South African miners are paying more for reduced rail volumes, which pushes up transport costs for the industry, according to the Minerals Council. Despite this, there are signs of relief in mining inflation for August."
Since the SARB started its interest rate cut cycle last month, the rand has remained strong against the US dollar, and fuel prices have fallen, so cost pressures for local producers are expected to ease.
“While factors like electricity and wage growth remain significant contributors to cost pressures, particularly in the energy-intensive mining industry, there are signs of relief in certain areas. Transport costs, though still elevated, have shown a slight decrease, and the stronger exchange rate has helped offset some input costs, particularly for imported goods,” said André Lourens, an economist for the Minerals Council.
However, for August, the Minerals Council said transport and storage costs rose by 5.3% y-o-y, down from the 6.4% recorded in July.
“The increase, though smaller, was driven by a reduction in railed payloads,” said Lourens.
Data from Statistics South Africa showed August's rail freight payload dropping to 13 million tonnes from 13.84 million tonnes a year ago against the backdrop of an inching up in freight expenses.
“This combination of moving less at higher costs contributed to the increase in transport and storage expenses,” explained Lourens.
On a positive note though, the continued stronger rand exchange rate reflected “in the nominal effective exchange rate having strengthened by 4.7% year on year,” helping to reduce costs of imported intermediate inputs for the mining sector.
The Minerals Council's index for mining input costs, which peaked at 7.2% in January, eased in August, showing a year-over-year increase of 5.5%, down from 6.4% in July.
Furthermore, South Africa’s mining input cost inflation averaged 6.5% year over year during the eight months to end August, much lower than the 9.5% recorded during the same period a year ago.
Apart from financing costs, electricity remained a key driver of input cost inflation, rising by 8.4% year over year. Electricity costs continued to exert “considerable pressure” on the mining sector.
“August represents the last full month of winter electricity tariffs, and increase for the electricity component is expected to slow in September with standard (lower) summer tariffs fully resuming in October,” said the Minerals Council.
Nonetheless, there is widespread industry concerns over Eskom's submission of the multi-year price determination revenue application that is seeking to raise tariffs by approximately 57% over the next three years.
Wage growth for the mining industry in August averaged 6.9% compared to the same period last year, further contributing to cost pressures for the mining sector. Lourens said the increase in labour costs “reflects the above-inflation wage hikes that have become common in parts of the mining sector” in recent years.
“With general inflation expected to continue to ease going forward, these elevated wage increases could contribute to inflationary pressures if labour productivity growth does not keep pace.”
South African gold producers such as Harmony Gold, DRDGold, Pan African Resources and others had the highest average increase in input cost inflation for August and the seven months before. Local manganese and coal miners experienced the next fastest rise in input costs.
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