Lower mining production and a plunge in mineral sales in the first quarter of this year is dragging down South Africa’s gross domestic product (GDP) growth, and is reflecting reduced profitability in the sector despite a rally in the price of gold.
Data released by Statistics SA (Stats SA) yesterday showed mining production in South Africa declining by 1.7% on a quarter-on-quarter and year-on-year basis in the first quarter of 2024 compared with the fourth quarter of 2023, dragged down by platinum group metals (PGMs), coal and surprisingly gold, whose output volumes lowered by 2.9%.
The data by Stats SA showed South Africa’s seasonally adjusted mining production decreasing by 5% on a monthly basis in March compared with February.
On an annual basis, mining production plunged the most in 13 months, falling by 5.8% year on year in March, the highest contraction rate since February 2023 following 10.3% growth in February.
The largest negative contributors to this decline included a 9% slowdown in coal production, a 12.2% plunge in manganese output and a 6.8% fall in iron ore productivity.
Platinum group metals, hounded by lower prices, took a 3.6% dive in output against the backdrop of a projection by the World Platinum Investment Council that South Africa’s platinum supply to world markets will fall by 2% this year.
Investec economist Lara Hodes said South Africa’s mining sector continued to face a number of key challenges, with deterioration of the country’s water infrastructure and the poor state of the roads and railways continuing to impede optimal activity and export potential from crucial sectors such as mining.
“Policy uncertainty remains a key hindrance, weighing on the country’s competitive position and detracting much-needed foreign investment,” Hodes said.
FNB senior economist Thanda Sithole said the 1.7% overall decline in South Africa’s mining production after expanding by 2.4% in the previous quarter was confirmation that the country’s “mining sector’s gross value added (GVA) dragged GDP growth” for South Africa.
“This decline reflects reduced profitability attributed to lower commodity prices, logistics challenges and a global economic downturn,” Sithole said.
“Our cautiously optimistic view is grounded on expectations of a stable global growth environment and, notably, improvements in the domestic energy sector.”
Despite the decline in South Africa’s minerals output for the month of March, Sithole said the mining sector’s GVA was likely to recover this year after declining by 0.3% in 2023 and 7.1% year on year in 2022.
Providing impetus to this was a 7% increase year on year in output for diamonds, a 15.5% rise in nickel output as well as a 13.8% firming in chromium ore production.
Growing merger and acquisition activity in South Africa’s copper sector, output, which grew marginally by 1.3% in March after robust growth of 59.4% in February, was also set to provide some support.
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