Manufacturing production would likely, in the final quarter of 2013, recover from the sharp decline recorded in the third quarter as a result of prolonged strikes in the automotive sector, Kagiso Asset Management head of research Abdul Davids said on Monday.

His comment comes as the seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) increased by 1.7 index points to 52.4 in November, bringing the average PMI for the first two months of the fourth quarter to 51.6.

Manufacturing Circle executive director Coenraad Bezuidenhout stated that the PMI showed that, while the sector was on the rebound subsequent to the prolonged strikes in the automotive sector, it was now back on a consolidation path.

“Aside from the relative absence of disruptive industrial action, demand from faster-growing African export markets such as Kenya, Angola and Nigeria, and the festive season, which, although making a muted contribution to manufacturing pick-up in light of the pressure experienced by consumers, still provides reason enough for manufacturers to make extra provision, also lifted manufacturing performance,” Bezuidenhout added.

Meanwhile, Steel and Engineering Industries Federation of South Africa (Seifsa) chief economist Henk Langenhoven said the continued recovery of the activity index boded well for the steel and engineering sector.

He pointed out that the November index was 3% higher than that of the October PMI, and 15% higher than that of the same month in 2012.

Langenhoven further stated that, on an 11-month comparison, the damage of the sharp decline had been repaired, adding that “there is hope that the current full year will end better than 2012”.

The improvement in the PMI during November was broad based, with all of the main PMI subcomponents increasing compared with the previous month. Most notably, the business activity index rose from 52.6 to 54 index points in November, while the new sales orders index improved to 51.6 points.

Seifsa stated that it was encouraged by the latest positive PMI numbers, and in particular the strengthening of the business activity index, which had direct bearing on steel and engineering production.

Meanwhile, after remaining unchanged in October, the employment index gained 1.4 points to reach 50.8 in November, its highest level this year.

“However, since the index is only just above the key 50-point mark, it does not suggest a significant improvement in manufacturing employment,” Kagiso Asset Management stated.

Bezuidenhout said that although the employment component had improved to fall just inside expansion territory, more time was needed for new trends to emerge.

From research undertaken by the Manufacturing Circle, it appeared that mechanisation could be a real threat, with 29% of companies surveyed indicating a likely reduction in their workforce over the next three months. That figure increased to 37% over the next 12 months, with 7% expecting reductions of 15% or more over the same period.

“To reverse this picture, we do not only need to see improvements in productivity, but also reductions in administered costs, easing of supply-side constraints and improved market access,” Bezuidenhout said, adding that further disruptive and protracted industrial action would result in more job losses.

Further, the price index declined for the fourth consecutive month from 80.8 to 77.8 and was now at its lowest level for the year, while the inventories index rose marginally from 52.8 to 53.2.

According to Davids, the higher inventories index level suggested that manufacturers could have been expecting demand conditions to improve going forward.

“This is supported by the purchasing commitments index, which rose to 55.7 [in November], its highest level since May 2011,” he said.

Meanwhile, although the index measuring business conditions in six month’s time declined, Davids believed that the outlook for the sector remained positive.

“Despite the decline, at 59.8 points, the index is at a high level and suggests that manufacturers are optimistic that conditions will improve,” he said.

Bezuidenhout stated that this decline could also be owing to the seasonal phenomenon, as manufacturing demand typically drops off going into January, but may also be because of fears that industrial activity may again pick up in the new year.