Johannesburg - Mining production dropped 6.2 percent year on year in June and manufacturing output growth decelerated with an expansion of 0.4 percent, down from a revised 2.1 percent in May, according to data released by Statistics SA on Thursday.
The 6.2 percent drop is a reflection of the aftermath of the labour strife in the mining sector last year, weak commodity prices and subdued demand from Asia.
“There was a little bubble-up of output during the second quarter that was not the underlying trend for growth,” Peter Attard Montalto, an economist at Nomura in London, said. “We see South Africa at below potential growth into the second half of 2015.”
The mining industry has lost R10 billion in production in the past year because of unprotected strikes and violence, in which more than 50 people have been killed.
In addition, jobs in the sector are shrinking as company profits are squeezed.
Mining output volumes declined 6.2 percent, compared with a 1.1 percent drop in May. Output declined 3.3 percent month on month on a seasonally adjusted basis.
Platinum group metals and gold were the major contributors to the decline, dropping 18.9 percent and 14.1 percent, respectively, year on year.
Production increased in iron ore, manganese ore, chromium ore and building materials, the report said.
Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities, said on Friday: “The disappointing June mining production numbers do not spell good news for what this sector is likely to contribute to quarter two production-side gross domestic product.”
He said although not in negative territory for the year to date, once this sector’s growth performance had been adjusted for inflation, there was a strong likelihood of its contribution to second-quarter growth slipping back into negative territory.
According to the Nedbank Economic Unit, the production figures confirmed the challenging environment for the mining industry. It said the latest numbers reflected the tough business conditions in the sector, which had been shaken by labour instability, falling commodity prices and rising production costs.
“Prospects for the mining sector remain poor as global demand conditions will remain unfavourable for the foreseeable future.”
Michael Kavanagh, a metals and mining analyst at Noah Capital Markets, said that the industry was not at a standstill, but was going through a difficult period.
“The government needs to give more support to the mining sector and unions have to table more realistic wage demands,” he said. – Bloomberg