.2% year-on year in June, somewhat worse than the revised 27.6% contraction recorded in May, At the start of June, the state eased lockdown restrictions that allowed 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 declines, which have now run for four consecutive months, were platinum group metals, iron ore and coal, according to Stats SA.
The industry will continue to face headwinds particularly in attracting greenfield investments, FNB Economist Geoff Nölting said in a note.
This is due to a number of factors, including declining global competitiveness due to SA’s increasingly deeper ore reserves that are more expensive to extract. Electricity supply, regulatory uncertainty, and logistical bottle necks due to a lack of adequate railway networks and port infrastructure are 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 remains weak, some recovery seems under way given it has improved from the 51.2% decline 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.
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