Total mining output (not seasonally adjusted) grew by 21.3% y/y in March, up from a downwardly revised contraction of 2.3% y/y (previously: + 0.8% y/y) in February. Non-gold mining production grew by 23.2% y/y following a 1.1% y/y contraction in February. The out-turn for overall mining production growth was materially above the Bloomberg consensus prediction for growth of 9.4% y/y. Sustained higher commodity prices and rising external demand remain supportive of mining activity. However, the more robust growth in mining output could largely be attributed to reduced output levels from last year's supply chain disruptions and lockdown restrictions (i.e. the lower base effect in 2020). Due to this phenomenon, mining output will undoubtedly post more robust year-on-year growth rates in April and May.
Encouragingly, the seasonally adjusted mining output, which aligns with the official calculation of quarterly real GDP growth, grew by 4.5% m/m in March following downwardly revised growth of 0.9% m/m (originally: 3.8% m/m) in February. Overall, seasonally adjusted mining output grew by 3.9% in 1Q21 after contracting by 1.6% in 4Q20 - therefore, this means that the mining sector meaningfully supported overall real GDP growth in 1Q21. Our estimate is for the sector to have contributed around 0.3ppt to overall quarterly real GDP growth.
So far, this data print and the manufacturing output data published earlier this week implies that the South African economy avoided a double-dip recession in 1Q21. Next week's retail sales will provide further clarity on how the economy fared in 1Q21. Last year's growth for the agricultural sector is expected to be sustained.
Outlook
Our near-term outlook for the mining sector remains intact. We expect mining activity to be supported by the sustained higher commodity prices from last year and the anticipated robust economic growth rebound, mainly from South Africa's major trading partners. However, near-term potential risks include the slow roll-out of vaccines (versus the imminent third wave of infections) and the unresolved electricity supply, which could both limit production even as the global economy recovers.
Over the medium- to long-term, domestic mining activity might be supported by the likelihood of more infrastructure investment in the US, eurozone and other regions.
Subsectors' performance in March 2021
Growth in mining production was broad-based, with 10 out of the 12 mining subsectors posting a positive growth rate in March. In particular, the strong growth of 21.3% y/y in total mining production was led by platinum group metals (PGMs), which grew strongly by 68.6% y/y in March after contracting by 0.9% y/y in February and contributed 11.6ppt to the total mining production growth. This was followed by iron ore production, which grew by 47.9% y/y in March, contributing 4.1ppt; manganese ore production grew by 29.9% y/y and added 2.4ppt; and gold production grew by 10.5% y/y, contributing 1.5ppt.
Negatively, coal production (which accounts for 25% of total mining production) contracted by 5.8% y/y (after contracting by 19.9% y/y in February) and diamond production contracted by 9.6% y/y (following growth of 11.6% y/y in February). Together, these two mining subsectors shaved off a cumulative 2.3ppt from overall mining production growth.
Figure 1: Base effects strongly favourable
Source: Stats SA, FNB Economics
Figure 2: Volumes now around early 2020 levels
Source: Stats SA, FNB Economics
