Speaking after the release of production numbers by Statistics South Africa, SEIFSA Chief Economist Henk Langenhoven said that it was very worrying that production in the sector fell by nearly 4% in August when compared to July this year and by 8% when compared to the same period last year. Production data for the first eight months of the year showed a 1,4% decline and a 1,8% decline over the 12-month period ending in August this year.

Both readings are worse than in July.

Forward-looking confidence indicators also point to tougher conditions ahead;

  • Although the Bureau for Economic Research’s (BER) third-quarter manufacturing survey shows a slight improvement in confidence for manufacturing in the third quarter, the expected business conditions in 12 months deteriorated markedly;
  • This is in line with the monthly business activity sub-index of the Purchasing Managers Index, which declined further in September;
  • This is is supported by the BER’s overall business confidence index, which showed that sales of intermediary goods (chemicals, basic metals and metal products) as well as capital goods (transport and machinery and equipment) contracted in the third quarter.

“This picture is consistent with our warning that these indicators pointed to worse production numbers for August, and almost certainly for September as well. Anecdotal evidence from SEIFSA members in this regard is most disturbing,” Mr Langenhoven said.

Wild fluctuations in performance amongst the different sub-industries are still evident when August 2015 is compared with August 2014.

A similar comparison between August and July reveals an identical problem. Only rubber (+8%), plastics (+0,9%) and general machinery (+6,2%) production improved during the month.

Twelve-month seasonally-adjusted comparisons show more consistent results, although they also vary from a +3,7% (electrical machinery and equipment) improvement to a decline (in non-ferrous production) of 6,8%. The results were as follows (in declining order of performance):

  • Electrical machinery and equipment – 3,7%;
  • Special Machinery – 2,2%;
  • Other fabricated metal products – 0,6%;
  • Rubber – no movement;
  • Household appliances – -1,9%;
  • Basic iron and steel – -1,7%;
  • Plastics – -2,9%;
  • General purpose machinery – -4,6%;
  • Structural steel – -4,7%;
  • Non-ferrous – -6,8%.

Mr Langenhoven said that, read in conjunction with the lack of confidence reflected in several indicators, the latest data for the metals and engineering sector mean that a lower turning point is not in sight yet.

“There is renewed uncertainty about international economic recovery, with the International Monetary Fund warning about lower growth and vulnerability of commodity-dependent and undiversified economies. South Africa’s mining production was 3,3% lower over the last three months (up to August) compared to the previous three months (and the coal miners are on strike), and domestic auto sales have deteriorated further. Construction activity has not been encouraging either,” Mr Langenhoven said.

He said that higher local content in domestic procurement by the public sector can help to turn the situation in the metals and engineering sector around.

“However, it is very disturbing to hear of contracts being awarded to Indian and European suppliers when capacity exists locally,” Mr Langenhoven concluded.