Nedbank: Mining production

12 Aug.

Nedbank Economic Commentary: Mining production – June 2011.

Mining production fell further in June.

• Activity in the mining sector slowed further in June, with total output down by 0,7% y-o-y after production expanded by a revised 10,7% y-o-y (previously 9,6%) in May. Total production was down by 1,4% m-o-m on a seasonally adjusted basis after plunging by 6,6% in May.
• Gold output declined by 5,7% y-o-y, while non-gold output was unchanged on a y-o-y basis in June. Output of platinum-group metals rose by 5,1% y-o-y, while coal production was down by 2,9% y-o-y.
• The outlook for the mining sector has continued to worsen. Global commodity prices are expected to come under pressure as global growth slows. The risk of a sharp correction remains, particularly if the EU debt crisis intensifies and/or the US economy dips into another recession.
• Although the rand has weakened by around 8% against the US dollar since the beginning of August it is still relatively strong and it is not likely to boost export competitiveness considerably. Logistical problems, particularly transport and energy capacity continue to hurt the sector, while recent labour unrest does not bode well for short-term prospects. Therefore, some moderation in mining output could be experienced during the second half of the year due to a high base established in 2010 and the loss in growth momentum internationally.
• These numbers, combined with soft manufacturing data, suggest that the production side of the economy is weakening. Against a backdrop of recent data suggesting that consumer demand remains moderate this supports the view that the Reserve Bank will be reluctant to hike interest rates unless there is evidence of second-round inflation. We therefore maintain our view that the first hike in interest rates will come only in early 2012.

Comment

Total mining production fell further in June, indicating that the sector has hit a soft patch following the recovery which began in mid-2010.

Key sectors continued to record weak activity, with gold output rising by only 0,5% m-o-m on a seasonally adjusted basis after falling by 3,7% in May, while non-gold output was down by 1,6% m-o-m after contracting by 6,9% in May. Production of platinum group metals fell by another 1% m-o-m following the 13% plunge in May, while diamond production fell by 19,8% during the month. Coal output increased by 0,4% m-o-m after dropping by 5,3% in May.

In the second quarter total mining production fell by 1,0% q-o-q on a seasonally adjusted basis after production declined by 0,8% in the first quarter. Non-gold output dropped by 1,0% q-o-q, while gold output was down by 1,3% q-o-q. …

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