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Mining activity to improve

I-Net Bridge | Thu, 11 Mar 2010 17:36

MINING activity should continue to improve from a very low base in 2010, helped by strong demand for commodities from China and a modest recovery in most major industrialised countries, Nedbank's Group Economic Unit said on Thursday.

Commenting on the latest mining production data released by Statistics South Africa, the economists said the recovering world economy should support commodity prices in the months ahead, but these gains were likely to be partly offset by a stronger rand.

Mining production rose sharply in January, with the year-on-year (y/y) growth boosted mainly by a surge in chrome production off an extremely low base in early 2009.

Chrome output increased by 179% y/y following an increase of 76% in December.

Platinum, diamond and nickel production also recorded strong increases - helped by base consolidations - rising by 16.9% y/y, 58.9% y/y and 65.1% y/y respectively compared with declines of 0.2% y/y and 6.1% y/y for platinum and diamonds, and a modest growth of 2.4% y/y for nickel in December.

In contrast, gold production was disappointing, dropping by 18.2% y/y in January, its sharpest annual rate of decline since August 2008.

Over the three month period to January, mining production expanded by a seasonally adjusted 3.3% compared with the previous three months, helped by higher production of manganese and iron ore, which rose by 36.3% and 11.7% respectively as well as platinum and diamonds, which rose by 13.5% and 10.9%.

Gold production was down by 4.8% over the quarter.

"Today's mining production figures also suggest that the production side of the economy is on the mend mainly due to improved global demand for key commodities," said the economists.

But they warned that despite signs of improvement, underlying conditions in the demand side of the local economy remain quite weak and fragile.

"As a result, we still expect the MPC to keep rates on hold throughout 2010 even as inflation edges higher later in the year," they said.