BMI View: South Africa's mining sector will face persistent headwinds due to labour unrest, mineral price weaknes s, further divestments and retrenchment.
|e/f = BMI estimate/forecast. Source: BMI Calculation/UN Data|
|Mining Industry Value, USDbn||32.65||32.78||30.41||29.95||30.25||31.07||9.10|
|Mining Industry Value, USDbn, % y-o-y||0.90||0.40||-7.23||-1.51||1.00||2.71||-70.71|
Latest Updates And Structural Trends
On December 8 2015, Anglo American announced a restructuring plan that will focus on divestment of non-core and loss-making assets, downsizing its workforce and consolidating business divisions in an effort to weather ongoing commodity price weakness. South Africa's coal industry will be significantly hit by Anglo's restructuring plans as the firm accounts for nearly 21.5% of the country's total thermal coal production. Furthermore, Anglo's plans to cut employment will hit the sector as well, as Anglo employs over 24,500 in their thermal coal operations, while the firm's total employment within South Africa totals 72,000.
As Anglo American is keen to offload the majority of its South-African assets, this could result in a significant decline in the country's coal production growth. As such, we revised down our 2016 and 2017 coal production forecast from 1.3% to -4.0% and 1.0% to -1.5%, respectively. Despite this, South Africa, which is Sub-Saharan Africa (SSA)'s largest coal producer, with a 94.6% share of regional coal production in 2015, will remain the region's largest coal producer. We forecast South Africa's coal production to grow from 252million tonnes (mnt) in 2016 to 264mnt in 2019. This would represent average annual growth of 0.1% during 2016-2019, slightly higher than the average 0.9% decline during 2010-2014.
Weak minerals prices and continued labour unrest will curb the country's mining sector growth outlook over the coming quarters. We expect South Africa's share of global mined output to decline as other mining jurisdictions experience faster rates of growth. We expect South Africa's gold sector to lose market share, as miners will shift investment to low-cost, high-resource opportunities in the rest of the continent, such as in the Democratic Republic of the Congo.
We have revised down our 2015, 2016 and 2017 gold production forecast for South Africa from -5.0% to -9.0%, 0.8% to -1.5% and 0.1% to -1.0% as both weak gold prices and ongoing wage negotiations will continue to hurt the sector's growth output. Beyond 2015, we forecast output to average annual growth of 0.2% during 2016-2019, with output totalling 4.85moz by 2019.
South Africa's iron ore production growth will slow as weak iron ore prices will force miners to cut capital expenditure (capex) and halt new projects from coming online. Further, as Anglo American is keen to offload the majority of its South-African assets, this could result in a significant decline in the country's iron ore production growth. As such, we revised down our 2015, 2016 and 2017 iron ore production forecast from 1.0% to -2.0% and 0.8% to -1.5% and 1.0% to -1.5%, respectively. We forecast output to stagnate and total 76.2mnt by 2020, slightly lower than 76.4mnt in 2015. This is significantly slower than average annual growth during 2010-2014, in which output grew from 58.7mnt in 2010 to 78.0mnt in 2014, averaging annual growth of 7.2% during 2010-2014.
We have revised down our production growth forecast for South Africa's platinum sector. In our view, the country's platinum production will decline from 3.97 million ounces (moz) in 2016 to 3.66moz in 2019. This would represent an average annual contraction of 2.0% during 2016-2019, following an average annual decline of 4.5% over 2010-2014. Although we expect South Africa's platinum production to grow 8.2% y-o-y in 2015, this is primarily due to production recovering following a 16.0% decline in 2014, resulting from a five-month strike at Lonmin's Marikana mine.
Continued palladium price weakness will dent the sector's growth outlook. We expect Anglo American to scale down operations as the company has stated that it will halt production at three of its shafts at the Rustenburg complex and divest its Union mine. South Africa's palladium sector is dominated by Anglo American, which accounts for over 50% of the country's palladium output. The divestment will have a significant impact on both platinum and palladium's growth outlook over the coming years.
The South Africa Mining Report has been researched at source and features BMI Research's mining and commodity forecasts for metals, minerals and gems, covering all major indicators including reserves, production, exports and values. The report also analyses trends and prospects, national and multinational companies and changes in the regulatory environment.
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