Prospects for the metals and engineering sector remain bleak for the foreseeable future as growth tracked sideways, South Africa’s imports surpassed its exports, investments stagnated and profits plunged, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on Tuesday.

A day after stating that South Africa’s economy was teetering on the edge of a recession, Seifsa chief economist Henk Langenhoven said government’s infrastructure spend in the medium term was not likely to assist in bolstering the sector going forward.

The Medium-Term Expenditure Framework’s (MTEF’s) R813.1-billion infrastructure spend allocation would not influence the metals and engineering sector “at all”, said Langenhoven, who had long been warning of the “perfect storm” facing the sector that could send the economy into a recession.

Despite the metals industry being declared distressed and an extra R300-million being made available to the sector from the Department of Trade and Industry, the MTEF narrowed focus to energy, water and sanitation, transport and logistics, health, education and other social services, which had little bearing on the recovery of the recessionary industry, he commented.

Addressing delegates at a roundtable discussion on socioeconomic and political trends at Seifsa’s headquarters in the Johannesburg central business district, Langenhoven said the sector registered a “step down” in its ability to compete within its own markets.

Imports had far surpassed exports, while surging input costs persisted amid a weakening exchange rate, several transport challenges, unreliable electricity supply and rising energy prices.

“We don’t know the future, but the patterns are very worrying,” he said, adding that the metals and engineering sector would continue to track sideways for the next five years, with little evidence of recovery in the short term.

His comments emerged as Statistics South Africa reported that negative contributions from the motor vehicles, parts and accessories and other transport equipment (-9% and contributing -0.7 of a percentage point) and the basic iron and steel, nonferrous metal products, metal products and machinery (-3.8% and contributing -0.7 of a percentage point), dragged September’s manufacturing production.

Manufacturing production had ticked up 0.9% year-on-year in September, with petroleum, chemical products, rubber and plastic products positively contributing 5.5% and 1.2 percentage points and food and beverages adding 2.1% and contributing 0.5 of a percentage point during the month under review.
In September, seasonally adjusted manufacturing production increased 2.2% when compared with August, following month-on-month changes of 0.6% and 0% in August and July respectively.

Seasonally adjusted manufacturing production increased 1.4% in the third quarter of 2015, compared with the second quarter, with eight of the ten manufacturing divisions reporting positive growth rates.

Meanwhile, Langenhoven pointed out that manufacturing capacity use had consistently remained below the 85% optimum since the first quarter of 2008, contracting 5% below optimum during the third quarter of 2015 – the worst of the first three quarters of the year.

The metals and engineering sector, which accounted for 8% of manufacturing, posted capacity use nearly 10% below optimum, deteriorating 2% during the first three quarters of 2015. 

Capacity use at -4.2% during the third quarter of 2015 was lower than that during the strike-affected third quarter of 2014.

“A similar, deteriorating third-quarter trend is evident in the overall Barclays purchasing managers’ index (PMI).

“Although the PMI was 2% higher over the first ten months of this year than during the same period in 2014, the data seems to indicate that conditions have deteriorated since the middle of 2015,” he said.

However, there was a much higher level of understanding of the dire situation by industry, government and labour, while cooperation among sector organisations, labour and industry had increased.

“The domestic demand generated from the infrastructure projects is [also] better understood and big efforts were being made to ensure a larger portion of the demand went to South African suppliers.”

Further, five value chains that were currently a focal point for government, including platinum-group metals, iron and steel, and capital equipment, had potential benefits for the growth of the metals sector.