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By 9th Sep 2016Sep 20th, 2019No Comments

The July 2016 figures, from Statistics South Africa (StatsSA), paint a dismal picture of activity on production, which directly affects the sub-industries in the metals and engineering sector.

Commenting on the data, SEIFA Chief Economist Henk Langenhoven said the July 2016 production numbers confirmed the cliff-hanger scenario against which the Federation has consistently warned.

July 2016 production was 2,1% lower than that in the previous month, while year-to-July 2016 production was 4% lower than the previous year. When analysed over a 12-month period, the recent numbers are 5,4% lower than in 2015.

“SEIFSA warned on 6 September that the healthier gross domestic production and manufacturing numbers for the second quarter of 2016 were not a reflection of the persistent dire situation in the metals and engineering sector,” Mr Langenhoven said

He said that notwithstanding the helicopter view of the numbers released this week, a closer look at the metals and engineering sector reveals a grim picture, indicating further risks to jobs and business stability.

The production performance of some sub-industries in the metals and engineering sector is on an opposite direction to the gross domestic production and manufacturing:

  • On a 12-month basis, only electrical machinery and equipment manufacturing showed growth (+5,5%).
  • Over the seven months of 2016, electrical machinery and equipment grew (+3%) and “other fabricated metal” production by (+0,5%). Basic ferrous metal production was on par with a year ago, while all the other groupings contracted, resulting in a cumulative 4% decline.
  • Another cause for concern is that July production was 2,1% lower than June’s, indicating a worsening performance than that even in the very low first half of the year.
  • Only rubber (+1%), plastics (+1,9%), special purpose machinery (+6%) and household appliance production (+3,2%) improved.

Explaining the chain reaction that continues to hurt the sector, Mr Langenhoven said that the numbers are the result of continued deteriorating spending on gross fixed capital investment (-4,6%) in the economy. The demand drivers for the metals and engineering sector underpin fixed capital investment spending.

Spending on construction works (civil and structural steel construction) declined by over 14% and spending on machinery and other equipment went down by as much as 13%. He emphasised that the latter two components contribute over 60% of capital formation in the economy and represent the bulk of demand for the sector.

Mr Langenhoven said that it did not help matters that the sectors in the economy driving the relevant fixed investment which stimulates production in the metals and engineering sector are not doing well either.

The numbers show that:

  • Production in the mining sector recovered from a very low base, but is still 7,9% lower for 2016 (year-to-July) than in the previous period;
  • The metal-intensive components of construction suffered double-digit declines;
  • Production in the automotive sector is nearly 6% down year to date and 5,6% down on a 12-month basis (ending in August 2016), although exports seem to be accelerating and bringing some relief in this regard; and
  • According to the Bureau for Economic Research (BER), the export sales of basic (ferrous and non-ferrous) metals were slightly higher in the second quarter of 2016, with this being the only sub-industry recording improved export sales.

Mr Langenhoven said that according to available survey results from respondents to the BER quarterly manufacturing survey, the third quarter will be tougher than the second quarter, with all sub-industries in the sector being less confident about the third quarter than they were over the last 12 months.

Mr Langenhoven added that perceptions about third-quarter production reflected by the manufacturing survey are more negative than those reflected by the purchasing managers’ business activity sub-index. The latter index leads metals and engineering production by between 12 and 18 months and, therefore, looks further into the future than the manufacturing survey.

“The two surveys, therefore, seem to indicate that production in the immediate future will be weaker still, but that there may be hope for improvement towards the end of 2017. These are harsh conclusions of grave concern,” Mr Langenhoven said.

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