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Press Release – 2016/08/05: SEIFSA EXTREMELY CONCERNED ABOUT CONTINUING PRESSURES IN THE METALS AND ENGINEERING SECTOR, WHICH THREATEN MORE JOBS

By 5th Aug 2016Sep 20th, 2019No Comments

“The latest capacity utilisation data for the sector, as well as the July purchasing managers’ business activity sub-index, do not indicate the bottoming-out of the current contraction experienced by the metals and engineering sector,” he said.

Mr Langenhoven explained that, after a slight improvement in resource utilisation during the first quarter, the sector fell back into lethargy by nearly 0,8% in the second quarter, with utilisation recorded at 77% against the full capacity benchmark of 85%. He said that the suspicion that the first-quarter improvement was short-lived because it was due to an inventory rebuild and was not a sign of the bottom of the trough proved to be true.

He said that capacity utilisation during the first half of the year was a full 1% lower than during the first half of 2015 and had now declined by 2,4% over the 12-month period.

“Anecdotal evidence from both primary producers in the sector and merchants taking orders from downstream industries, as well as the mining and construction sectors leads to a description of the situation in the following words: ‘the bottom has fallen out of demand’ and ‘we are becoming stockists again’. The second quarter of 2016 was better for only the rubber, plastics and basic ferrous sub-industries,” said Mr Langenhoven.

He added that the trends in the latest (July) purchasing managers’ business activity sub-index that leads metals and engineering production by 12 to 18 months unfortunately confirmed the conclusions made above. He said that while the index had declined by only 1,7% over the first seven months of 2016 on the same period during 2015, recently there appeared to be renewed severe weakness.

July 2016 was nearly 9% lower than June 2016 and 5% lower than a year ago (July 2015), he said.

Mr Langenhoven said the 4,2% decline in the business-activity index over a 12-month period reflected persistently lower confidence and possibly a prolonged period of depressed metals and engineering production levels into 2017.

“The PMI indicates that order backlogs increased during the year as producers tried to fulfil orders and their inventories declined,” Mr Langenhoven said.

Purchasing commitments declined strongly (-10%) and expectations of future business conditions declined by nearly 20%. A further indication that the situation has recently turned for the worse is that the prices sub-index had declined by 11% in July on June. Mr Langenhoven said this showed that price increases during the year were not sustainable due to weak demand. He added that actual prices of some products produced in the sector, as measured by SEIFSA, had started to decline, supporting the trend in the price confidence indicator of the PMI.

SEIFSA expected a 3% contraction in production during 2016 on last year: the 5% annual and 6% year-to-date actual declines are, therefore, worse than the Federation had anticipated and were of extreme concern. Mr Langenhoven said this was particular the case if one considered that production declines during any comparable period over the last one-and-a-half years had been more severe than the recorded job losses.

He said that this means that job losses are likely to accelerate over the coming months, in keeping with the worsening trend since 2015: nearly 5000 jobs were lost during quarter last year, nearly 7000 in quarter 4 last year and over 9000 during quarter 1, 2016.

“The metals and engineering sector is in a critical condition and it seems more certain that the patient will suffer more setbacks over the next six months before improvements can be expected,” Mr Langenhoven concluded.

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