Mining output in South Africa is expected to remain subdued this year due to weak global demand, low commodity prices and domestic economic headwinds, in spite of ending 2023 on a positive note.
Statistics South Africa (StatsSA) yesterday said that mining production fell marginally by 0.4% in 2023, compared to a steep 7.2% plunge in 2022 and an increase of 12.7% in 2021, mainly due to a decline in diamonds.
Seasonally adjusted mining production increased by 2.5% in the fourth quarter of 2023 compared with a contraction of 0.9% during the third quarter, driven largely by platinum group metals (PGMs) and coal.
This suggests that the mining sector made a positive contribution to 2023’s fourth quarter gross domestic product (GDP) growth, meaning that the economy avoided a technical recession.
StatsSA’s principal survey statistician Juan-Pierre Terblanche said, “SA mining activity was down 0.4% in 2023 compared with 2022. The production of diamonds was the main drag on growth, declining sharply by 39%.”
“Gold was the biggest winner, expanding by 7.9% in 2023 compared with 2022.”
The mining sector has been facing a number of domestic challenges for a prolonged period of time now, such as inadequate electricity supply, collapsing rail network which is crucial for exports, as well as weak global demand, particularly due to China’s slow economic growth.
The industry has previously said that a stable, aligned and consistent regulatory environment with efficient administration was essential to attract and retain investments in exploration, mine development, and mining in South Africa.
FNB senior economist Thanda Sithole said mining output in 2023 had shown a significant improvement from the steep decline in 2022, driven by growth in coal, platinum group metals, and gold output.
However, Sithole said the domestic mining sector was still facing challenges due to subdued external demand, low commodity prices and domestic infrastructure constraints.
“While the intensity of load-shedding has decreased, ongoing weaknesses in port and rail infrastructure continue to pose challenges,” Sithole said.
“External demand dynamics will be crucial, and we maintain a cautious outlook amid escalated geopolitical tensions. Potential disruptions in shipping could further impact domestic exports of bulk commodities.”
The mining print for 2023 overall eclipsed the 0.6% increase in production experienced in December 2023 from a year ago, following an upwardly revised 6.9% rise in November, with platinum group metals and coal the main drivers of growth.
The December output was the third consecutive month of growth in industrial activity, albeit the weakest in the sequence, and missed the market forecasts of a 4.9% advance.
Platinum group metals grew by 9.4% and coal by 5.8% year-on-year in December, while chromium ore and nickel were also stronger.
However, gold production fell for the second month in a row, slumping by 3.4% in December, the largest drop since November 2022, following a downwardly revised 2.9% decrease in November.
The industry also produced less iron ore, manganese ore, gold, copper and diamonds in December. Iron ore recorded the largest decrease, declining by 18.0% year-on-year.
On a month-on-month basis, seasonally-adjusted mining production declined sharply by 4.2% in December, following an upwardly revised 2.7% increase in November.
Economist Lara Hodes said the subdued global environment continued to weigh on demand for a number of commodities, with manufacturing sector conditions being lacklustre.
Moreover, Hodes said domestic challenges continued to impede South Africa’s production and export potential.
“Specifically, while commodity price movements are largely influenced by dynamics in global markets, costs can be significantly reduced, and operational efficiencies improved by urgently resolving the electricity supply and logistics crises in the country,” Hodes said.
“Indeed, congestion at the ports has had a significant bearing on the sector.”
BUSINESS REPORT