Persistent Dip In PPI Adds Further Strain To Embattled Manufacturers

Johannesburg, 28 May 2020 – The persistent dip in the intermediate producer price index (PPI) is adding further strain to embattled manufacturers operating in the metals and engineering (M&E) sector, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

Speaking after the release of PPI data by Statistics South Africa (Stats SA) today, SEIFSA Economist Marique Kruger said given the prevailing tough conditions, the added pressure in the form of decreasing selling prices is disconcerting to companies which are unable to pass on increased cost pressure from factors affecting supply on to the market.

The latest PPI data indicate that the annual percentage change in the PPI for intermediate manufactured goods, which is measured in factory-gate prices, slowed from 1.8 percent in February 2020 to 0.0 percent in March 2020. The slowdown is consistent with the annual change in the PPI for final manufactured goods, which also slowed from 4.5 percent in February 2020 to 3.3 percent in March 2020.

“Businesses in the broader manufacturing sector in general and the M&E cluster of industries in particular are operating under increasingly difficult conditions. The decreasing PPI prevents companies from improving on tight margins,” Ms Kruger said.

According to Ms Kruger, the situation is further exacerbated by low domestic demand, high administered charges and raw materials prices and volatility in input costs underpinned by a volatile exchange rate. Moreover, the national lockdown as a result of the global coronavirus pandemic has thrown a spanner in the works, with a huge distortion of supply chains further exacerbating the situation for businesses.

Encouragingly, manufacturing companies which have been operating with low employee numbers  and scarce raw materials stock are looking forward to Alert Level 3 which kicks in on Monday, 1 June, when  they will be able to operate with up to 100% employee numbers and robustly produce or sell their goods.

Although it is crucial for policy makers to increase focus on supply-side interventions, Ms Kruger says, SEFSA recommends even greater attention on the need to boost short- term, demand-side measures in order to provide an impetus for distressed businesses.

“The initiative will help reboot industrial activity in the local economy as increased demand will invariably boost both production and selling prices for intermediate and final goods. There is also a need to implement interventions aimed at directly reducing struggling manufacturers’ input costs in the short term in order to alleviate cost pressures, with extended benefits for businesses,” Ms Kruger concluded.

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