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 and 6 902 job losses being recorded in the third and fourth quarter of 2015 respectively, 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 on Wednesday that the increasing rate of job losses was the best reflection 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%, while the business activity sub-index increased from 2.6% a month ago and by 4.7% compared with a year ago.

According to Langenhoven, stock rebuilding clearly explained the trends and would not continue – as reflected by the purchasing commitments sub-index declining by 10% in May – nor would it be enough to substantially reverse the downward trend in production. However, there had been positive developments in the new order sub-index, which sent the inventory sub-index 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 lately been reinforced by the possibility of strikes in the automotive sector.

Further, concerns about the downward trends in both the automotive and mining sectors had increased in recent months. For example, vehicle financiers were confident that sales would deteriorate further in the second half of 2016.

“[However], our view is that these dynamics will not have a lasting impact on production trends in the metals and engineering sector,” said Langenhoven.

The job losses in the sector were serious and reflected the crisis experienced by companies in the metals and engineering sector. Employment numbers had declined by 2.3% in the first quarter and by 3.3% over the past six months. Over the four quarters ending in the first quarter of this year, the decline was 1%, and there were 4% less people employed in the first quarter of 2016 than the same quarter during 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 to 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 past six months, only shipbuilders, railway rolling stock manufacturers, the rubber industry and structural metal product manufacturers have 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.