Despite capacity utilisation numbers for the metals and engineering sector having improved by 0.1% in the fourth quarter of 2014, this was not enough to reverse the downward trend experienced during the course of the year, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said on Friday.
Speaking after the release of the figures by Statistics South Africa, Seifsa chief economist Henk Langenhoven said the fourth-quarter numbers were 2.1% lower than in the same period in 2013 and 3.3 lower than in November 2012.
The latter seemed to have been the beginning of a decline, he noted, adding that the average capacity utilisation for the sector had been almost constant, at 78.8%, for the last three years, against a benchmark of 85%.
Capacity utilisation was 81% in November.
Langenhoven said underutilisation of capacity could be ascribed to labour and other production disruptions that took place last year.
“Just as it was hoped that these disruptions would have subsided, the electricity constraints started to bite and will have an impact in the foreseeable future.
“Capacity utilisation as an indicator is now an important variable used in studies of countries’ growth potential. Taking this important variable into account, the latest South African Reserve Bank and International Monetary Fund studies show that South Africa’s growth potential has declined from 3.5% to 2.5%,” he commented, adding that the metals and engineering sector represented 34% of manufacturing in the country.
Langenhoven outlined that gross operating surplus numbers for the sector had been negative since 2012 and, with underutilisation of current production capacity within an environment of upward cost pressures, profit margins could be under increased threat.
“If the general outlook for domestic and international growth is not rosy, then it is almost logical that little or no investment will take place,” he said, adding that these were very worrying trends for the sector and the country.