Mining production continues to slow

Mining production has again contracted, falling 2.5 percent year-on-year according to Statistics SA’s latest figures.=

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Johannesburg - Mining production has again contracted, falling 2.5 percent year-on-year according to Statistics SA’s latest figures.

This, Investec says, marks the third consecutive month of deceleration in the rate of decline. In May, production dropped 3.9 percent.

On a quarterly basis, mining production rose by 4.2 percent seasonally adjusted in the second quarter, which compares to the contraction of 4.9 percent seasonally adjusted in the first quarter, the bank says.

As the quarterly seasonally adjusted mining production measure is used to calculate the sector’s contribution to gross domestic product, it suggests that its contribution to the second quarter’s GDP figure was positive, says Investec. In the first quarter, the decline in mining production was a significant contributor to the contraction in GDP, it adds.

“ The lift in most commodity prices from January lows was sustained throughout the second quarter of 2016, which may have lent some support to mining production. However, over the medium term the domestic mining sector is likely to continue contending with a broadly low commodity price environment.”

Investec points out that the World Bank recently projected that industrial metals prices will decline by an average of 11 percent in 2016 on “slowing demand in emerging economies, and increases in new production capacity”.

It adds, there is, however, scope for precious metals prices to rise further in 2016 on “stronger investment demand”, as advanced economy central banks are expected to keep monetary policy loose for longer.

For the mining sector, the effects of commodity price considerations are compounded by domestic challenges relating to binding electricity infrastructure constraints, increased operating costs and to some extent perceived policy uncertainty, says Investec.

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