Mining Cost Index Rises 1.1% in May as Global Cost Pressures Ease and Oil Prices Hit 2025 Low

By comparison, the producer price index (PPI) for final manufactured goods rose by just 0.1% in May, following a 0.5% increase in April.

MCI Cost Index

Excluding labour costs, the MCI cost index recorded a year-on-year decline of 0.7% in May, indicating deflationary conditions. This is a positive development, reflecting a broader easing of global cost pressures.

Key contributing factors include a decline in crude oil prices, reaching a 2025 low of $64.10 per barrel in May, as well as lower interest rates and an improvement in the nominal effective exchange rate against key trading partners.

These factors facilitated cheaper intermediate imports.

Electricity

Electricity costs remain elevated, continuing to register double-digit growth following NERSA’s approved tariff increase of 12.74% for Eskom’s 2025/26 financial year. This adjustment, which applies to direct Eskom customers, came into effect on 1 April 2025.

Looking ahead, electricity costs are expected to rise further in next month’s data, as mid-June marks the start of the winter tariff period during which electricity rates are typically 25–30% higher.

To some extent, the impact of rising electricity costs has been offset by a 13.8% year-on-year decline in coke and refined petroleum product prices, which have eased steadily over the past year as the oil price moved lower and the rand gained against the US dollar.

Labour costs

Labour costs also continue to be a significant contributor to overall input costs, with the sector disbursing approximately R49bn in employee compensation during the first quarter of 2025 alone.

Water

Additionally, water costs rose by 4.6% year-on-year.

As a newly introduced component in the index, water is a critical input for mining operations, and its inclusion enhances the comprehensiveness of the index.

Financing

Financing costs, by contrast, have eased considerably. Since initiating its rate-cutting cycle in the second half of 2024, the South African Reserve Bank has reduced the prime lending rate by a cumulative 100 basis points.

A further 25 basis point cut is anticipated today, which would provide additional relief to capital financing costs.

Platinum group metals

In May, the PGM sector recorded the highest rate of increase in input cost inflation, more than double the sector average.

This marks a shift from previous months, where the gold sector consistently faced the greatest cost pressures.

The elevated inflation in PGMs is partly attributed to the difficulty of mining deep-level ore bodies and sustained upward pressure on labour costs.

While the sector has undergone significant restructuring over the past year to improve profitability, input cost pressures remain comparatively high.

The gold sector followed closely behind, with notable increases also observed in other metallic minerals, chrome, and other mining and quarrying.

In contrast, the manganese and coal sectors experienced the lowest input cost inflation among the major commodities, reflecting more stable cost dynamics in those subsectors.

Excluding labour, the index reflects deflationary conditions, highlighting a broader easing in global cost pressures.