Statistics South Africa (Stats SA) reports that mining production increased by 7% year-on-year in February, with the largest positive contributors being the coal sector, which contributed 13.7%, followed by platinum group metals (PGMs) with 8.7% and gold with 11.5%.
However, asset management company Investec noted in a statement on February 19 that the statistics did not yet reflect the impact of Covid-19-linked restrictions implemented in South Africa, as these were only enforced at the end of March.
However, global supply chain disruptions resulting from the global coronavirus outbreak and the consequent reduction in international trade likely weighed on February’s performance.
Financial services provider FNB economist Geoff Nölting noted that the increase could be ascribed to a combination of base effects, as well as favourable commodity prices incentivising miners to increase extraction in high-cost areas of their mines.
Stats SA also revealed that seasonally adjusted mining production decreased by 1% in February, compared with January. This followed month-on-month changes of 6.3% in January and -6.1% in December 2019.
Seasonally adjusted mining production decreased by 2.7% in the three months ended February, compared with the previous three months. The largest negative contributors were manganese ore, which resulted in a -30.9% impact and other non-metallic minerals, which inflicted a 12.2% rate of production drop.
Coal production dropped by 3.1%.
However, PGMs was a significant positive contributor, with production having increased by 10.9%.
Investec commented that domestic challenges served to exacerbate the international situation for mining companies as electricity supply disruptions during the month of February continued to weigh on production. “The mining sector, as a highly energy-intensive industry relies on consistent, affordable electricity supply to operate,” the firm notes in a statement.
Investec highlighted that gold, as a safe haven asset and store of value, was likely to continue benefiting from the global risk-off environment, amplified by the outbreak and spread of Covid-19.
In the short term, Nölting notes the expectation that mining production output will be hampered as a result of the lockdown. “This is because the majority of mining operations will only be permitted in batches, to scale up to full operation by Alert Level 3 according to the government’s risk-adjusted strategy report.”
In a post-Covid-19 environment, he also expects the overall mining sector to experience negative yearly growth for the remainder of the year.
However, Nölting notes there are certain silver linings as some commodities will likely benefit from higher prices; such as gold, the price of which tends to rally during times of economic uncertainty as investors flock to safe-haven assets. In addition, he says PGMs such as palladium and rhodium, owing to more stringent vehicle emissions standards particularly in Europe and China, will likely trend higher.
“We are also encouraged by the high-frequency data for certain industrial and base metals such as iron-ore, which has recently rallied amid higher steel production in China. In fact, production increased by 6% month-on-month to about 79-million tonnes in March as the Chinese labour force began returning to work after stringent Covid-19 lockdown measures,” Nölting concludes.
Meanwhile, in terms of mineral sales, Stats SA reported an 18% year-on-year increase in February. The largest positive contributors were PGMs, which grew in sales by 66.4%, followed by gold with an increase of 83.9% and iron-ore with an increase of 24.3%.
Seasonally adjusted mineral sales at current prices decreased by 10.4% in February compared with January. This followed month-on-month changes of 24.9% in January and -9.9% in December 2019.
In the three months ended February, the seasonally adjusted value of mineral sales at current prices was 5.1% higher compared with the previous three months.