JOHANNESBURG - ANALYSTS are wary the current operating environment and policy doubts could hamper the impressive revival of South Africa’s mining sector.
Mining, which is a key contributor to Africa’s most advanced economy, has accelerated to 5,2 percent year-on-year in October from a 0,3 percent decline in September.
Overall, South Africa’s Gross Domestic Product (GDP) grew by 2 percent in the third quarter of 2017.
The annual increase in mining was mainly driven by iron ore production, which increased by 17,9 percent and added 2,4 percentage points.
The biggest contributors to the annual increase were iron ore, coal, other non-metallic minerals and manganese ore.
This was partly counteracted by decreased in the production of gold, nickel, other metallic minerals, diamonds and building materials.
On a seasonally-adjusted basis, mining production was up by 3,4 percent month-on-month in October and 2,3 percent quarter-on-quarter for the three months to October.
Mineral sales were mainly driven by sales of manganese ore, iron ore, coal and chromium ore.
However, economists projected challenging prospects for the industry that contributed 8 percent to South Africa’s GDP last year.
“Mining figures are volatile,” Nedbank economist Busisiwe Radebe, said.
“Even though the October production number has increased significantly, the longer-term prospects for the industry remain less certain due to the difficult operating environment and policy uncertainty,” the economist added.
Fellow economist, Dennis Dykes, said mining production figures on their own have very little impact on the Reserve Bank’s monetary policy decisions.
“Even if they did, the future path of interest rates remains murky given the many political and policy uncertainties facing the economy,” Dykes said.
He said if the markets “welcome” new leader of the ruling African National Congress (ANC) “decisive and immediate action will be required to tackle corruption, restore fiscal sustainability, improve confidence and lift economic growth to avoid the dreaded universal junk status and its damaging impact on capital flows, asset prices, interest rates and the rand.”
Tensions have marred the run-up to the election of a new leader to succeed Jacob Zuma.
His deputy, Cyril Ramaphosa, and Nkosazana Dlamini-Zuma are frontrunners.
Zaakirah Ismail, Standard Bank Fixed Income Strategist, said commodity prices tend to track the global growth cycle, and fears are that key economies, such as China, would see commodities demand decline as growth prospects slow, thus dealing a blow to the local mining sector.
“This does not bode well for commodity exporters such as SA. Recently, the Bloomberg commodities index has declined to four-month lows, perhaps
indicating that fears are valid,” Ismail said.
She pointed out copper and iron ore had seen price declines recently.
Ismail nonetheless said there was also the proposed fiscal stimulus in the United States via increasing infrastructure spending to be tabled early next year.
“This type of policy would create demand for commodities, benefiting commodity exporters such as SA,” she said.
John Muscat, the Senior Industry Analyst at FNB South Africa, concurred, adding the global environment remains largely supportive of continued growth in the industry, despite a moderate softening of commodity prices.
“We expect positive full year output growth for the sector. The industry
could gather even further momentum should the impasse over the new mining charter be resolved,” Muscat said.
Meanwhile, in the short term, sentiment has improved in the diamond trade as expectations rose for the United States and Chinese holiday seasons.
Polished-diamond trading has been stable in November, with jewelers filling Christmas orders.
A good start to the holiday season, with strong showings in mobile sales over the just-ended Thanksgiving weekend and Cyber Monday encouraged
Martin Rapaport, global diamonds expert, said the industry was also benefiting from stronger generic marketing this year.
“Trading is expected to improve in the first quarter, when jewelers typically replenish stock after the holiday season,” he forecasted.
– CAJ News