The Steel and Engineering Industries Federation of Southern Africa (Seifsa) has reiterated that the metals and engineering sector continues to face difficult conditions.
This follows Statistics South Africa’s recent publication of the February manufacturing statistics, which show that production in the metals and engineering sector declined by more than 6%, when comparing the first two months of this year with the first two months of 2015, and by 4.3% year-on-year in February.
He pointed out, however, that the February production was 2.8% higher than in January, and month-on month improvements will have to continue for some time to affect a lower turning point in the downward spiral, which the sector finds itself in currently.
The month-on-month improvement reflects the anecdotal and purchasing managers’ index (PMI) evidence that inventories are being worked down, which means that production needs to be increased to keep inventories at normal levels
to cater for future demand.
“However, the data does not change our view that recovery will only be felt towards the end of 2016, if not the middle of 2017. A lot will depend on growth in demand, from both the domestic and export clients,” says Seifsa chief economist Henk Langenhoven.
Seifsa points out that, although the general PMI subindex indicates new sales orders for manufacturing as a whole improved over the last three months, the indications from the Bureau for Economic Research’s (BER’s) quarterly manufacturing survey shows different and weak domestic and export sales orders for the metals and engineering sector specifically.
“Only the fabricated metals industries indicated that their export orders for the second quarter of the year had improved; the rest indicated lower export orders for the second quarter,” says Langenhoven.
Domestic sales orders for the second quarter has deteriorated for all of the subindustries in the sector, which indicates the uncertainty surrounding sustained production improvements.
“The production numbers released by Statistics South Africa are not in conflict with the BER manufacturing survey results. Structural metal and electrical machinery and equipment production showed some improvement,” he states.
Langenhoven adds that plastics and rubber production is also accelerating, but that other subindus- tries recorded lower production over the first two months of 2016.