Dineo Matomela

Local mining production remained about 10 percent below the pre-recessionary peak and continued to underscore the largely uneven nature of the recovery, raising expectations of an interest rate hike this year, Jeffrey Schultz, a macroeconomist with Barclays Bank, said yesterday.

Mining output data from Statistics SA last week showed a healthy increase in mining production volumes of 9.6 percent year on year in May, with a seasonally adjusted quarter-on-quarter rise of 0.4 percent for the three months to May.

However, mining production dropped 5.9 percent on a seasonally adjusted month-on-month basis in May.

It was driven by falls in platinum group metals and coal production, which declined by 9.9 percent and 6.3 percent, respectively.

Gold output fell 5.8 percent year on year in May, while non-gold output was up by 12 percent.

“Mining production has been relatively positive, and strong global prices should keep the sector well supported,” Shultz said.

The gold price soared from $1 487 (R10 167) at the start of the month to $1 599 at the second fix yesterday, as a result of the deepening debt crisis in the euro zone, and the price of platinum has touched $1 782.

The value of mineral sales rose 16 percent year on year in April, Stats SA data showed.

Paul Stewart, a gold researcher at Plexus Asset Management, said that the mining production numbers on closer inspection detailed the falling level of gold, platinum and diamond production, while iron ore and manganese production were both up sharply.

Stewart agreed with Schultz that mining production was still well below the levels seen in the first quarter of 2007, prior to the global economic meltdown.

“Both of these numbers suggest that South African economic growth will not again move beyond the 4 percent plus annualised gross domestic product level for a while,” he said.

The threat of strikes, with unions having declared disputes with some mining houses, will lead to increased uncertainty in the mining sector.

Stewart said: “The recent strikes in various sectors, some of which remain unresolved, will not do much to ease the concern foreigners have about the labour market in general. All this should be seen against the backdrop of a deteriorating global economic environment.”

Chris Thompson, a mining analyst at UK-based Hayward Securities, said South Africa was the largest contributor to the mined supply of platinum and any disruption in supply would have global supply and price ramifications.

“On the demand side – platinum demand for autocatalyst manufacture is driven mainly from demand requirements out of Europe – so a weak European economic outlook will have a negative effect on platinum fundamentals. Also, China is a growing source of demand for the metal for diesel engines.”

He said Chinese commercial vehicle sales were down about 12 percent on a year-on-year basis and were expected to remain weak during 2011. This comes after two years of strong growth.