11 May 2017
Mining update: Increase in mining production rose in Q1.17 aided by the lift in commodity prices and a moderate strengthening in demand
Mining production rose 15.5% y/y in March following an increase of 4.1% y/y (revised from 4.6% y/y) in February.
On a quarterly basis, mining production rose by 3.5% seasonally adjusted in Q1.17, which compares to the contraction of 3.4% seasonally adjusted in Q4.16.
This quarterly improvement was chiefly underpinned by the growth in platinum group metals (PGMs) production, of 18.4% quarter on quarter seasonally adjusted (qqsa) in Q1.17. Based on its 21.82% weighing the PGMs mineral group made a contribution of 3.5% to the headline quarterly seasonally adjusted mining production outcome in Q1.17.
The other key contributor to the Q1.17 improvement was the iron ore mineral group that increased by 7.5% qqsa. With a weighting of 14.86% this growth rate translated to a positive contribution of 1.3%.
As the quarterly seasonally adjusted mining production measure is used to calculate the sector’s contribution to GDP, it suggests that its contribution to Q1.17 GDP was positive. We estimate the contribution at approximately 1.0%, which would counter some of the expected weakness in the manufacturing and retail sectors.
The lift in most commodity prices during Q4.16 and into 2017 likely lent some support to mining production (see figures 3 and 4).
In its recent Commodity Markets Outlook, the World Bank projected 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 extent of recovery in mining sector production this year from a 4.9% decline in 2016 will likely be tempered by persistent regulatory and policy uncertainty, as well as elevated operating costs. These considerations have contributed to the contraction in mining sector investment.