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Mining output in South Africa will struggle to recover for the remainder of the year after unexpectedly slipping in July, falling to its lowest level in four months on the back of intensified power cuts and slow global demand.

Data from Statistics SA (Stats SA) yesterday showed that mining production plunged by 3.6% from a year ago following an upwardly revised 1.3% rise in June, and defying market expectations of a 0.5% increase.

This was the steepest contraction in mining activity since February, with platinum group metals (PGMs), coal and diamonds being the biggest drags on growth.

Stats SAs principal survey statistician, Juan-Pierre Terblanche, said PGMs contracted by 10.4% following robust growth of 11.1% year-on-year in the previous month.

Terblanche said coal also fell by 7%, reflecting a deterioration from the 1.8% decline in June, while diamond production fell for the 10th consecutive month by 33.4%.year-on-year.

Nickel, manganese ore and chromium ore were also weak in the month, Terblanche said.

On the upside, miners in copper, gold and iron ore recorded a positive month. Iron ore reached its highest growth rate with production expanding by 13.8% year-on-year.

On a seasonally adjusted monthly basis, mining production decreased by 1.7% in July, following a downwardly revised 1.2% rise in the previous month.

In the year-to-date January to July period, mining output is down by 1.4% year-on-year, reflecting poor growth within the coal, iron ore and PGMs divisions.

However, output growth performance has been robust at 17.5% in the year-to-date in the gold division and modest in the manganese ore division at 2.9%.

Stats SA said the seasonally adjusted mining output is critical for the official calculation of quarterly GDP growth.

FNB senior economist Thanda Sithole said that this data, along with manufacturing output released on Monday, and electricity production painted a gloomy picture at the start of the third quarter. Sithole said it was also consistent with the general expectation of a GDP growth moderation after a better-than-expected 0.6% quarterly expansion in the second quarter.

Overall, the mining sector remains challenged by domestic load-shedding intensity and logistics constraints, as well as moderating external demand, with growth challenges in China and Europe boding ill for export of critical commodities, Sithole said.

Commodity prices have decreased relative to last year, weighing on earnings and the mining sectors contribution to government tax revenue collection.

In addition to domestic energy and logistical challenges, South Africas mining production has also been affected by the weakening global demand on the back of Chinas economic woes.

Investec economist Lara Hodes said the subdued global environment has weighed heavily on commodity demand, with the World Banks metals and minerals index down around 13% in the year-to-date to end August.

Hodes said the fragile global economic environment, with a slower-than-projected rebound in demand from China, has weighed on diamond sales, while competition from the lab-grown diamond industry persists.

Conversely, gold output has benefited from a sluggish greenback combined with geo-political tensions, which has seen investors seeking safe haven options, Hodes said.

Notwithstanding global factors, domestically the mining sector continues to deal with logistical impediments, while unreliable energy supply remains a primary operational hindrance.

Indeed, these key challenges continue to weigh heavily on SAs competitive position, impeding exports and deterring investment potential.

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