Johannesburg - The annual rate of decline in mining production deepened to 8.7 percent in February from a fall of 5.5 percent the previous month, bringing the possibility of a recession closer.
Credit: INDEPENDENT MEDIA
Miners dig for gold at Sibanye Gold's Ya Rona shaft. Low external demand has forced producers to cut production. File picture: Itumeleng EnglishThis was the largest decline since December 2012 when mining production fell to 9.2 percent. The market expectation was 5.6 percent.
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Azar Jammine, the chief economist at Econometrix, said this was disappointing as the market had expected a bigger improvement following a very sharp decline in January. “It makes one think we might have a recession, particularly because mining production has been weak for a few months.“
While mining contributes only about 6 percent of the country’s gross domestic product, it generates almost 60 percent of exports.
Statistics SA said yesterday that on a seasonally adjusted basis, mining production increased by 1.3 percent month on month in February, but fell by 2.2 percent quarter on quarter for the three months to February.
Mamokgethi Molopyane, a mining analyst at Creative Voodoo Consulting, said: “I would have expected bigger mineral exports, following the fall of the rand… The downward trend is bound to continue because mines will be retrenching.“
The contraction was led by decreases in the production of iron ore, platinum group metals (PGMs) and manganese ore, which together made a negative contribution of 10.4 percent to the headline outcome.
However, this was counteracted by increases in the gold production, which was up 11.1 percent year on year, chlorium ore and diamonds.
Nedbank said economic conditions remained very weak and this year’s outlook for the mining sector fared poorly.
It said output growth was expected to be contained by poor global conditions, especially in China, which is the biggest export market for the local mining industry, as well as lower commodity prices.
“Local factors, such as weak demand, infrastructure constraints… and possible labour instability as wage negotiations are due in mid-2016 will also hurt mining output.“
PwC said in its seventh edition of SA Mine of 2015 that the financial year was affected by significant commodity price decreases and cost pressures, leaving the mining industry struggling for survival. “Platinum has not experienced real prices as low as those experienced in 2015 in 10 years, and it is not certain if or when prices will start to recover.”
It said the continued devaluation of the rand against the dollar continued to shield companies, although not enough to fully compensate for the declining commodity prices. PwC said PGMs grew off a low base due to the prolonged workers’ strike in 2014.
However, Hanns Spangenberg, an analyst at NKC African Economics, said while gold production continued to benefit from the real exchange rate, strike-related base effects in the the PGMs sector had finally run their course.
“Normally, we would expect to see more mineral producers take advantage of a weakened domestic currency, but low-trending external demand for most of the mineral commodities have forced major producers to cut back on production.”
BUSINESS REPORT