Nedbank: Mining production

11 Nov.

Mining production activity remained weak in September.

• Mining production activity remained weak in September, with total output contracting by 5,4% y-o-y from a revised 4,2% decline (previously down by 3,4%) in August. On a seasonally adjusted basis output fell by 2,4% m-o-m.
• Gold output fell by 9,0% y-o-y, while non-gold output was down by 5,1%.
• For the third quarter, total mining production contracted by 5,0% q-o-q after contracting by 1,1% in the first quarter.
• The mining sector still faces bleak short-term prospects. Global commodity prices remained depressed 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.
• These numbers underline the tentative nature of the local and global recoveries. We therefore still expect that the Reserve Bank will continue with its wait-and-see approach and leave interest rates flat well into 2012. However, the downside risks to this outlook have increased. If the crisis in the Eurozone tips the region into recession and South Africa’s growth slows significantly in the early part of next year, the Bank may well be tempted to cut interest rates.

Comment

The weakness in mining production persisted during September, with total output contracting for the third successive month on a year-on-year basis, with August’s output number revised to -4,2% from -3,4%. These numbers partly reflected the high base established in the second half of 2010, when the mining sector was recovering from the effects of the sharp output decline during the recession.

Non-gold output contracted by 5,1% y-o-y as key industries recorded another month of contraction. Platinum group metals (-11,7%), coal (-2,4%), copper (-26,5%) and diamonds (-24,2%) all declined during the month, while gold production plunged by 9,0% y-o-y in September – its fifth consecutive month of decline.

On a seasonally adjusted basis output fell by 2,4% m-o-m following the 4,1% (revised from 5,2%) rebound in August.

Total production fell by 5,1% q-o-q the third quarter, marking the third consecutive quarterly decline after output contracted by 1,1% in each of the previous two quarters. Non-gold output fell by 4,8% q-o-q, while gold production fell by 8,0% q-o-q. Platinum group metals (-6,3%), coal (-3,7%), diamonds (-2,8%) and copper (-12,9%) dragged quarterly production lower. …

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