The mining sector plummeted in February to a three-year low, following continuous gold strikes, load-shedding and slow global growth.
Production has been hard hit in recent months by strikes at gold mines led by the Association of Mineworkers and Construction Union (Amcu), where about 15,000 workers affiliated to Amcu have been on strike for almost five months at the Driefontein, Kloof and Beatrix mines.
Slowing global growth, particularly in China, has softened demand for metals, too. Load-shedding has also threatened to further dent the sector.
“These factors present material headwinds for the remainder of the year,” FNB economist Jarred Sullivan said.
Mining production decreased three times more than expected — 7.5% year on year in February — after a 3.3% contraction in January, data from Statistics SA showed on Thursday.
This is the fourth consecutive contraction for the sector and the lowest level since March 2016. Economists polled by Bloomberg had expected a contraction of 2.5%.
Most sub-sectors reported lower production in February compared to a year earlier. The largest negative contributors were diamonds, down 48.3%; gold, down 20.6%; and iron ore, down 20.7%.
“With little prospect that the factors which are constraining the sector will alleviate meaningfully in the near term, the outlook for the mining sector in coming months remains dire,” NKC economist Elize Kruger said, warning that a double-digit quarterly decline seems certain for the sector, which could drag down overall growth in the first quarter of the year.
Compared to January, mining production decreased by 1.5% in February.
Stats SA reports that its mining production index, which was set to 100 points in 2015, was 81.0 in February, down from 84.7 in January 2019 and 87.6 in February 2018.
The total sales of SA’s mining industry in February came to R38.62bn, a fall from R41.65bn in January but an increase from R34.91bn in February 2018.
Stats SA shows coal is SA’s biggest revenue earner, with sales of R11.55bn in February followed by platinum group metals (PGMs) with total sales of R7.1bn, then iron ore at R5.3bn.
Meanwhile, manufacturing accelerated slightly in February but growth remains constrained by the re-emergence of load-shedding which has weighed on production volumes.
Manufacturing production grew by 0.6%, slightly above the Bloomberg consensus of 0.5%.
“The latest activity figures add to the evidence that growth in SA softened at the start of 2019. Conditions will probably pick up later in the year, but growth will remain tepid,” Capital Economics economist John Ashbourne said.