Decline in mining output could drag down GDP - analysts - Fin24

Cape Town – While the South African mining sector has reported strong growth on an annual basis, it has been losing momentum in recent months, according to analysts from finance research group NKC Economics.

In a report on the country's mining production figures for November 2017 as published by Statistics South Africa on Tuesday, NKC Economics noted that production had increased by 6.5% year-on-year.

This is up from the annual growth of 5.2% reported in October.

However, the research unit said production declines were recorded on a monthly basis, and for the three-month period leading up to November.

NKC believes the decline - coupled with lower mining production forecast for December - indicates that the mining sector could be a negative contributor to the country's fourth-quarter GDP growth rate.

“It is clear that the sector is losing momentum, which bodes ill for the Q4 GDP growth rate,” the report read.

According to Stats SA, seasonally adjusted mining production decreased by 0.7% in November 2017 compared with October 2017. In October production was up 2.7%, after a 6.8% fall reported in September.

Seasonally adjusted mining production decreased by 1.1% in the three months ended November 2017, compared with the previous three months. The largest negative contributors were diamonds, with a negative contribution of 1.1 percentage points, and gold (-1.0 of a percentage point).

SA missing out on mining boost

Despite the relative slowdown, the NKC said the "synchronised global economic recovery" remains supportive of the South African mining industry.

“Unfortunately, South Africa remains at risk of not getting the full benefit of global commodity demand as current uncertainties around the redrafted Mining Charter publication drag on and constrain much-needed investment in the mining sector,” the NKC warned.

Investec economist Kamilla Kaplan also attributed the performance of the sector to the improvement in international commodity prices. “Increased demand for commodities, and the consequent lift in prices, has in part been generated by the rebound in the global economy in 2017 from 2016 growth, which was the slowest since the 2008/09 global recession,” she said.

Kaplan noted that for the year to date, mining production increased by 4.2%, compared to the 4.1% decline reported for the same period in 2016. “The improved performance so far in 2017 is mainly attributable to higher contributions from iron ore, manganese ore, diamonds and other non-metallic minerals.”

Data from Stats SA also showed the main contributors to annual growth were platinum group metals, with production up 12.3%. This contributed 2.8 percentage points to overall growth. Iron ore was up 20.7%, contributing 2.5 percentage points to growth and coal was up 8.5%, contributing 2.1 percentage points to growth.

However, gold production declined by 8.3%, making a negative contribution to production of 1.3 percentage points.

* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER

Follow Fin24 on Twitter, Facebook, Google+ and Pinterest. 24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.