According to the data, metals and engineering sector production declined by more than 6% (when the first two months of 2016 are compared with the first two months of 2015), and by 4,3 over the last 12 months (ending February 2016 compared to the same period in 2015).

SEIFSA Chief Economist Henk Langenhoven said that when adjusted for the effect of the July 2014 strike on production, the full-year figure is even worse (-6%).

“However, the February 2016 production was 2,8% higher than in January. Month-onmonth improvements must continue for some time though, to affect a lower turning point in the downward spiral, which the sector finds itself in currently,” Mr Langenhoven said.

Mr Langenhoven said that the month-on-month improvement may reflect the (anecdotal and purchasing managers’ index evidence) that inventories are being worked down, meaning that production needs to be increased to keep inventories at ‘normal’ levels – catering for future demand.

“As we stated earlier when the March purchasing managers’ index (PMI) was released, a lot will depend on growth in demand, from both the domestic and export clients,” Mr Langenhoven said.

Although the general PMI sub-index indicating ‘new sales’ orders for manufacturing as a whole, has improved over the last three months (+10% on average) the indications from the Bureau for Economic Research’s (BER) quarterly manufacturing survey showed different, and very weak domestic and export sales orders for the metals and engineering sector, specifically.

Only the fabricated metals industries indicated that their export orders for the 2nd quarter of 2016 have improved; all of the rest indicated lower export orders for the 2nd quarter.

Domestic sales orders for the 2nd quarter have deteriorated for all of the sub-industries in the sector, which indicate the uncertainty about sustained production improvements.

“The production numbers released today are not in conflict with the BER manufacturing survey (confidence) results. ‘Structural metal’ production shows some improvement as well as ‘electrical machinery and equipment’ production. Plastic and rubber production are also accelerating. All the other sub-industries recorded lower production over the first two months of 2016 as well as on a12-month basis,” Mr Langenhoven said.

Sustained improvement in economic conditions (mining, construction, automotive and exports) is necessary to reverse the downward trend in the sector, and although the PMI data released last week and today’s production numbers reflect improvements, it is over the very short term.

“This data does not change our view that recovery will only be felt towards the end of 2016 if not the middle of 2017,” Mr Langenhoven concluded.

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