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JOHANNESBURG, 25 FEBRUARY 2021 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) today released its flagship publication, The State of the Metals and Engineering Sector Report 2020-2022.

Compiled by SEIFSA’s Economic and Commercial Division, the report is a comprehensive review of the Metals and Engineering (M&E) sector over the past year, taking into account local and external economic variables.

SEIFSA Chief Economist Chifipa Mhango, who led the compilation of the report, revealed that the sector faced significant obstacles over the past year, some of which have plagued the industry prior to 2020, such as rising energy costs, unreliable energy supply, rising logistical costs, limited raw material supply, exchange rate volatility, capacity under-utilisation, subdued demand, declining net operating surplus and rising imports.

However, the report findings show that the COVID-19 pandemic and lockdown measures implemented by the Government negatively impacted manufacturing activity and the broader M&E industries.

“The impact of lockdown measures led to a decline in the production of products such as steel, one of the key sub-sectors within the M&E sector, as well as a significant drop in its trade. Global commodity prices are influenced by production in this sector and lockdown measures significantly affected the prices, which dropped to their lowest levels in April last year,” Mr Mhango said.

The report shows that production levels in the M&E sector fell to their lowest levels in April 2020, dropping 70,7% year on year due to the lockdown restriction measures that were implemented in March 2020. The sector was 13.6% weaker in 2020 when compared to 2019, with the basic iron and steel sub-sector being the hardest hit, being -23.4% weaker in production than in 2019.

Production sales also dropped to their lowest level, falling 69.3% year on year in April 2020. M&E sector production sales were 12.3% weaker in 2020 when compared to 2019, with the basic iron and steel sub-sector being the hardest hit, at 20.5% weaker in production sales than in 2019.

Capacity utilisation (CU) was also impacted by lockdown restrictions, with total manufacturing CU dipping to 59.8% in the second quarter of 2020. Within the M&E sector, CU was at 52.8%. However, as lockdown restrictions were eased, there was an uptick, with total manufacturing utilisation increasing to 72.9% in the third quarter of 2020 and 66% in the M&E sector. In 2020 CU was 72.3% for manufacturing and 67.6% for the M&E sector.

With borders closed as part of measures to stop the spread of the Coronavirus, trade in South Africa was brought to a screeching halt. In the M&E sector, both import and export values dropped between the first and second quarters, with imports dropping from R134-billion to R105-billion and exports dropping from R92-billion to R59-billion.

According to the report, employment in the overall manufacturing sector remained on a downward trend, with the M&E sector shedding 25 857 jobs during the lockdown period.

However, the report also shows that the easing of restrictions led to a revival of industrial activity. “The revival of industrial activity thus led to an uptick in the global Purchasing Manager’s Index (PMI), which rose to levels above 50 in the later months of the year, a reflection of expansion of industrial activity in the manufacturing sector,” he said.

The third and fourth quarters of 2020 saw a rise in demand for construction and building material sales from a low level of R1.9-billion in April 2020 to a high of R12-billion in November 2020, he said.

“Business confidence also picked up to an index measure of 40 in the third quarter of 2020. However, the M&E sector was under pressure in 2020. Production remained weak throughout the year due to the impact of COVID-19 lockdown regulations, with a total production decline of -15.3% year on year. Production sales were also affected by the restrictions as demand from key market segments declined. Total sales to November 2020 amounted to R668-billion, which fell 13.4% year on year,” he said.

Still, the report paints a worrying picture for companies in the M&E sector, with decreasing price patterns in intermediate manufactured goods PPI since 2016. It shows that high electricity prices have compounded the existing gap between the selling prices for M&E intermediate goods and production. Of concern, as noted in the report, is the massive surge in prices of mining input products to 32.5% in 2020, which is higher than the price increases of intermediate manufactured goods, raising questions over the sustainability of the M&E sector.

As outlined in the report, the M&E sector is facing several pressures which have resulted in poor performance, according to most indicators.

“It is, therefore, critical that the Government supports the recovery of the sector through sustainable policy interventions, including the speedy implementation of the Steel Master Plan and other supportive measures,” Mr Mhango said.

Mr Mhango said there is reason to remain hopeful of recovery given some commitments made by the  Government:  ““In Thursday’s budget speech, Finance Minister Tito Mboweni said the Government has allocated R791.2-billion for public infrastructure spending, which will boost the M&E sector. The plans for the rolling out of COVID-19 vaccines as well as other investment incentives for the manufacturing sector also provide a platform to bring business confidence back to much higher levels to return industrial activity to full production.”

Concluding the report, Mr Mhango said  SEIFSA envisages projected growth of 0.8% for M&E sector production in 2021 and 0.9% for total manufacturing..

 

Ends

Issued by:

Mpho Lukoto

Communications Manager

Tel: (011) 298 9411 / 082 602 1725

Email: mpho@seifsa.co.za

Web: www.seifsa.co.za

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