Mining output declined by 3.6% y/y at the start of 2H23
Mining output (not seasonally adjusted) contracted by 3.6% y/y in July, following a marginally upwardly revised 1.3% y/y (previously 1.1% y/y) expansion in June. This was worse than the Bloomberg consensus prediction of a moderate 0.2% y/y contraction. Seasonally adjusted mining output, critical for the official calculation of quarterly GDP growth, dropped by 1.7% m/m in July, reflecting a deterioration from the 1.2% (revised from 1.3%) monthly expansion in June. This data, together with manufacturing output (released on Monday) and electricity production (released last week Thursday), paints a gloomy picture at the start of the third quarter and is consistent with the general expectation of a GDP growth moderation following a better-than-expected 0.6% quarterly expansion in the second quarter.
Outlook
YTD (January to July) mining output is down by 1.4% y/y, reflecting poor growth within the coal, iron ore and platinum group metals (PGMs) divisions. Meanwhile, output growth performance has been robust (17.5% y/y YTD) in the gold division and modest in the manganese ore division at 2.9%. Overall, the mining sector remains challenged by domestic load-shedding intensity and logistics constraints as well as moderating external demand, with growth challenges in China and Europe boding ill for export of critical commodities. Commodity prices have decreased relative to last year, weighing on earnings and the mining sector's contribution to government tax revenue collection.
Selected sector analysis
Amongst the five major mining divisions, output in PGMs plummeted by 10.4% y/y in July, following robust growth of 11.1% y/y in the previous month. On a seasonally adjusted basis, PGMs slumped by 15.1% m/m, reflecting a material deterioration from a robust 5.7% monthly expansion in June. The monthly decline in PGMs is primarily attributed to an unnamed large mining firm that underwent maintenance during the reference month. As such, the monthly decline would likely have been short-lived.
Coal output declined by 7.0% y/y in July, reflecting a deterioration from the 1.8% decline in June. Seasonally adjusted, the level of coal output was unchanged (0% m/m) in July, following a 3.2% monthly expansion between June and May. Manganese ore output declined by 11.5% y/y, following an expansion of 3.1% y/y in June, with seasonally adjusted output plummeting 12.5% m/m.
Other large mining divisions, namely gold and iron ore, supported overall mining output growth, but this was not enough to counteract the decline. Specifically, gold output was up by 12.9% y/y, a moderation from 28.5% y/y in June. However, gold output continued losing momentum, falling by 2.6% m/m (seasonally adjusted) after falling by 0.9% and 1.4% in May and June, respectively. Iron ore output expanded by 13.8% y/y, reflecting a partial rebound from 18.0% y/y decline in June. This division also recorded a solid monthly expansion of 20.6% (seasonally adjusted) after declining by 8.4% in June.
