Nedbank: Mining production

08 Dec.

Nedbank Economic Commentary: Mining production.

Mining production activity remained weak in October.

• Mining production fell sharply in October, with total output contracting by 12,7% y-o-y, after declining by 5,4% y-o-y in September. On a seasonally adjusted basis output fell by 8,1% m-o-m.
• Platinum group metals (PGM’s) fell by 27,3% y-o-y, and fell by 18,9% over the month. PGM’s make up 27% of total mining output – the largest category.
• The outlook for the mining sector remains weak, constrained by poor global growth prospects as well as domestic constraints. 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 with transport and energy capacity continue to hurt the sector.
• The sharp drop in mining production in October comes on top of a decline in September and suggests that the impact of weaker global growth may be filtering through to the domestic economy. The weakness on the production side of the economy is currently being counterbalanced by elevated inflation thereby complicating monetary policy. It seems likely that the Reserve Bank will keep interest rates unchanged unless evidence of secondround inflationary pressures emerges. For the moment, the Bank will continue to focus on the threat posed by the ongoing European debt crisis and the adverse effects on domestic growth, particularly if the recession in Europe turns out to be more severe than many anticipate.

Comment

Mining production slumped in October, falling by 12,7% y-o-y, following a decline of 3,9% in September. Output in the sector has declined on an annual basis for four consecutive months. The weakness was concentrated in industrial commodities as well as platinum, which is used in catalytic converters, suggesting the slowdown in global growth may be filtering through to the domestic economy.

Non-gold output contracted by 14% y-o-y as key industries recorded another month of contraction. Platinum group metals (-27,3%), coal (-9%), copper (-36,8%) and nickel (- 35%) all declined during the month, while gold production fell by 3,3% y-o-y in October – its sixth consecutive month of decline.

On a seasonally adjusted basis output fell by 8,1% m-o-m following a decline of 1,3% m-om in the previous month, with output declining across the board, particularly platinum (- 18,9% m-o-m) and nickel (-39,5% m-o-m). …

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