Mining update: Higher commodity prices continue to support the recovery in mining production

15 Jan 2018

Annabel Bishop

Chief Economist

Figure 1: Contributions to year to date mining production growth
  • Mining production growth lifted to 6.5% y/y in November from 5.2% y/y in October.
  • The largest positive contributions, of a combined 7.4%, to the headline outcome stemmed from the platinum group metals (PGMs), iron ore and coal mineral groups, on growth of 12.3% y/y, 20.7% y/y and 8.5% y/y respectively.
  • In November, the largest contraction of 8.3% y/y occurred in gold production which detracted 1.3% from the headline outcome.
  • In the year to date, mining production increased by 4.2% y/y compared to a decline of 4.1% y/y in the same period of 2016. The improved performance so far in 2017 is mainly attributable to higher contributions from iron ore, manganese ore, diamonds and other non-metallic minerals (see figure 1).
  • The performance of the mining sector in 2017 will have been influenced by the lift in international commodity prices. Increased demand for commodities, and the consequent lift in prices, has in part been generated by the rebound in the global economy in 2017 from 2016 growth, which was the slowest since the 2008/09 global recession.
  • The near term prospects for the global economy are encouraging with growth momentum expected to be maintained. In its January 2018 Global Economic Prospects, the World Bank forecast growth of 3.1% y/y in 2018 versus estimated growth of 3.0% y/y in 2017.
  • Based on World Bank commodity price indices, base metals and iron ore prices rose in excess of 20% y/y in 2017, after falling by 7.2% y/y and increasing by just 4.6% respectively in 2016 (see figure 3). In contrast, precious metals prices underperformed, with gold prices rising just 0.7% y/y in 2017 whilst platinum and silver prices fell by 3.9% y/y and 0.5% y/y respectively (see figure 4).
  • The World Bank projects a further rise in base metals prices on low stocks for some metals, “and China’s efforts to reduce surplus production capacity and limit industrial pollution”.
  • In terms of precious metals, the World Bank forecasts modest declines in gold and silver prices as “U.S. interest rate hikes materialize” and investment demand for these commodities declines. However, platinum prices are seen rising 4% in 2018 on “increasing catalyst demand and tightening mine supply.”
  • Overall, the strengthening in global economic activity, in conjunction with the lift in most commodity prices, has translated into a marked improvement in SA’s international trade position as the value and volume of SA’s commodity exports have increased. SA’s trade balance has recorded a surplus in each month from February 2017 to November 2017 as export growth has consistently outpaced import growth (see figure 5).
Figure 2: Mining production volumes
Figure 3: Metal and mineral prices
Figure 4: Precious metal prices
Figure 5: Trade balance and rolling average