SA mining output continues to decline

In March 2022, SA’s seasonally-adjusted mining production rose, increasing by 1.7% m/m, following a revised fall of -6% m/m in February. On a yearly basis, mining growth continued its substantial decline, falling by -9.3% y/y in March, well below February’s revised growth of -5.8% y/y. Importantly, on a quarterly basis, seasonally-adjusted mining production fell, decreasing by -1.5% q/q in the first quarter of the year, following a -3.6% q/q drop in the last quarter of 2021.

Despite the monthly increase, mining production remains subdued, remaining well below the level of production achieved prior to the Covid-19 outbreak. Mining production is 8.4% below the level of production that prevailed in January 2020, although this trend remains extremely volatile. This implies that, since the recovery in 2020, mining production has remained stagnant despite stronger commodity demand and favourable commodity prices for most of 2021 and recently.

Losses in mining production were relatively broad-based, with nine of the 12 mineral groups recording annual decreases in production while three recorded increases. Unfortunately, the drop in overall mining production continued to be driven by the more important mineral groups. Specifically, the largest negative contributors were gold (-25.6% y/y and contributing -3.7 percentage points); iron ore (-24.4% y/y and contributing -2.5 percentage points); and PGMs (-8.2% y/y and contributing -1.9 percentage points).

Despite a strong start to the year, gold production continued its fall in March. The decrease in March follows a fall of -9.3% y/y in February; an increase of +7.2% y/y in January; and a fall of -15.3% y/y in December. In addition, monthly gold production continued to decrease, although at a slower pace, falling by -2.3% m/m in March after production fell by -3.3% m/m in February. The gold industry continues to grapple with long-term issues like rising costs, continued policy uncertainty and uncertainty around electricity supply.

Despite the disappointing annual growth, on a monthly basis iron ore production rose for the first time since November 2021. In March, iron ore production rose by +8.4% m/m, however this was not enough to outweigh the -15.3% y/y fall in February; -4.6% m/m in January; and -2.6% m/m in December. The improvement in monthly production means that iron ore production is now 25.6% below the level of production that prevailed in January 2020. Iron ore production has lost a significant portion of the gains it made after the initial Covid-19 lockdown in early 2020.

Similarly, PGM production improved on a monthly basis, increasing by +6.1% m/m, following a -9.7% m/m fall in February. Despite the improvement in monthly production, PGM production is still 18.5% below the level of production that prevailed in January 2020.

Together these mineral groups account for over 50% of SA’s total mining production. Therefore, March’s data really underlines the fact that production of some of the country’s more important minerals remained extremely volatile, unpredictable, and generally weak, hurting overall production activity. While supportive commodity prices and positive trade conditions supported mining earnings in 2021 and at the start of 2022, this has not translated into a strong rebound in mining production activity.

Positively, diamond production continued its strong momentum in March, and was the biggest positive contributor to overall mining production. Diamond production increased by 44.3% y/y, the highest growth rate for the commodity since April 2021. It contributed 1.6 percentage points to overall mining production.

Ongoing structural domestic issues, including high input costs, policy uncertainty and the recurring rolling blackouts will continue to weigh on investments in the sector, impacting future production potential. So, despite supportive commodity prices, mining output is likely to continue to disappoint this year, unless there is some meaningful reform. Unfortunately, given the quarterly fall in mining production, gross value added in the mining sector is also likely to have decreased during the first quarter of 2022, which will be negative for overall GDP growth.