The Steel and Engineering Industries Federation of Southern Africa (Seifsa) believes that the “positive” latest data released by Statistics South Africa on metals and engineering production and capacity utilisation is encouraging – but warns of tough times ahead.

This position was somewhat at odds with other market sentiment expressing concern that manufacturing production growth in March had surprised on the downside, slowing to 0.7% from 1.5% in February and falling short of market growth expectations of 2.5% year-on-year.

But, according to Seifsa chief economist Henk Langenhoven, the quarterly results showed encouraging trends, albeit gauged in isolation.

“The first quarter of 2014 recorded 2.5% higher production than 2013 and capacity utilisation [was] up by 1.7%, touching the 80% utilisation level. [Yearly], production improved by 3.5% and capacity utilisation by 1.3% compared [with] 12 months earlier,” he said.

The economist did, however, caution that this might be the proverbial “calm before the storm” for the domestic economy.

This was evidenced, Langenhoven argued, by first-quarter confidence levels, which were “strongly negative” in contrast with production trends.

“Although the 12-month pattern is positive, looking back on the Kagiso Purchasing Managers Index trend of 18 months to two years ago, one would have expected an imminent slowdown in production by now,” he asserted.

Supporting this view were indicators exposing that price escalation had slowed “substantially” in the first quarter – normally an indicator of low demand.

Further, the level of new orders were also down, as were expected employment indicators, which Langenhoven believed pointed to a possible slowdown in the latter part of the year.

“The mining sector is currently under siege from industrial action, the automotive sector has revised its production forecasts downward and construction shows very little signs of recovering from its three-year slump.

“These weigh heavily on the medium-term outlook, as the dynamics in the four sectors feed on each other,” he commented.

The economist suggested that a possible explanation for the pick-up in production levels of the quarter was improved exports, which formed 60% of the metals and engineering market.

“Export trends must be carefully evaluated to ascertain [their] influence on the sector – and are a reason for optimism,” Langenhoven concluded.