South Africa mining, manufacturing growth defy market expectations

Johannesburg, (CAJ News) – SOUTH Africa’s mining and manufacturing sectors have increased outputs thereby defying prevailing economic challenges and market expectations.

Mining production in August rose by a greater degree. Total mining production rose 5,3 percent month-on-month (m/m) after seasonal adjustment (6,9 percent) after increasing 1,9 percent in July.

The strong gains in the overall index came principally from two of South Africa’s most important mineral output categories.

These include iron ore, which accounts for 13,6 percent of the mining output index and rose 24,2 percent m/m after seasonal adjustment to its highest level since early 2015 as well as platinum group metals, which accounts for 23,2 percent of the index and rose 6,1 percent m/m.

According to Absa Capital, higher iron ore prices have been supporting the increase in output.

John Cairns, Rand Merchant Bank Africa analyst, concurred saying commodity prices had “jumped.”

“Oil is getting the attention as Brent surges to US$58/bbl, but for South Africa, it is the rise in the iron ore price that is more important.”

However, so far in October, iron ore prices are averaging 16 percent less than they did in August.

The 6,9 percent year-on-year (y/y) gain is much stronger than the 0,5 percent y/y consensus projection and Absa’s more pessimistic forecast of -0,2 percent.

It comes on the heels of August’s stronger-than-expected manufacturing production, which rose 1,5 percent y/y against analysts’ forecast of 0,7 percent.

The manufacturing data release from Statistics South Africa indicated seasonally-adjusted output rising 0,3 percent m/m in August, after the unexpected 1,5 percent m/m gain in July.

Absa Capital noted the August monthly output number was equivalent to a 1,5 percent y/y gain, compared with our forecast of 0,7 percent.

“The gain was a surprise given the depressed sentiment in the sector, as reflected in confidence surveys and monthly Purchasing Managers’ Index (PMIs),” Absa Capital stated.

Seasonally adjusted manufacturing production increased by 1,3 percent in the three months ended August compared with the previous three months, with six of the ten manufacturing divisions reporting growth over this period.

“Looking at the sectoral details, there were some surprises,” stated Absa Capital.

The gain in monthly production did not come from food manufacturing, which the firm thought might pose some upside risk to our forecast given the rebound in agricultural production and the fact that the food and beverages sector represents around a quarter of total manufactured                            output.

Instead, small declines in m/m adjusted output in the food and beverage subsector were offset by a 2,2 percent gain in motor vehicle industry output, which represented 6,9 percent of total manufactured output and 4 percent m/m rise in output of the petroleum industry.

All in all, the upside surprise for the manufacturing sector, which directly accounted for 11,5 percent of GDP in the first half of 2017, raised some upside risk to the analysts’ GDP growth forecast of 0,3 percent 1 percent growth forecast for the current quarter.

The forecast might be negatively affected by the storms around Durban, which have shut numerous factories.

The negative effect of the country’s fractious politics on growth is also a factor.

Among divisive issues is the December elective congress of the ruling African National Congress.

The party is to choose an individual to succeed the controversy-prone

Jacob Zuma at the helm of the continent’s oldest liberation movement.

Nkosazana Dlamini-Zuma, the former African Union Commission chairperson, and current party and country’s deputy, Cyril Ramaphosa are frontrunners. – CAJ News

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