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SA steel and engineering industries expected to yield better growth in 2014

Seifsa chief economist Henk Langenhoven talks about the steel and engineering sector’s growth performance.

29th January 2014

By: Anine Kilian

Contributing Editor Online

  

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South Africa’s steel and engineering sectors are likely to yield better growth in 2014 than last year when the sector only saw 2% growth and produced output estimated at R335-billion, said Steel and Engineering Industries Federation of South Africa (Seifsa) chief economist Henk Langenhoven in Johannesburg on Wednesday.

He said short-term signals indicated that benefits would be derived from the expected domestic spending on infrastructure.

Public sector investment in infrastructure is expected to grow by over 5% over the next two years, accelerating over time, while private sector investment growth was expected to be subdued at 3%, picking up after 2015.  This investment in planned large strategic projects would boost sector performance, he said.

Langenhoven added that it was important to keep in mind the international economic climate and the global metals and engineering market as they were of great importance to the South African sector.

“The sector exports 60% of its production to the international market and competes for 56% of the domestic market with foreign suppliers. World demand for steel and steel-containing products has increased by 25% since 2009,” Langenhoven noted.

He also emphasised that steel construction in Africa had increased over the same period by 45%; however, local exports had fallen by 21% since 2007 and the value of imports had increased by 17% over the same period.

“The domestic market for the steel and the engineering sectors represent about 44% of the total market. This market is highly geared towards intermediary products going to the automotive sector and investment products going to the mining and construction sectors,” Langenhoven pointed out.

He also noted that there was a marked acceleration in imports and exports last year owing to exchange rate windfalls.

“The international competitiveness of the South African sector has deteriorated. Seifsa estimates the trade deficit to have widened to over R44-billion during 2013. Export volumes decreased by 2% during 2013 and import volumes increased by 1% in 2012,” Langenhoven said, explaining that nominal export earnings increased by 8.2% and imports increased by 11.4%, proving that imports became more expensive.

Langenhoven pointed out that last year saw significant upward pressure on steel and production prices in South Africa and there were still significant upside risks to steel prices and general production prices in 2014.

The greatest risks, he said, emanated from currency weakness and fuel costs, and electricity and wage increases as the sector was about to enter into negotiations.

“The South African steel and engineering sectors employed an average of 291 700 people,” said Langenhoven, noting that employment increased by 1% over the same period and capacity use of the entire sector improved to nearly 80% last year.

Meanwhile, Seifsa executive director Kaizer Nyatsumba stated that the South African economy was seriously under-performing compared with its counterparts and would continue to do so as long as key stakeholders in business, government and labour did not work together as partners.

He further said the local economy would not realise its full potential until stakeholders stopped point-scoring against one another and, instead, focused on putting the country’s interests first.

“Instead of developing, there are parts of our country that have been going through a process of de-industrialisation, with some businesses and State-owned enterprises choosing to procure products and services from abroad, in the process, worsening the country’s trade deficit instead of supporting local manufacturers,” Nyatsumba concluded.
 

Edited by Tracy Hancock
Creamer Media Contributing Editor

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