Although the improvements in energy supply by Eskom have provided much respite for mining companies that are energy-intensive, mining houses remain concerned by the higher winter electricity tariffs that run from July to August and which have resulted in elevated input costs.
South African miners had over the past few years been affected by load shedding. However, Eskom has managed sustainable power supply over the past five months, bringing much relief to the miners.
The miners are now having to do with the higher cost of electricity supply, especially under the winter tariff dispensation.
The Minerals Council South Africa said yesterday that the electricity “cost trajectory remains a concern” for the industry as it was driving up costs.
“Electricity costs have emerged as the primary driver of input cost inflation, accelerating by 11.9% year-on-year (in July),” said André Lourens, economist for the Minerals Council.
“This increase, nearly three times the PPI figure for July, continues to exert significant pressure on the mining sector, which consumes about a third of South Africa’s electricity when smelting operations are included.”
To this end, there was a further 10.3% month-on-month increase in electricity costs July, which worsened the 37% increase for June.
Despite this, the Minerals Council’s index for mining input costs recorded a 6.4% year-on-year increase for the month of July, remaining largely unchanged from the June figure.
“Annual input cost increases have held steady the past two months, largely due to persistent winter electricity tariffs which have, all else equal, constrained further possible downward movement,” added Lourens.
Apart from high electricity costs, transport and storage costs for the July period rose by 6.4% year-on-year, driven by a decline in railed payloads and an increase in road freight expenses. This had resulted in a costlier shift towards road transportation for many miners, especially the bulk producers.
There was also a notable increase in costs for metal products such as steel pipes, roof sheeting as well as fabricated items that accelerated by 6.2% over the prior year.
Coke and refined petroleum costs grew by 5.1% due to a rise in Brent Crude prices, which averaged $84.1 per barrel in July 2024, compared to $79.9 per barrel a year earlier.
“This uptick in crude prices over the past year has led to higher costs for petrol, diesel, and engine oils, all of which are extensively used in mining operations,” added Lourens.
Nonetheless, the Minerals Council is holding a positive outlook for petroleum prices after petrol and diesel prices declined in August and September. There are likely to be further cost reductions for this indicator next month.
With a relatively stronger rand, costs for coke and refined petroleum have been moderately lower. According to the Minerals Council, the stronger rand/dollar exchange rate and steady Brent Crude oil prices have led to a 2.5% month-on-month decrease in the price of coke and refined petroleum.
“This decrease has indirectly provided cost relief for the other chemicals and synthetic fibres subgroup,” explained Lourens.
The stable rand/dollar exchange rate has been attributed to the recent consummation of the Government of National Unity now governing South Africa.The stronger rand had “provided some relief by lowering the cost of imported” inputs.
Furthermore, there was a 5.6% year-on-year decline in intermediate mining and quarrying inputs which helped alleviate some of the overall input cost pressures for the category.
During the July period under review, the gold sector had the highest average increase in input costs for the seventh consecutive month. It was followed by coal, manganese, and other mining and quarrying sectors.
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