South Africa posted a larger-than-expected trade deficit in March as the protracted strike in the platinum group metals (PGM) sector – which produces South Africa’s largest export commodity – shows no sign of ending.
Trade data published by the South African Revenue Service (Sars) on Wednesday showed a trade deficit of R11.4-billion in March – a jump from February’s downwardly revised (initially R1.7-billion) R600-million surplus.
BNP Paribas Cadiz Securities economist Jeffrey Schultz said a deficit of between R1.5-billion and R5-billion was expected.
Sars reported a 3% month-on-month fall in exports to R80.3-billion, while imports jumped 11.6% month-on-month to R91.7-billion.
“Underpinning the sharp uptick in imports was a 77% month-on-month rise in vegetable product imports; a 13% climb in machinery and electronics; a 37% increase in mineral products and a 9% rise in vehicle and transport equipment imports,” Schultz noted.
Investec economist Annabel Bishop attributed the rise in imports to a R7.2-billion jump in oil imports as “expensive oil-powered generators” were relied upon to provide power to the grid in peak periods.
This had negatively impacted trade, with the months of March and April experiencing limited spare electricity capacity as generating units were shut down to undertake preventive maintenance ahead of the winter months.
“Electricity constraints have required South Africa’s large industrial companies (foundries, smelters, mines) to either temporarily shut down or cut back on 20% of production, well above the 10% previously requested … [ a move that would likely] negatively impact first-quarter economic growth,” she said.
However, Schultz believed that the strike in the country’s platinum sector, which had entered its fourteenth week, pointed to “further downside risk to the trade account in upcoming prints given that PGM’s are South Africa’s single largest export”.
“It remains clear that the impact of the PGM strikes are beginning to take their toll on South Africa’s external accounts with precious metal and stone exports slipping 4% month-on-month and related mineral product exports falling 17% in March,” he said.
Bishop set this aside, noting that very little of the export decline could be attributed to precious metals and stones, including platinum, as this category only fell by R500-million.
“And, so, the strike action in the platinum sector has not been recorded as the reason for the March deficit,” she stated, acceding, however, that while Anglo American Platinum, Impala Platinum and Lonmin had previously indicated that inventories of refined platinum and pipeline stock were sufficient to meet contractual obligations in the first quarter of the year, the effects of the strike might be visible in the April trade data.
Nedbank’s Economic Unit added that, while a normalisation of production activities in the domestic economy was required, some improvement could be expected in the coming months on the back of the weaker rand and a recovery in traditional trading partners.
“Elevated global commodity prices coupled with the weaker rand and the strong import propensity of the country’s infrastructure build programmes, we believe, continue to prop up the country’s import bill,” Schultz concluded.