Economic Thoughts: SA Industry Line-Up Update

The 3Q15 keeps shaping poorly, but it isn’t all gloom & doom.


Mining in Aug15 was +3.8% yoy but that was still off a strike-depressed base, with PGMs +63% & diamonds +24%. Impressive picture but distorted. And there was more in an underlying sense.


Ominous was coal at -5.3% & iron ore -17% yoy. That’s China coming through on the iron ore side,  already for most of this year, and with August apparently also seeing temporary Chinese steel mill closures ahead of the WW2 remembrance ceremonies – trying to get the pollution down, and this having upstream knock-ons. In addition, local SA mine closure & pit labour issues affected output, too.


All this provides backdrop to the Transnet news item of wanting to cut R200bn from its R336bn capex budget for the next three years, focused on iron ore & coal export shipments.


When examining the indexed monthly mining volumes, seasonally adjusted, it shows 2Q15 being down on the 1Q15, and now the average of July/August -1% down on the average of the 2Q15. If September continues this tendency, mining in 3Q15 will have entered recession with two successive decline quarters.


To which we need to add that October started with a coal labour strike of uncertain duration, with uncertainty also remaining about gold production, and iron ore output still under pressure. Between them, they could further depress average 4Q15 output, making it a mining recession quarterly hat-trick.


This coming hard on the heels of SA electricity output in August being sharply down, putting that sector on course for two quarterly (recession) declines.


In contrast, SA manufacturing output declined for two quarters (1Q15 & 2Q15) but has now perked up in July (+0.1%) and again in August (+0.4%) on the previous month, potentially breaking the quarterly downdraft if September can come in positive enough, too.


Yet the composition of the Aug15 manufacturing performance was again a very mixed bag.


Basic steel -23% yoy (blame it on Chinese imports needing anti-dumping import charges). Motor vehicles -6.5% (Motor trade heading south).


But oil refineries +7% (which refinery is distorting the base or the present or both?). Petrochemicals +4.8%, food/beverages +2.9% wood/paper/publishing +3%. The positives outweighing the negatives.


The steel dumping may become less. Then again another oil refinery going offline for maintenance can shake the petrochemical picture. It gives manufacturing an unstable frame all round that makes forecasting challenging.


Summarizing recession impressions, agriculture presumably is on course for another poor quarter (drought), as are the motor trade (sliding passenger cars) & tourism (visas). Joining them for a second serial quarterly slide (in 3Q15) could be electricity & mining. On the other hand, manufacturing may be exiting the recession line-up with a positive quarter, but then its composition performance is so volatile that who knows what it will yield us next?


One notes in passing that agriculture, electricity generation & mining are of our smallest sectors making up overall GDP. The real critical mass resides elsewhere….