Annual mining production growth finally turned positive in December after four consecutive months of decline. Growth increased to 1,8% from a drop of 1,0% in November, hurt by severe power outages over the month. On a seasonally adjusted basis mining production decreased by 2,4% m- o-m in December but was up 0,2% over the fourth quarter. For the year mining production declined by 1,3% after shrinking by 2,1% in 2018 following growth of 4,6% in 2017.

The main drivers of the annual rise were increases in the production of gold, ‘other’ non-metallic minerals, iron ore and chromium ore. Quarterly, it was contributions of 0,8 percentage points each by the iron ore and platinum group metals categories that exerted the upward pressure.

The latest mining production figures are reflective of a tough year which was characterised by softer commodity prices and global growth as well as a host of domestic issues such as load shedding and problematic legislation weighing on the sector.

The December production figures are better than what most would have thought, but this is the result of mining firms closing early in that month for the holidays. Looking ahead, domestic issues will continue to weigh on the sector, while the biggest purchaser of South African commodities – China – also finds itself in a vulnerable position with the coronavirus, which is likely to impact on growth and so demand for commodities from South Africa.

Mining production figures impact the Reserve Bank’s monetary policy decision through the economic growth channel. Weak mining statistics are indicative of softer growth and so further monetary accommodation, all else being equal. The Reserve Bank however considers several factors in their decision and the trajectory of the rand will at this time be of foremost importance, given the very high risk of a ratings downgrade by Moody’s credit rating agency.

The Nedbank view is that while there might be room for further rate cuts, the Reserve Bank is likely to take a more measured approach and leave rates on hold for the remainder of the year.