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Press Release – 2015/06/12: “PERFECT STORM” OF DECLINING GROWTH THREATENS COMPANIES’ SURVIVAL IN THE METALS AND ENGIEERING SECTOR

By 11th Jun 2015Sep 20th, 2019No Comments

On an annualised basis, production has declined by 3,8% when April 2015 is compared to April 2014. Production in April was only 0,9% lower than in March, but the first four months of the year recorded a 3,3% decline compared to the same period in 2014.

Speaking after the release of the production figures, SEIFSA Chief Economist Henk Langenhoven said fears that the negative sentiments reflected by the business activity sub-index of the purchasing managers index (PMI) and the quarterly manufacturing surveys of the BER would be followed by actual production declines have now come to pass.

“The flicker of light reflected by the improved January production data has now well been snuffed out,” Mr Langenhoven said.

He added that virtually every component industry of the metals and engineering sector recorded declines in April compared to March, barring plastics (+2,6%), non-ferrous (+3,2%) and general machinery (+1,1%), collectively accounting for 25% of the sector.

For the four months of the year, only basic iron and steel (+6,2%), other fabricated metals (+1,4%) and special machinery (+4,8%) production grew, accounting for 43% of the sector.

Over a 12-month, seasonally-adjusted period, none of the component industries expanded:

  • General purpose machinery: -10,5%,
  • Structural steel: -9,1%,
  • Rubber products: -8,3%,
  • Non-ferrous: -7,3%,
  • Household appliances: -4,3%
  • Plastics: -3,5%,
  • Electrical machinery and equipment: -3,2%
  • Special purpose machinery: -1,2%
  • Basic iron and steel: -0,5%

“The April data released by StatsSA today effectively dashed any hopes that the sector will show any improvement during 2015. It is now clear that the small recovery recorded over the first two months was simply a normalisation after the instability of late 2014,” Mr Langenhoven said.

He said that exports did not improve during this period. Customs and excise data show that plastics and rubber exports declined by more than 30%, with base metals and machinery and equipment declining by almost 10% in dollar terms over the first five months of 2015. Capacity utilization data also started to decline again during the first quarter.

Mr Langenhoven said that theoretically the link between current and future production was the level of inventories – as inventories increased due to low or declining orders from customers (export or domestic), production had to be curtailed.

“There is an inverse relationship between inventories and business confidence.

Inventories are increasing in the sector, according to data from the Kagiso/BER PMI as well as the BER Quarterly Manufacturing Surveys. With virtually all business condition indicators for the sector pointing downwards, it indicates that production will slow down further in the coming months.

“This will inevitably lead to a ‘perfect storm’ with potentially serious consequences for companies’ survival and employment,” concluded Mr Langenhoven.

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