Press Release - 2016/08/05: SEIFSA EXTREMELY CONCERNED ABOUT CONTINUING PRESSURES IN THE METALS AND ENGINEERING SECTOR, WHICH THREATEN MORE JOBS
“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.
URGENT COMMUNICATION TO ALL CEOs, MDs AND GENERAL MANAGERS ON AMENDMENT TO SECTION 13A OF THE PENSION FUND ACT
At its meeting on 1 August 2016, the SEIFSA Board advised that member companies be made aware of recent amendments to the Pension Fund Act that became effective from 28 February 2014. It is vitally important that member companies take note of and/or implement the points in this communication. Please click here for the letter.
SEIFSA encourages affected members to participate in review of customs duty on downstream steel products
The Department of Trade and Industry recently announced tariff protection measures to protect the basic ferrous industry in South Africa in a desperate measure to prevent the loss of another 30 000 to 50 000 in the metals and engineering sector. These measures brought with them downstream cost implications impacting the sector’s sub-industries, which need further protection.
Since the announcement, key industry players embarked on efforts to strike a balance between upstream and downstream producers regarding protection. These stakeholders included the Departments of Trade and Industry, the Department of Economic Development, ITAC and the business organisations in the sector.
Efforts for protection of the various parts of the industry are necessary since there are some metals and engineering products that are even further down the value chain, especially products with more added value. These have been under significant threat of imports, although they have less protection than the basic metals upstream.
To achieve this, ITAC has given notice, as per the Government Gazette of 22 July, for the review of the general rate of customs duty on various downstream steel products. These include steel products classifiable under tariff headings 72.17, 73.07, 73.08, 73.12, 73.18, 73.21, 83.02, 84.18, 84.26, 84.50, 84.51, 85.04, 86.01, 86.07, 86.09 and 94.06. The application process has also been simplified.
ITAC conducted a very detailed investigation of each one of these tariff headings to determine the scope for tariff increases and it is ready to support the sector wherever it can.
PRESS RELEASE - 2016/07/22: SEIFSA COMMENDS THE RESERVE BANK FOR LEAVING INTEREST RATES UNCHANGED
Commenting on the MPC’s decision, SEIFSA Chief Economist Henk Langenhoven said that stability in interest rates and a possible end to the upward cycle is very good news for the economy.
“Stable policies are crucial for the much-hoped for recovery of the South African economy, albeit a slow one. We are confident that the decision to keep interest rates unchanged will have a positive impact over time, largely by allaying fears of possible further increases, in the process stabilising, if not easing, debt and debt servicing burdens of households and companies,” Mr Langenhoven said.
He said that this was in line with global developments as the weak and uncertain international economic environment has led to accommodative actions by the world’s central banks and, in the process, enticed investors to seek higher yields in emerging markets.
“South Africa is already benefiting from this trend as is reflected in the inflow of funds into the local economy this year and the recent strengthening of the Rand. The positive impact of the Rand’s strength on inflation expectations cannot be underestimated,” he explained.
Mr Langenhoven said that, coupled with the latest positive news coming from certain sectors of the economy, with manufacturing being a good example, the MPC’s decision may spark further inventory rebuild in the economy and even positive investment decisions in anticipation of growth recovering.
However, he cautioned that continued weakness in international trade growth and, therefore, demand for South Africa’s export products was likely to continue to dampen export growth. For the same reason, oil prices eased again, especially since the Brexit announcement. This has also contributed to lower inflation.
Mr Langenhoven said the impact of unchanged rates on the metals and engineering sector will take time to be felt. He said that the announcement was likely to have a positive impact on consumer confidence and behaviour and may arrest the declines in car sales, which is a market for the sector’s products. He add that although the international commodity cycle appeared to be bottoming out, mining production was still declining, but at a much lower rate than before.
Mr Langenhoven said SEIFSA remained deeply concerned that demand from the metals and engineering sector was likely to remain subdued for some time, even with relief from unchanged rates.
He added that the MPC’s maintenance of the Repo rate has further benefits in other industries that link with the metals and engineering sector, such as construction.
“Construction activity is still subdued, but stable interest rates are positive in contrast to the depressing impact that a rise would have had. Although the quantum of transfer duties paid when buying a property and the value of mortgages are only early signs of recovery, both are positive at this time, being 11,2% and 5,4% higher than a year ago respectively,” said Mr Langenhoven.
From the Chief Executive Officer’s Desk - July to August 2016
A week, they say, is a long time in politics. How right they are!
When I wrote my column for the last issue of this magazine, the United Kingdom – also known as Great Britain – was very much a single country that was an important member of the European Union. Despite its occasional Euroscepticism, the UK’s membership of the European Union (EU) went back to 1970 when its membership application was eventually accepted after the French had relaxed their initial objection.
Since then, various Conservative Party and Labour Party governments have continued to keep the country within the EU, notwithstanding differences that they have had with the European Union from time to time. Throughout this period, the UK managed to maintain, with pride, its strong sense of identity based on its enviable history as a British empire in which “the sun never sets”. For instance, it held doggedly onto its own currency, the British Pound, instead of adopting the Euro, and onto its own immigration system, instead of allowing use of the Schengen visa which is more convenient for foreign travelers to much of Europe.
However, with anti-EU sentiment growing stronger in an increasing number of countries in Europe, largely in the aftermath of the 2008/9 global recession and following the recent massive wave after wave of illegal North African and Asian immigration into Europe, more EU scepticism manifested itself in Britain. With the rise of the United Kingdom Independence Party (UKIP), which made it into a coalition with the last Conservative Party government that succeeded Labour Prime Minister Gordon Brown’s administration, and with Conservative Party support wavering, Prime Minister David Cameron went into the 7 May 2015 general election with a promise to call a referendum on continuing UK membership of the EU.
That referendum took place just over a year later, on Thursday, 24 June 2016 – and the following day the disappointed, pro-EU Mr Cameron tendered his resignation as Prime Minister when the “Brexit” lobby won the referendum by a very slim majority.
Given the very close degree of the world’s interconnectedness today, the entire international community followed events in Britain, in the run-up to and after the referendum, with great interest. While the predominant international view was that the continued presence of the UK in the EU was in the interest of both that country and the international community, just under 52% of British voters saw things differently and made themselves heard.
The narrow margin of that victory means that the UK is now a country divided almost right down the middle when it comes to EU membership. For every five British citizens who are against continued EU membership, almost five others hold the opposite view – equally strongly. They believe that the country would be better served by continuing EU membership. Going forward, this marked difference of opinion is likely to punctuate most or all important policy discussions in that country.
More importantly, however, the outcome of the referendum may well have far more serious, long-term implications for the UK itself. As the referendum indicated, among the four provinces (they prefer the word “country”) that constitute that country, two – England and Wales – voted for “Brexit” and the other two – Scotland and Northern Ireland – voted in favour of continued EU membership.
Scotland registered the highest pro-EU vote, at 62%, throughout the UK, followed closely by London in second place at 59,% and by Northern Ireland in third place at 55,7%.
With Scotland itself traditionally having a relatively high percentage of residents who prefer an independent Scotland, there is now a greater probability that Scottish nationalists will again call for a referendum on Scottish independence. Following the outcome of the UK EU referendum, Scotland’s First Minister Nicola Sturgeon immediately served notice that a second referendum on Scottish independence may take place soon. She said that it was “democratically unacceptable” that Scotland – which voted 62% in favour of continued UK membership of the EU – faced the prospect of being taken out of the EU against its will.
In the September 2014 Scottish referendum, 44,7% voted in favour of Scottish independence, while 55,3% voted in favour of continued membership of the UK. Judging from the outcome of the British EU referendum, a much higher percentage of Scots are in favour of EU membership than the percentage of those who were in favour of continuing UK membership in September 2014. To boot, the 55,3% of Scots who voted in favour of continued UK membership did so at a time when the UK’s membership of the EU was not in question!
Predominantly Catholic by religion, Northern Ireland has long had a peculiar relationship with the mainland UK. It is a province in which both political and religious battles have raged over the years between Catholics and Protestants, the Irish and the English. It is a territory that has long been the home of Sinn Feinn’s Irish Republican Army, which historically has been at the forefront of calls for a united Republic of Ireland.
The outcome of the “Brexit” referendum is certain to have potentially significant implications for the UK. Just what those implications are remains to be seen. As the new UK works on negotiating its new relations with the rest of Europe, it will have to keep an eye on possible events back home, with demands for Scottish independence and a united Ireland likely to grow louder.
However, contrary to fairly pervasive fears that were expressed here at home ahead of the British referendum, South Africa may not be that terribly affected by it all. Pretoria has every reason to want to strengthen its relations with the EU, while leveraging its relations with Britain to accomplish the same goal with that country. In the end, then, the UK EU referendum outcome may well be a win-win for South Africa, depending on how smartly Pretoria plays its cards.
Kaizer M. Nyatsumba
Chief Executive Officer
PRESS RELEASE - 2016/07/13: SEIFSA REITERATES ITS CONCERN OVER SUSTAINED JOB LOSSES DESPITE MARGINALLY BETTER PRODUCTION FIGURES IN SOME SUB-INDUSTRIES
The annualised rate of change in the metals and engineering sector production now stands at -4,4% (minus 4,4%), judged by the latest (May) numbers released by Statistics South Africa on Tuesday, 12 July 2016.
“This is dismal by any yardstick. The year to date (January to May) production declined by 4,8% on the same period last year, against our expected number of a 3% contraction this year,” said Mr Henk Langenhoven, SEIFSA Chief Economist.
Mr Langenhoven said that going back to 2013, the average year-on-year contraction was 1,6%. Looking at month-on-month data, the pattern appeared to be one of a month of growth followed by two months of contraction, losing the previous gains, with May recording 1% growth.
He said that the Federation had previously cautioned about the sustainability of a recovery, concluding that the growth in production experienced in February could be explained by inventory rebuilding by companies, after a low point was reached in December 2015.
“The massive job losses recorded in the sector during the first quarter of 2016 (-9 012) cast further and serious doubt on a sustainable recovery from now on. The cumulatively worse job losses, totalling 15 553 over three quarters (or nearly 4% of the workforce), does not bode well for recovery,” says Langenhoven.
Mr Langenhoven said monthly production improvements would have to continue over a broad level in the different sub-industries in the sector to result in a change of fortune. This is not the case at present:
- In May the production of structural metal (+10%), rubber (+9%), basic iron and steel (+4%), other fabricated metals (+3%) and plastic products improved;.
- In the first five months of the year only electrical machinery and equipment (+8%) improved their production, with the biggest losers being household appliances (-21%) and machinery (-8%);
- Over 12 months only electrical machinery and rubber production grew, with all the other sub-industries shrinking.
Mr Langenhoven said that it was of extreme concern that production declines over each comparative period occurred at a faster rate than the number of jobs lost during those periods. He said this indicated that job losses may accelerate further during the year.
Mr Langenhoven said that sustained improvement in economic conditions (mining, construction, automotive and exports) was necessary to reverse the downward trend in the sector and that the production data released this week did not change the Federation’s view that recovery will only be felt towards the end of 2016, if not around the middle of 2017.
“The metals and engineering sector remains in critical condition and it seems as if the patient will suffer a serious setback over the next six months before improvements can be expected,” Mr Langenhoven said.
Metal industry general wage increases table is now available
SEIFSA is pleased to announce that the industry’s annual wage increases effective from 1 July 2016 have been finalised in accordance with the wage model agreed with the trade unions in 2014. The increases range from 7% at Rate A to 10% at Rate H. SEIFSA is pleased to report that there are no further changes to employment conditions for this third year of the three-year agreement and that all other terms and conditions of employment remain unchanged.
The wage increases detailed in Appendix A must be implemented by all companies from 1 July 2016. The General Wage Increases table, which is also part of Appendix A. All other wage tables and the Management Brief regarding the 1 July 2016 wage increases and the Wage Exemption Guidelines can be obtained on the Main Agreement Portal.
Competitive manufacturing sector can solve issues in SA
Henk Langenhoven, our Chief Economist, discusses the challenges faced in the metals and engineering industries and the Industrial Policy Action Plan in this thought provoking opinion editorial in The Star, Business Times. Read it below.
Competitive manufacturing sector can solve issues in SA
Minister Lindiwe Zulu aiming to ramp up jobs
By doing so, she noticed that working hand in hand with this sector, a lot can be achieved. The sector and the Ministry can boost the economy and provide jobs in line with the current expectations of delivering 800 000 jobs. This is a task that the Minister feels that the Government cannot possibly carry out on its own. “(The) Metals and engineering (sector) contributes roughly 28-30% of manufacturing and 6% to total GDP. In South Africa, roughly 10 000 companies are directly involved in this sector, contributing about 390 000 jobs,” Minister Zulu added.
She pointed out that the sector’s potential to contribute to the growth of the economy and her Ministry’s mandate is needed. Giving an example of where collaboration worked, she referred to the mutual participation demonstrated by industry stakeholders in the “East Asian Tigers” (Malaysia, Singapore, and Indonesia), hailing them as a recipe for success.
There were concerns regarding the decline, as published in the recent SEIFSA report, in metals and engineering jobs. In 2015, 11 000 jobs were lost. The report explained that employment numbers represent an inflation-adjusted time series of what happens in the real economy.
Former President calling for sector growth at metals and engineering indaba
“It is a matter of record that the metals and engineering industries have underperformed in recent years,” said Mr Motlanthe as he highlighted the need for growth. He relayed SEIFSA CEO Kaizer Nyatsuba’s concern that manufacturing’s share of the economy stood at 20% during the height of apartheid, but currently hovers around 16% at the end of the first two decades of democracy.
The industry is also battling to push back on Chinese cheap steel imports that have hurt various businesses, with leaders calling for higher import tariffs. The metals and engineering sector exports 60% of its products, competing with imports of equal percentage, which adds to the sector’s difficulties for growth.
The net result is that in recent years the sector has been shrinking, with job losses in 2015 alone topping 11000, according to StatsSA figures.
“These numbers, coupled with statistics released in the past year, reveal that the sector is still facing difficulty and decline in production,” said Mr Motlanthe.
He continued: “Our interest should be what concerns us, and animates the interventions that we seek to make. It is this spirit of collaboration that I seek to draw attention to today.”
In his address, Mr Motlanthe also highlighted the importance of the Southern African Metals and Engineering Indaba.
“Whilst only in its second year, this annual event needs to be commended for the foresight in initiating this space for dialogue, entering this terrain with a view to critical thought and reflection, and being committed to mapping out the challenges, successes and obstacles in interrelated industries and sectors,” he said.
The Southern African Metals and Engineering Indaba is an annual event hosted by SEIFSA, in partnership with the Industrial Development Corporation and the Department of Trade and Industry. The next conference is scheduled for 14 and 15 September 2017 at the IDC Conference Centre in Sandton.