Commodity price developments and the minerals industry

This paper analyses the reaction of the minerals industry to Commodity price developments in South Africa. This is achieved by augmenting a Taylor rule type central bank monetary policy reaction function with a measure of commodity prices. The results provide evidence of a statistically significant effect of an increase in commodity prices on output of the mining industry, which peaks at 0.69 percentage points after 3 months, with statistically significant impact that lasts up to 5 months. This is consistent with the hypothesis that the prices of Commodities and economic growth co move in the short run, while the large and persistent movements in commodity prices exhibit no such changes in economic growth, particularly in most resource rich countries. The results have also shown that the effect of the increase in output of minerals industry on commodity prices is, however, statistically insignificant in all periods, which implies inadequate market share of the minerals industry in commodities markets. The results support the hypothesis of a transitory comovement of the prices of commodities and output of the minerals industry, hence policy makers and mining authorities should continue to monitor developments in commodity prices to support overall economic activity as well as the minerals industry.