Picture: 123RF/TIMES 1111
Picture: 123RF/TIMES 1111

Annual mining output declined in May, though not at the record-breaking pace reported in the previous month, as SA moved into lockdown level 4 and more operations returned to production.

Though mining production is expected to improve in the coming months as lockdown regulations continue to ease, the outlook for the industry is challenging, say economists, as it faces weaker demand and renewed bouts of load-shedding, among other issues.

Mining production fell 29.8% year on year in May, Stats SA data revealed on Tuesday. This was lower than April’s fall, which was worse than previously reported at a revised -50.3%, and the worst on record since the agency began the series in 1980s.

On a month-on-month, seasonally adjusted basis, mining production rose 44% in May from the previous month’s decline of a revised 36.8%

Restrictions on mining production eased somewhat under level 4, with opencast mining operations permitted to scale up to full employment, while other mining operations were permitted to start up in batches and move towards 50% employment.

Certain operations, such as collieries that supply Eskom, were deemed an essential service and permitted to operate fully under level 5.

FNB Wealth and Investment economist Geoff Nölting said that June mining production will improve relative to the previous two months, as most mining activity is permitted to scale up towards operating at full capacity under level 3 lockdown regulations.

“However, miners will still have to contend with several headwinds, including containing potential Covid-19 outbreaks, lower capacity utilisation rates, load-shedding, as well as weak external demand from many of our trading partners,” he said in a note.

May’s outcome was better than some economists expected, with a Bloomberg survey of six economists expecting annual production to fall 32.5%. The declines in production were broad-based with all mineral groups reporting a fall.

The largest contributors to the annual change, however, were iron ore, which fell 66.3%; platinum group metals, which declined 27.3%; and manganese, which fell 45.4%, according to Stats SA.

“While the mining production figures are still weak, the slight improvement is welcome as it signals that local production is starting to recover post the hard lockdown,” Nedbank economists Nicky Weimar and Busisiwe Radebe said.

“The speed of any recovery, however, will depend on how quickly the country moves through the various stages of lockdown towards some semblance of normal operations.” 

Mining production will nevertheless likely “end 2020 lower, hurt by much weaker global demand and commodity prices”, they said.

Update: July 14 2020
This story has been updated to include comment from FNB and Nedbank economists.

donnellyl@businesslive.co.za

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