South Africa’s manufacturing production capacity was “underused” on the back of a lack of domestic demand, Manufacturing Circle executive director Coenraad Bezuidenhout said on Thursday, noting the industry’s marginal production growth during June.

Statistics South Africa (Stats SA) reported that the growth in manufacturing production slowed to 0.4% year-on-year in June, from a downwardly revised 2.1% in May.

The agency attributed the 0.4% rise to 6.4% higher production in the basic iron and steel, nonferrous metal products, metal products and machinery sector, which contributed 1.3 percentage points; the food and beverages sector with growth of 4.2% and contributing 0.9 of a percentage point; and the textiles, clothing, leather and footwear sector with growth of 6.1% and contributing 0.2 of a percentage point.

However, the petroleum, chemical products, rubber and plastic products division dragged down the month’s growth, with a significant negative contribution of -3.9% and -1 percentage point.

As the petroleum and chemical products subsector, which was weighed down by weaker commodity prices and demand conditions, carries a weighting of 25.1%, this translated into a reduction of 1% in headline manufacturing production,” Investec explained.

Meanwhile, Stats SA said seasonally adjusted manufacturing production for the second quarter increased by 3.1% compared with the first quarter.

Eight of the ten manufacturing divisions reported positive growth rates over this period.

“… the manufacturing sector cannot be considered out of the woods yet, as the sector will continue to face subdued demand conditions against elevated cost pressures, such as rising electricity, labour and transport and logistics costs,” Nedbank noted in a flash comment to clients.

The banking group added that, in the large export-orientated industries, output growth would be contained by recession in the eurozone, a more measured Chinese economy and weaker international commodity prices.

These manufacturing production figures, together with the weak mining production data, also released on Thursday, highlight that production and exports remain under pressure, which will negatively impact on growth.

But, as exports were supported by the weaker rand and as there was seemingly increased demand from African export markets, international players could take advantage of South Africa’s established manufacturing base, Bezuidenhout said.

“International players wishing to use South Africa as a manufacturing base from which to export to African markets would serve their interests best by partnering with established South African manufacturers, where their product lines and distribution networks may be complementary,” he said.