Gloom over mining lifted by retail, factory surge

17 July 2016 - 02:00 By LUTHO MTONGANA

The mining sector continues to struggle to recover from a weak economy, but a better performance in manufacturing and retail could be the first signs of green shoots in the economy.Figures from StatsSA this week show mining contracted by 4.4% year on year in May.Manufacturing grew 4% year on year in May from 3.1% in March and retail sales rose 4.5% . This was the highest positive growth since January.Christo Luus, an economist at Quantec consultancy, said the manufacturing numbers meant exports were performing better. However, these were noncommodity-related numbers.story_article_left1Mining still lagged because global commodities remained oversupplied.Bloomberg had forecast a 3.2% contraction for mining. In March, the first-quarter contraction was 18%, the biggest decline, followed by agriculture, electricity and transport.In mining figures the biggest drop was in iron ore, with 25%. In the first quarter it fell 23%.China had bought a lot of iron ore in the past decade and not all was being used, which led to the slow growth, Luus said."There's still a huge glut in the world... and it's a longer-term issue which will continue for years before we could see a bit of a turnaround."It would help if the European economy and those of some emerging markets were to perform better. An improvement in iron ore production was at least two years off, he suggested.Most of the price rises are related to precious metals that have an investment component, and are usually associated with negative world developments such as Brexit, which prompt investors to seek safe-haven assets. "Then you'll see precious metals performing better."But metals and minerals used mostly in production processes were still depressed, Luus said.Most of the jobs being shed are in mining. Sibanye Gold reported this week it might cut 1,700 jobs atCooke 4 mine.The sector shed about 47,000 jobs between 2012 and 2015. An estimated 32,000 jobs are to be cut this year, with Lonmin having retrenched about 6,000 people so far.story_article_right2"Companies can only do so much in terms of cost-cutting and I think they have. So, if all else fails, you have to retrench people," Luus said.Seasonally adjusted mining output shrank by 0.6% in the three months to end-May from the previous three months. Gold and iron were the largest contributors to the decline.The platinum sector, which had a bad first quarter, increased its production in May.Platinum group metals, up 23% year on year, was the leading positive contributor . However, platinum companies are still under pressure.Mineral sales decreased 3.5% year on year in April, with PGMs in a 31% decline. However, seasonally adjusted mineral sales at current prices rose 1.6% in April from March.Stanlib Asset Management analyst Kobus Nell said the first quarter' s weak performance probably had to do with safety stoppages, maintenance or restructuring. The quarter also had many public holidays."Mines take forever to adapt to prices because they have to redesign the mine plan and those things cannot quickly make a U-turn," said Nell...

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