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PPI data point to margin pressure in the metals and engineering sector, says SEIFSA

Johannesburg, 27 June 2017 – The Producer Price Inflation (PPI) data released by Statistics South Africa (StatsSA) today indicate significant margin pressure for companies in the metals and engineering sector, with a negative deferential recorded between input cost and selling price inflation, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said.

SEIFSA Junior Economist Roberta Noise said the PPI Index released by StatsSA for May 2017 showed a 4.8% annual change in final manufactured goods. This is up by 0.5% when compared to April 2017. She said that the annual increase was driven by food products, beverages and tobacco products with a 1.9 percentage point contribution, followed by coke, petroleum, chemical, rubber and plastic products contributing 1.6 percentage points.

Ms Noise noted that the intermediate manufactured goods changed to 3.1% in May 2017 from 5% in April 2017 on an annual basis. Contributors to the annual change include chemicals, rubber and plastics (1.6 percentage points) as well as sawmilling and wood (1.3 percentage points). The most significant contributor to the monthly 0.3% change was coke, petroleum, chemical, plastics and rubber products, with a 0.4 percentage point contribution.

Ms Noise said that SEIFSA’s input composite cost index showed a 11.4% increase for May 2017. The growth in input cost inflation relative to the growth in selling price inflation reflected in the PPI Final Manufactured and Intermediate Manufactured continues to record a significant negative deferential gap between input costs and final selling price inflation.

“The fact that the difference between input cost and selling prices is not narrowing draws one to the logical conclusion that producers are carrying this cost differential in the market, putting their margins under severe pressure,” Ms Noise added.

The Intermediate manufactured goods for the Production Price Index, which represents prices of products in the metals and engineering sector more extensively, is growing slower than what the industry is experiencing relative to input costs.

“The picture remains gloomy for the industry, with downward price rigidity at the forefront,” Ms Noise concluded.

 

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