Load Shedding Mars South Africa Mining Sector Prospects

Eskom

Johannesburg, South Africa, December 23, 2019//-The resumption power cuts, elevated operational costs and an uncertain policy environment as well as the unclear global growth outlook and flat commodity prices are placing further strain on potential revival of the South African mining sector.

The mining industry is ending the year on a low after output declined by 2,9 percent year-on-year in October.

This marked the third consecutive month of annual contraction for the sector.

Annual mining production was worse than had been expected and a bad start to the final quarter of 2019 for the sector, which had been materially impacted by escalating load-shedding.

Copper, diamonds and manganese ore were the main drivers of the annual decline in total output.

They shed 41,4 percent, 39,3 percent and 12,5 percent respectively.

Economists are wary of the recovery of the key sector, mainly as a result of the recurrent load shedding.

Nedbank’s economic unit stated, “Growth prospects for the mining sector remain subdued due to the resumption power outages, elevated operational costs and an unfavourable policy environment.”

“In addition, an ambiguous global growth outlook as well as relatively flat commodity prices place further hindrances on potential growth in the sector,” Nedbank added.

It projected that weak economic activity persisted, which was evident in the third quarter gross domestic product (GDP) figures and the latest mining output release.

“This constitutes to the lack of demand pressure on prices,” Nedbank stated.

While it halted load shedding recently, the power utility Eskom is not out of the woods yet as it warned of further power cuts if the system became constrained.

Absa forecast that for production for the fourth quarter overall was likely to be subdued due to intense load shedding in early December.

On December 12, some mining companies announced that they were scaling back production until they could receive reliable electricity supply.

In any case, according to Absa, activity usually ceases sharply over the holiday period.

“…but the risks of ongoing load shedding into 2020 create risks for mining output, even though mines are pushing to install own sources of electricity supply,” the bank stated.

According to Rand Merchant Bank (RMB) some of the consequences of this new level of load-shedding had been immediate – the rand nosedived 11 cents to 14,69 against the United States dollar last week.

Some mining operations took the unprecedented step of cancelling their night shift last week – a full shift’s worth of production lost – which could also negatively impact employment in the industry, especially if stage 4 (4 000 MW of the national load to be shed) and above load-shedding continued.

Mining contributes around 8 percent to South Africa’s GDP.

Siobhan Redford, Rand Merchant Bank (RMB) economist, said, “This week’s (mining) data releases have added to the rather bleak landscape that is our economy.”

Data on non-farm payrolls showed a 0,8 percent y/y increase, but a decline of 0,3 percent quarter-on-quarter, demonstrating that employment fell in the third quarter of 2019 relative to the second quarter, which was in line with the deteriorated unemployment figures released in October.

Load shedding mars SA mining sector prospects

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