May Production Contracts as West Asia Conflict Disrupts Oil Flows and Raises Fuel Costs

Two loaders work outside the ore processing and recovery plant at De Beers' Snap Lake Diamond Mine, Northwest Territories, Canada. Image credit: YK Times, CC BY-SA 3.0, via Wikimedia Commons

May marked the first contraction in production in five months and proved challenging on two fronts.

Intensfied conflict in West Asia

First, the escalation of the West Asia conflict between Israel, the US and Iran intensified global economic uncertainty and disrupted oil trade flows through the Strait of Hormuz, through which a fifth of the world's oil flows.

As a result, petrol and diesel prices reached their highest levels for the year in May, increasing cost pressures across mining operations and supply chains.

The disruption to global trade and heightened market uncertainty also weighed on commodity markets and production activity, which is reflected in May’s production data.

This is reflected in May’s production data, with all major commodities recording negative annual growth rates, except manganese and chrome.

The resilience of these two commodities was largely supported by stockpiling in China, South Africa's largest export market, as consumers sought to secure supply amid heightened global uncertainty.

Commodity prices drop

Second, commodity price trends began to shift, with gold and platinum group metals (PGMs) retreating in May after sustained gains.

Gold and PGMs, which had enjoyed sustained price gains over recent months, retreated in May, marking the start of a broader shift.

This decline continued through June and into July, signalling a moderation in the upward price cycle that had supported mining revenues and profitability.

Year-to-May production numbers, however, are still pointing upward.

Overall, total mining production from January to May 2026 was 3.5% higher than during the same period in 2025.

However, the pace of expansion has slowed consistently over recent months, suggesting that the production recovery has not been sustained.

Despite this moderation in annual growth rates, elevated commodity prices continue to support production activity month on month.

In May, total mining production increased by 1.3% month-on-month (m-o-m), with gold production rising by 2.3% and production excluding gold increasing by 1.2%.

Elevated commodity prices, despite recent declines, help explain this short-term expansion in output.

Under pressure

However, several commodity groups remain under pressure, as the following examples show.

Coal production is 5.8% lower during the period January–May 2026 compared to the same period in 2025, reflecting weak demand from Eskom amid declining electricity generation and consumption.

Iron ore production is down 7.8% year-to-date, largely owing to persistent rail constraints.

Diamonds warrant special mention.

The industry is under severe pressure, with production declining by 6.1% and several operations, including De Beers, announcing production stoppages and issuing Section 189 retrenchment notices.

Without urgent measures to support the sector, further mine closures remain a real risk.

Movements in commodity prices explain many of the production trends observed on both a monthly and annual basis, linking the earlier shifts to the production data.

While prices for gold, PGMs and export coal have generally trended upward since mid-2025, this trend began to reverse in May 2026.

As a result, mining production has continued to expand month on month, supported by the relatively elevated price environment, while year-on-year production growth has begun to weaken and, in several cases, turn negative.

As noted earlier, strong Chinese demand has continued to support manganese and chrome production.

Chinese stockpiling activity has translated into robust export volumes, with manganese exports of approximately 2.2 million tonnes in May.

On a year-to-date basis, manganese exports are 19.2% higher (Jan-May) than during the same period in 2025.

Chrome exports were similarly strong, amounting to approximately 2.4 million tonnes in May and standing 42.8% higher year-to-date than in 2025.

Elevated commodity prices have also continued to support mineral sales, despite signs of softening in certain markets, reinforcing the earlier gains in production and revenue.

Sales on a high

Total mineral sales from January to May 2026 were approximately R100bn higher than during the corresponding period in 2025.

The increase was driven primarily by exceptionally strong performances in the gold and PGMs industries.

Over the same period, PGM sales were 109.4% higher than in 2025, while gold sales increased by 44.7%.

Strong growth was also recorded in chromium (+37.3%) and nickel (+21.8%) sales.

Overall, the surge in mineral sales reflects the substantial support provided by elevated gold and PGM prices during the first five months of the year, connecting price strength to sales growth.

According to Minerals Council of South Africa (MCSA) economist André Lourens, although a single month's data does not establish a trend, May could signal some moderation in sector momentum.

The coming months will provide a clearer indication of the trajectory of mining activity for the remainder of 2026, and of whether that moderation persists.

Lourens says that to unlock structural growth in South Africa's mining sector, lower the cost of doing business and improve global competitiveness, priority should be given to affordable electricity, accelerated logistics reform, expanded private sector participation in rail and transmission infrastructure, and targeted exploration incentives for future mining production.

In particular, the lower electricity tariff dispensation should be extended to the rest of the mining sector, which has seen the cost per kWh of electricity increase by 1,185% since 2003; rail reform should be accelerated through increased private sector access and freight allocations, and the Independent Transmission Programme should be expedited to unlock investment and network expansion.

Lourens believes that together, these measures would improve the operating environment, stimulate investment and support sustainable growth in the mining sector, which in turn stimulates downstream industries.