Nedbank: Mining production

13 Oct.

Nedbank Economic Commentary: Mining production.

Mining production rose in August but the overall trend remained weak.

• Mining production remained depressed in August, declining for the third consecutive month on a year-on-year basis, suggesting that the effects of labour strikes and softer global demand conditions persisted.
• Total production was down by 3,4% y-o-y after contracting by a revised 5,0% y-o-y (previously -5,1%) in July.
• On a seasonally adjusted basis mining output rose by 5,2% m-o-m, rebounding from a low base following three consecutive months of decline.
• Non-gold output fell by 1,1% y-o-y, while gold production plunged by 19,7% y-o-y.
• The mining sector still faces bleak short-term prospects. Global commodity prices have dropped further over the past month while the outlook for the global economy remains uncertain, which could drag prices down further.
• The rand remains relatively firm despite its recent bout of weakness and it is not likely to boost export competitiveness considerably, while logistical problems, particularly transport and energy capacity continue to hurt the sector.
• The mining production numbers confirm that the weakness in the production side of the economy recorded in the second quarter has spilled over into the third quarter; this despite yesterday’s strong manufacturing number, which is unlikely to be sustained in the coming months. Against this backdrop, domestic demand remains subdued, while inflationary pressures are rising. We therefore still believe that the Reserve Bank is likely to leave interest unchanged well into 2012. Chances of a cut would rise on increased weakness in both the global and domestic environments.

Comment

Mining production remained depressed in August, despite total output rising during the month, falling for the third consecutive month on a year-on-year basis, suggesting that the effects of labour strikes and softer global demand conditions persisted.

On a seasonally adjusted basis mining output rose by 5,2% m-o-m, as mines caught up on lost production following three consecutive months of decline, some of which were related to labour strikes.

Total production was down by 3,4% y-o-y after contracting by a revised 5,0% y-o-y (previously -5,1%) in July. Non-gold output fell by another 1,1% y-o-y following the 5,2% drop in the previous month. Production of platinum group metals fell by 3,9% y-o-y, while that of coal was down by 1,9% y-o-y. Diamond output plunged by 33,5% y-o-y. Gold production, which accounts for 17,2% of total mining production, plunged by 19,7% y-o-y in August. …

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