Mining and manufacturing under pressure in May

Mining and manufacturing were under pressure in May after their improved performance throughout the first quarter and it remains to be seen if the reduced load shedding in June made any difference in output.

Economic research group, Oxford Economics Africa, says favourable base effects meant that annual factory output increased for the second consecutive month, while mining production declined by 0.8% compared to last year.

The group says the colder weather in recent days has seen demand for electricity increase sharply, triggering stage 6 loadshedding. “We maintain that the national electricity grid remains inherently unstable and not much could have been done in the past month to meaningfully improve electricity production capacity.

“The temporary load shedding respite does not change our growth outlook for South Africa. We forecast an economic contraction in the second quarter. Overall, South Africa’s economy will hardly grow at all in 2023 with real GDP growth of 0.2% forecast for this year, although less intense daytime load shedding during June should make for interesting output numbers next month.”

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According to Statistics SA, seasonally adjusted mining production fell sharply by 3.8% compared to the previous month in May, compared to a 1.5% increase during April compared to March. Annual output was down 0.8% most recently, following last month’s 3.2% expansion compared to a year ago.

The largest negative contributors to the annual decrease were platinum-group minerals (-7.2% and contributing -1.9 percentage points) and diamonds (-31.4% and contributing -1.2 percentage points. Seasonally adjusted mining production increased by 3.1% in the three months ended May 2023 compared to the preceding three months.

Meanwhile, seasonally adjusted mineral sales at current prices decreased by 5.1% during the same three-month period. In addition, nominal mineral sales were down 11.8% compared to a year ago as a result of lower platinum group minerals, coal and iron ore sales.

Manufacturing declined after increase in March

According to Statistics SA, seasonally adjusted manufacturing production declined by 1.3% compared to April’s 0.7% increase. Favourable base effects meant that annual output was up 2.5% compared to last year.

The largest positive contributors to the annual increase were the motor vehicles, parts and accessories and other transport equipment (+15.1% and contributing 1.4 percentage points) and basic iron and steel, non-ferrous metal products, metal products and machinery (+5.8% and contributing 1.2 percentage points) subsectors.

Seasonally adjusted manufacturing production increased by 2.8% during the three months ended May 2023 compared to the preceding three months. Seven of the 10 manufacturing divisions reported positive growth rates over this period.

Oxford Economics Africa notes that South Africa’s manufacturing sector was among the major drivers of economic growth during the first quarter, while the labour-intensive mining industry also performed reasonably well.

“In addition, considering the current economic environment, the start to the second quarter was not bad either, but production came under pressure in May. The load shedding reprieve during June suggests that industry as a whole might have fared better at the end of the second quarter, but South Africa’s manufacturing PMI dropped further below the neutral 50-point level in June, averaging 48.9 index points during the second quarter, while it averaged 50 in the first quarter.”