South Africa’s steel and engineering sectors are likely to grow faster in 2014 than last year, when the sector saw only 2% growth and produced output estimated at R335-billion, says Steel and Engineering Industries Federation of South Africa (Seifsa) chief economist Henk Langenhoven.

He says short-term signals indicated that benefits would be derived from the expected domestic spending on infrastructure.

Public-sector investment in infrastructure is expected to grow by more than 5% over the next two years, while private-sector investment growth is expected to be subdued at 3%, picking up only after 2015. Investment in planned large strategic projects would boost sector performance, he says.

But developments in the international economic climate and the global metals and engineering markets would also have a strong bearing on the performance of South African industry.

“The sector exports 60% of its production to the international market and competes for 56% of the domestic market with foreign suppliers. World demand for steel and steel-containing products has increased by 25% since 2009,” Langenhoven notes.

He also emphasised that steel construction in Africa has increased over the same period by 45%; however, local exports have fallen by 21% since 2007 and the value of imports has increased by 17% over the same period.

“The domestic market for the steel and engineering sectors represent about 44% of the total market. This market is highly geared towards intermediary products going to the automotive sector and investment products going to the mining and construction sectors,” Langenhoven points out.

He also notes that there was a marked acceleration in imports and exports last year owing to exchange rate windfalls.

“The international competitiveness of the South African sector has deteriorated. Seifsa estimates the trade deficit to have widened to over R44-billion during 2013. Export volumes decreased by 2% during 2013 and import volumes increased by 1% in 2012,” Langenhoven says. Nominal export earnings increased by 8.2% and imports increased by 11.4%, imports having become more expensive.

Langenhoven points out that last year saw significant upward pressure on steel and production prices in South Africa and there are still significant upside risks to steel prices and general production prices in 2014.

The greatest risks, he says, emanates from currency weakness and fuel costs, and electricity and wage increases, as the sector is about to enter into negotiations.

“The South African steel and engineering sectors employed an average of 291 700 people,” says Langenhoven, noting that employment increased by 1% over the same period and capacity use of the entire sector improved to nearly 80% last year.