14 Jul 2017

Mining update: Mining production continued to lift in May

Annabel Bishop

Chief Economic

Mining production increased by 3.6% y/y in May after rising 1.6% y/y in April.  

Mining update

On a three month rolling basis, mining production rose by 4.4% seasonally adjusted (qqsa). As this measure is used to calculate GDP, it suggests that mining could continue to make a positive contribution to GDP. In Q1.17, the mining sector made the largest positive contribution, of 0.9%, to GDP on growth of 12.8% quarter on quarter seasonally adjusted annualised (see figure 3).

The 4.4% qqsa increase was underpinned by growth of 10.9% qqsa and 5.3% qqsa in platinum group metals (PGMs) and iron ore production respectively. This growth translated to a combined positive contribution of 3.2% to headline mining production. Gold, copper and building materials production contracted yielding a combined negative contribution of 0.6%.

The iron ore mineral group comprises 14.9% of the mining production index. The rebound in iron production through H2.16 and into 2017 can likely be ascribed to iron ore prices sustaining levels well above the trough in Q4.15 (see figure 4). The support to prices has stemmed from China’s infrastructure and property construction spend, as well as lower iron ore supply growth.

The World Bank projects that industrial metals prices will rise by 16% in 2017 “on strong demand and tightening markets for most metals.” In contrast, precious metals prices are forecast to decline by 1% in 2017 “as benchmark interest rates rise and safe-haven buying ebbs.”

The overall lift in commodity prices in conjunction with increased global growth momentum (see figure 5) should continue to support mining production. In the year to date to May, mining production increased by 5.2% y/y compared to the decline of 4.9% y/y in 2016.

However, this improved backdrop, relative to early 2016, has not resulted in a material increase in mining sector investment in production capacity or employment. High operating costs as well as continued regulatory and policy uncertainty remain a constraint on the performance of the sector.

Mining update
Mining update
Mining update
Mining update