Investment inflows for the mining sector have continued to plummet, worsening the industry’s woes from poor rail and port performance, the Minerals Council South Africa said yesterday, with the sector’s poor performance partly dragging down the country’s GDP performance.
The latest data from StatsSA showed South Africa’s resources sector recording weaker growth in the quarter to June, alongside motor trade and freight transport.
Mining production for the quarter slipped by 0.9%, with downward pressure from iron ore, coal, diamonds and gold, despite higher output of platinum group metals, chromium ore, nickel, manganese ore and copper.
Amid sustained electricity supply, the Minerals Council South Africa said yesterday that the industry is battling “weak fixed investment” inflows.
“In real terms, total fixed investment declined for the fourth quarter in a row. Investment by general government, state-owned enterprises and the private sector were all lower in the second quarter,” Minerals Council chief economist Hugo Pienaar said yesterday.
There was also evidence of a reduction in green energy investment, especially at a time when there has been no load shedding by Eskom over the past five months.
There was also investor hesitancy ahead of the May 29 election. The Minerals Council, however, expected increased mining sector investments over the next two years, notably in renewable energy projects, a factor that would support capital expenditure figures.
The industry’s challenges with infrastructure such as ports and rail remained elevated.
South Africa’s real exports of goods and services decreased by 0.4% in the second quarter., with StatsSA attributing this to decreased trade in mineral products and base metals among others.
Although Transnet has a target to increase total railed tonnages to 170 million tons in the 2024/25 financial year, up from 151.7m tons in 2023/24, some mining industry players expect the parastatal’s challenges to persist for the next twelve months.
Nonetheless, the mining sector’s underperformance in the first quarter of the current year persisted into the second quarter to June, with profitability also impacted.
“In the second quarter, the operating surplus for mining increased by a modest 0.3% year-on-year. Excluding mining, the gross operating surplus for the rest of the economy increased by 6.7% year-on-year,” said Pienaar.
This illustrated “the profitability squeeze in important subsectors of the mining sector” with this most notable in PGM amid persistently depressed prices.
In an environment of low PGM prices, continued logistical constraints, the absence of a functioning cadastre system, and concerns about the demand for commodities from China, growth in the mining sector should remain constrained in the rest of 2024, explained the Minerals Council.
Despite the less rosy outlook, a favourable domestic macroeconomic backdrop in the second half of the year is expected to provide some support for the industry.
Positive factors supporting this included declining diesel costs, an expected lower rate of increase for general inflation, and the likely start of interest rate cuts in September.
“Along with post-election optimism about the Government of National Unity, these factors should support business and consumer confidence in future.”
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