The “crisis” faced by the metals and engineering sector was likely to continue unabated, with any short-term improvements recorded likely to dissipate, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) said this week.
A 7% year-on-year decline in production during the first quarter of the year and a 5% overall drop over a one-year period indicated that the sector was “spiralling into a deeper crisis” than previously thought, said Seifsa chief economist Henk Langenhoven.
A slight uptick in first-quarter production when compared with the preceding quarter was a result of inventory replenishment during the last six months and pre-emptive domestic orders in anticipation of price increases.
“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,” he said.
The Purchasing Managers’ Index for April and the Bureau for Economic Research manufacturing survey data for the first quarter of the year show that inventories in the sector declined over the last 6 to 12 months.
“Recent announcements of tariff protection for several basic ferrous products and the weakening of the exchange rate had sparked a frenzy of orders from downstream manufacturers to replenish their stock levels in anticipation of imminent price increases,” he explained.
However, expected business conditions for the metals and engineering sector over the next 12 months deteriorated substantially, while the sector’s main clients, such as the mining industry and the automotive sector, remained under “extreme” pressure.
Langenhoven concluded that medium-term demand for the sector’s products would not improve and that, currently, companies would not be able to pass on a surge in production costs.