The Minerals Council South Africa finds in its latest index that mining input costs increased by 6.4% year-on-year in July.

The increase matches that of June, with yearly input costs having held steady over the past two months owing to persistent high winter electricity tariffs that are constraining downward movement in inputs costs, as well as high costs of finance and transport.

The mining input cost increase of 6.4% in July compares with a 4.2% year-on-year increase having been recorded in Statistics South Africa’s Producer Price Index (PPI) in the same month.

The Minerals Council reports that input cost inflation averaged 6.8% in the first seven months of the year, compared with 9.7% for the comparable months of last year.

Electricity costs remain the primary driver of input cost inflation, having accelerated by 11.9% year-on-year in July – nearly three times the PPI figure. The mining sector, coupled with smelting operations, consumes about a third of South Africa’s electricity.

While the absence of loadshedding for more than five months has been encouraging, the cost trajectory of electricity remains a concern. 

Transport and storage costs rose by 6.4% year-on-year in July, driven by a decline in railed payloads and an increase in road freight expenses, resulting in a costlier shift towards road transportation.

Metal products also experienced a notable increase, accelerating by 6.2% year-on-year and encompassing structural metal products such as steel pipes and roof sheeting, as well as fabricated items such as hand tools.

Coke and refined petroleum costs grew by 5.1% year-on-year primarily owing to a rise in Brent crude prices, which averaged $84.10/bl in July, compared with $79.90/bl in July 2023.

The Minerals Council says 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. However, the outlook for the next several months is much more positive.

Petrol and diesel prices declined in August and September, and there is likely to be a decline in October too, leading to a decrease in year-on-year fuel costs.

On a positive note, a 5.6% year-on-year decline in intermediate mining and quarrying inputs helped alleviate some of the overall input cost pressures.

Additionally, South Africa has benefited from a stronger rand exchange rate since the formation of the Government of National Unity after the May elections.

This is reflected in the nominal effective exchange rate having strengthened by 3.1% year-on-year, which reduced the costs of imported intermediate inputs for the sector.

The Minerals Council concludes that significant cost pressures remain in the mining industry, despite a stronger rand, the lower costs of imported inputs and lower refined petroleum costs.

The gold sector, in particular, continues to experience the highest input cost inflation, followed by coal and manganese.