Commodities, shipping in focus in watershed South African election

Polls opened in South Africa’s most consequential election in decades on May 29 as the ruling ANC faces the prospect of losing its majority, with implications for commodity flows, mining and global shipping.

If the African National Congress, which has ruled Africa’s most industrialized nation since the end of apartheid, wins less than 50% of the vote, it would have to seek smaller coalition partners.

A 40% vote share would force it to partner up with more prominent rivals, including the far-left Economic Freedom Fighters and MK, run by former president Jacob Zuma, or the liberal Democratic Alliance.

Pre-election polls put ANC support at around 45%. Analysts say that while an ANC-DA coalition would likely be business-friendly, a coalition with far-left populists could spark an investor exodus.

“The ANC has suffered a gradual decline in support since 2004 …driven by the ANC government’s failure to address a plethora of socioeconomic issues, including high unemployment, widespread criminality, and regular power cuts,” said Aleix Montana, Southern Africa analyst at Verisk Maplecroft. Economic growth has been sluggish for a decade, hindered by rolling blackouts and a feeble transport network.

However, the country remains the region’s top investment destination, with gas, renewables and mining still seeing significant inflows, so the prospect of a chaotic post-election period could affect commodity markets. South Africa is a major metals and mineral exporter as well as a hub for oil storage, refined products and bunkering following the Israel-Hamas war.

Mining headwinds

Gold and transition minerals are among South Africa’s largest exports, while the country is the world’s seventh-largest coal producer. According to Minerals Council South Africa, the mining sector contributed Rand 425.6 billion ($23 billion) to South Africa’s GDP in 2023, representing 55% of total exports in the first 11 months of 2023. Around 80% of South Africa’s commodity export revenue for the year come from PGMs, coal, gold and iron ore exports.

In its manifesto, the ANC said it aims to increase mineral exports to global and continental markets, leveraging the African Continental Free Trade Area and BRICS Plus, but would also look to implement export taxes on essential raw materials like cobalt, lithium, graphite, chromite, manganese and platinum to encourage local value addition.

Montana said the “remote prospect of the left-wing EFF or MK parties forming a coalition government with the ANC would concern mining companies as both parties advocate for the nationalization of mines.”

Meanwhile, “the inclusion of the DA in a coalition government would be welcomed by the business sector, as it has pledged to encourage investment and is opposed to the existence of a state owned mining company,” he said.

The mining sector has been facing headwinds in recent years, including increased power load-shedding from state-owned utility Eskom and logistical issues due to rail infrastructure failures.

As a result, PGM production in 2023 fell 11% year on year to 239.9 million mt, coal production was down 0.7% at 228.5 million mt, gold output was down 0.8% at 95.6 mt and chrome was steady at 19.1 million mt, according to the MCSA. By contrast, iron ore production rose 3.3% year on year to 65.8 million mt and manganese output was up 2.4% at 19.6 million mt.

Lower mining output resulted in mineral sales falling year on year for the first time since 2015.

South Africa is also a hub for critical minerals produced elsewhere in Africa. Cobalt mined in the resource-rich Democratic Republic of Congo is often railed to the port of Durban. In 2023, 1,045.07 mt of cobalt was shipped from Durban, up 13.4% year on year, according to SARS customs data.

However, logistical bottlenecks in South Africa have constrained copper and cobalt exports in recent years, which along with efforts to counter Chinese dominance of African mineral mining has fueled the US and EU-backed Lobito Corridor rail project connecting Zambia and the DRC to Angola’s Lobito port.

“The Minerals Council cannot comment on the outcome of the election,” the council said in a statement to S&P Global Commodity Insights. “It will work with the government of the day to grow the mining industry by encouraging exploration and investment in new mines for the benefit of all South African citizens.”

Explorers’ sweetshop

South Africa is one of the world’s most significant oil storage hubs, with Saldanha Bay holding almost 60 million barrels of crude. Located between the demand centers of Europe and Asia, it is a popular option for traders.

However, the country also has significant oil and gas deposits, comparable to neighboring Namibia, whose Orange Basin has become a leading frontier destination following major discoveries by TotalEnergies and Shell in 2022. According to estimates, South Africa could hold as many as 27 billion barrels of oil and 60 trillion cubic feet of gas.

Today, TotalEnergies and Shell hold acreage in South Africa, along with smaller explorers such as Impact Oil & Gas and Eco Atlantic. However, above ground risks — including protests, legal challenges and sluggish legislating — have left South Africa lagging its more successful neighbor. A number of majors, including ExxonMobil, Equinor and Eni have opted to leave.

“South Africa is a bit of a tale of two halves, the above-ground and the subsurface,” Siraj Ahmed, CEO of Impact, told Commodity Insights in a recent interview. “From a subsurface perspective I would go as far as saying it’s a sweetshop for explorers.” However, uncertainty around fiscal terms and environmental protests mean “the above-ground risk has become disproportionate to the opportunity,” he said.

The country has also struggled to maintain its refineries, having seen half its plants close in recent years. Today, the country has just two active refineries, Astron’s Cape Town refinery and Natref, with a capacity of 218,500 b/d. On May 27, the state-owned Central Energy Fund agreed to buy the shuttered Sapref refinery in Durban from BP and Shell.

According to S&P Global Commodities at Sea data, South African refined product imports have steadily risen as domestic capacity has fallen, reaching an all-time high of 345,800 b/d in 2023, excluding fuel oil.

According to its manifesto, the ANC aims to restore domestic refinery capacity to ensure security of supply and establish a National Oil Company for refining and petchems.

Bunkering opportunities

The election has also come amid surging vessel traffic around South Africa, with shipping firms diverting their ships from the Red Sea to sail via the Cape of Good Hope following attacks by Yemen’s Houthi fighters.

According to IMF PortWatch data, the average daily ship transits via the Cap stood at 84 in the week ended May 21, up from 49 a year ago.

The diversions have led to more business opportunities for bunker suppliers in Durban, Cape Town and Richards Bay, as South Africa’s largest refueling hub, Algoa Bay, faced supply issues due to a customs dispute.

Amid stronger bunker demand, the country’s imports of fuel oil and residues have averaged 66,400 b/d in May, up from 8,500 b/d in May last year, according to CAS data.