The ongoing energy crisis in South Africa could cost the country billions of rand in lost tax revenue from the currently lucrative mining industry as production slows in spite of elevated commodity prices.
This comes as the mining industry is battling delays in exporting commodities due to logistical challenges following a force majeure by Transnet due to legal proceedings and vandalism on its railway lines.
Data from Statistics South Africa (Stats SA) yesterday showed that mining production in the country fell more than expected in April, mainly due to the ongoing power crisis.
Stats SA said mining production slumped by a hefty 14.9 percent year-on-year in April following a downwardly revised 7.5 percent fall in March.
This mining output was worse than market forecasts of a 5 percent decline, and marked the third consecutive month of a downturn in mining activity as the energy crisis weighed in.
A contraction of this magnitude was last witnessed at the height of the Covid-19 pandemic.
The April mining production print was the steepest pace since June of 2020, with the biggest drag on overall production being platinum group metals (PGMs) which fell by 22.6 percent.
Coal production shrank by 14.7 percent, gold plunged by 27.8 percent, and manganese ore eased by 10.4 percent.
“The country also produced less nickel, chromium ore, copper, manganese ore and diamonds. Iron ore production was flat,” said Stats SA’s principal survey statistician, Juan-Pierre Terblanche.
On a seasonally adjusted monthly basis, mining production shrank 4.3 percent, following an upwardly revised month-on-month rise of 3.2 percent and a decrease of 5.8 percent in February.
Stats SA said that mineral sales declined by 0.8 percent in April from the preceding 2 months of growth, despite still high commodity prices, implying reduced sales volumes due to weaker global growth.
Even though the economy rebounded to pre-pandemic levels at 1.9 percent in the first quarter, the mining industry registered a contraction of 1.1 percent during the period.
Nedbank economist Candice Reddy said production was mainly weighed by industrial action and load shedding over the reporting period.
Reddy said that the outlook for the mining sector remained uncertain.
“One the one side, profitability will continue to benefit from elevated commodity prices throughout the year and expectations of a weaker rand exchange rate amid tighter global monetary policy,” Reddy said.
“On the other hand, weaker global growth prospects, combined with all the domestic constraints, including unreliable electricity, policy uncertainty and poor infrastructure, will weigh on production levels.”
South Africa is grappling with one of the worst bouts of power cuts, leaving large industries and intensive energy users such as mining in a lurch as production stalls.
From January 1 to May 10 this year, Eskom had already implemented load shedding for 32 days, 6 days more than the 26 days of loadshedding during the same period last year.
FutureGrowth Asset Management head of unlisted credit Paul Semple said that South Africa’s perfect storm of a growing electricity supply deficit and rocketing electricity prices was crippling the economy.
“We are on track to break another record for the worst year of load shedding. By Eskom’s own admission, load shedding so far for 2022 has already exceeded their predictions and is set to worsen in the months ahead,” Semple said.
“There is an urgent need to fast track the build-out of new power generation to minimise the reliance on Eskom’s coal plants and reduce the negative impacts of load shedding.”