Flash Note August mining

Mining output grew by only 2.0% y/y in August

Total mining output (not seasonally adjusted) grew by 2.0% y/y in August, reflecting a moderation from the upwardly revised growth of 12.3% y/y (previously 10.3% y/y) in July. Total non-gold output declined by 0.1% y/y after posting growth of 12.1% y/y in July. The out-turn for total mining output growth was below the Bloomberg consensus prediction of 6.5% y/y. Mining production reflected a contraction of 1.1% y/y and 2.6% y/y compared to August 2019 and August 2018 respectively.

Disappointingly, seasonally adjusted mining output, which aligns with the official quarterly real GDP growth calculation, declined by 2.4% m/m following downwardly revised growth of 3.2% m/m (previously 4.1% m/m) in July. Despite this contraction, the higher output level in July still implies that the mining sector likely contributed positively to 3Q21 real GDP growth.

Outlook

Year-to-date (January to August) mining output posted growth of 16.9% compared to the corresponding period last year, and 1.0% compared to the same time in 2019. At around R574 billion YTD, the value of mining exports is 70% higher than the corresponding period in 2020. This corroborates our view that the mining sector should support the modest cyclical GDP growth rebound this year. Despite the recent relapse in some commodity prices, mainly platinum group metals (PGM), the sector has benefited from a global rebound and elevated prices.

We maintain our view that electricity-related disruptions, along with elevated input costs, could limit the extent to which mining volumes benefit from the global growth rebound. Inefficiencies at the ports are also not encouraging for general export volumes of mining, manufacturing and agriculture. Medium- to long-term growth in the mining sector will depend on exploration expenditure and the country’s ability to create a conducive environment to attract new fixed investments.

Subsectors’ performance in August 2021

Among the larger mining subdivisions, the year-on-year growth in total mining production was driven by:

• gold production, which grew by 17.0% y/y in August compared to 13.5% y/y in July and contributed 2.0ppt to total mining production growth

• iron ore production, which grew by 22.9% y/y, following growth of 43.4% y/y in July, and contributed 1.9ppt; and
• platinum group metals, which grew by 4.4% y/y in August after 10.3% y/y in July and added 1.0ppt.

Negatively, among the larger subdivisions, coal production (25% of total mining) declined by 8.5% y/y after declining by 2.8% y/y in July and shaved off 2.2ppt from total mining production growth.