HENK LANGENHOVEN Viability of the South African steel industry remains under pressure
The Steel and Engineering Industries Federation of Southern Africa (Seifsa) announced the winners of its second Annual Awards for Excellence at a breakfast that took place before the start of the second day of the Southern African Metals and Engineering Indaba, which was held in Sandton in May.
Leading steel fabricator Genrec Engineering took top honours, walking away with both the Artisan of the Year Award and the Health and Safety Award. South Africa’s largest manufacturer of secondary aluminium products, Zimco Aluminium, was awarded the Most Innovative Company of the Year Award, water technology solutions provider Grohe Dawn Watertech won the Best Customer Service Award, the Most Transformed Company of the Year Award went to steel and steel products manufacturer Scaw Metals, the Environmental Stewardship Award was scooped by steel and alloy caster Steloy Castings, and integrated solutions provider Voith Turbo won the Company of the Year Award.
Former Seifsa presidents Henk Duys and Ufikile Khumalo jointly received the Outstanding Service to Seifsa Award, while the South African Refrigeration and Air Conditioning Contractors Association won the Association of the Year Award.
“In such turbulent economic times and a challenging business environment, we believe that it is critically important for those companies that have excelled at what they do to get the acknowledgement and recognition they deserve,” says Seifsa CEO Kaizer Nyatsumba, who presented the awards.
Nyatsumba notes that the metals and engineering sector is facing several challenges, including the prevalence of cheap imports from Asia, the lack of competitiveness in local manufacturing and policy uncertainty.
Q1 Increases Unsustainable for 2016
Seifsa chief economist Henk Langenhoven adds that increased production in the steel industry in the first quarter of 2016, compared with the last quarter of 2015, is unlikely to be sustained in the year. He explains that the increase is attributable to a ‘frenzy’ of inventory replenishment and pre-emptive domestic orders by downstream manufacturers, in anticipation of price increases after the recent announcements of tariff protection for several ferrous products and the weakening of the exchange rate. As a result, both production and factory capacity use increased slightly, with the Purchasing Managers Index business activity subindex strengthening in April.
Langenhoven cautions that these short-term improvements are not expected to continue, adding that the Bureau for Economic Research Manufacturing Survey indicates several negative future trends for the sector, owing to the extreme pressures being experienced by the sector’s main clients – the mining, construction and automotive industries.
He further notes that cost pressures are a much bigger concern than was the case last year. Average input costs recorded by Seifsa have been on a steep upward trend since the middle of 2015, which was roughly in line with the exchange rate depreciation over the same period, owing to 40% of sector costs being dollar-based. He adds that it is unlikely that medium-term demand for the sector’s products will improve, and companies will thus not be able to pass on production costs incurred at the moment.
“The conclusion, therefore, must be that company viability will remain under extreme pressure. The few positive signs of a possible early bottoming out of the slump seem to have originated from within the sector and not from demand from its main clients. Regrettably, the sector remains in a critical condition,” Langenhoven concludes.