- Mining production contracted in March 2018, falling by 8.4% y/y, after increasing by 2.0% y/y (revised downwards from 3.1% y/y in February, see figure 2). This was well below consensus expectations of -3.8% y/y.
- The March data concludes the sector’s production releases for Q1.18 and therefore provides guidance as to the sector’s contribution to the quarterly GDP figure. The relevant gauge in this regard is the quarter on quarter seasonally adjusted annualised (qqsaa) measure.
- On a qqsaa basis, mining production fell by 9.7% in Q1.18, indicating that the mining sector detracted significantly from the Q1.18 GDP outcome.
- While ten of the twelve mineral groups contracted over the period, the -8.4 y/y deterioration was chiefly underpinned by a decline in gold production, of -18.0% y/y in March. Based on its 15.49% weighting, gold therefore detracted 2.5% from the headline mining production outcome (see figure 1).
- The other key contributors to the decline were the PGMs, the iron ore mineral group and diamonds, which reduced the headline outcome by 1.5%, 1.2% and 1.2% respectively.
- Notwithstanding the drop in production, which was exacerbated by high base effects, 2018’s robust global growth and strong commodity prices, should lend support to the mining sector.
- This was reiterated by the World Bank’s latest Commodity Markets Outlook report where “ (c)ommodity prices strengthened in the first quarter of 2018”, with broad-based price escalations, aided by “(b)oth demand and supply factors”. A 4.0% q/q lift in the World Bank’s precious metal index in Q1.18 occurred with “(m)etals prices > expected to increase 9 percent in 2018”.
- President Cyril Ramaphosa advised in a recent statement that “(t)he mining charter will be finalised very soon and we have set a deadline”. This should remove some of the regulatory uncertainty that has plagued the industry and impeded much needed investment into the sector.
