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Severe rate of job losses reflects declining metals and engineering sector

22nd July 2016

By: David Oliveira

Creamer Media Staff Writer

  

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First-quarter employment data recently released by Statistics South Africa reflected a total loss of 15 553 jobs since the beginning of 2015. This downward trend is getting cumulatively worse, with 3 550 job losses being recorded in the third quarter and 6 902 for the fourth quarter of 2015, and 9 012 job losses in the first quarter of this year.

Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Henk Lagenhoven asserted earlier this month that the increasing rate of job losses is a reflection of the state of the declining metals and engineering sector, which employed 381 330 people in South Africa.

“A study of the latest purchasing managers index (PMI) gives little consolation that conditions will improve shortly,” he lamented.

The overall PMI, an indicator of the manufacturing sector’s economic health, improved by 3.5% and the business activity subindex, which led metals and engineering production by 12 months to 18 months, increased from 2.6% a month ago and 4.7%,compared with a year ago.

According to Langenhoven, stock rebuilding clearly was the reason for the trends and was not likely to continue, as reflected by the purchasing commitments subindex declining by 10% in May, nor would it be enough to reverse the downward trend in production substantially. However, there had been positive developments in the new order subindex, which sent the inventory subindex up.

On the back of this trend, inventory levels in the metals and engineering sector declined to significantly low levels towards the end of last year.

“A rebuilding drive was inevitable, with expectations of sharp price increases for intermediary input products sparking the process. Several commodity prices recovered sharply internationally and would result in higher prices for imported products, exacerbated by a depreciating rand,” Langenhoven said.

He noted that the announcements that tariffs would be granted on basic steel products made pre-emptive buying logical. These sentiments were expressed in several survey reports and had been reinforced lately by the possibility of strikes in the automotive sector.

Further, concerns about the downward trends in both the automotive and mining sectors had increased lately. For example, vehicle financiers were confident that sales would deteriorate further in the second half of 2016. However, Langenhoven said: “Our view is that these dynamics will not have a lasting impact on production trends in the metals and engineering sector.”

The job losses in the sector were serious and reflected the critical situation experienced by companies in the metals and engineering sector. Employment numbers had declined by 2.3% in the first quarter and 3.3% over the last six months. Over the four quarters, which ended with the first quarter of this year, the decline was 1% and there were 4% fewer people employed in the first quarter of 2016 than in the same quarter of 2015.

“It is of extreme concern that production declines over each of the time scales mentioned here have been much more severe. Over six months, production declined by nearly 6%, over 12 months by nearly 5% and, compared with a year ago, the decline is nearly 3%. These numbers indicate that job losses may accelerate further during 2016,” said Langenhoven.

He noted that, over the last six months, only shipbuilders, railway rolling stock manufacturers, the rubber industry and structural metal product manufacturers employed more people than in the previous six months.

“The metals and engineering sector is in a critical condition and it seems as if the patient will suffer a serious setback over the next six months before improvements can be expected,” Langenhoven concluded.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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