Mining output shrank by an unexpected 0.8% y/y in May
Mining output (not seasonally adjusted) shrank by 0.8% y/y in May after an expansion of 3.2% y/y in April, which was preceded by 14 consecutive months of annual decline. The outturn was worse than the Bloomberg consensus prediction of a 2.0% y/y expansion. Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, shrank sharply by 3.8% m/m following a downwardly revised monthly expansion of 1.5% (previously 1.8%) in April. Though today's outcome is not encouraging, statistical base effects from February's sharp decline in output could see continued quarterly expansion in the mining sector's gross value added in 2Q23, which will be favourable for quarterly GDP growth. This is premised on expectations of better mining output in June, given the load-shedding reprieve during that month.
Outlook
Mining production's year-to-date decline of 1.5% y/y reflects sustained weakness and prevailing structural constraints (see Figure 1). Nevertheless, this is an improvement from a decline of 7.1% y/y over the corresponding period last year. We still pencil in a shallow contraction in mining output this year relative to last year's 7.3% contraction. The external environment remains less favourable for mineral export commodities amid consumption-led growth, particularly in China. Meanwhile, growth in Europe and the US is expected to remain subdued. Domestic transport and logistics challenges do not bode well for trade, and the recent burning of trucks could further complicate operating business conditions.
Selected sector analysis
Amongst the five major mining divisions, output in platinum group metals declined materially by 7.2% y/y after declining by 4.6% y/y in April. Iron ore production was down by 5.9% y/y, following a contraction of 3.6% y/y in April. Coal output shrank by 1.7% y/y, following a robust increase of 13.2% y/y in April.
Limiting the drag from these three major divisions was gold production, which expanded by 27.3% y/y in May (maintaining a robust expansion after recording 27.4% y/y in April), and manganese ore output, which increased by 9.4% y/y after declining by 2.6% y/y in April (see Figure 2).
