Engineering News

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) on Thursday welcomed the slight growth registered in the Purchasing Managers Index (PMI) data for November, notwithstanding the fact that neither the overall nor the activity subindex could break through the neutral 50-point level, indicating a sustained contraction.

Seifsa senior economist Tafadzwa Chibanguza said the increase in the overall PMI between October and November reversed the losses recorded in the previous reading and only slightly relieved the pressure in the long-running trend.

“At 48.3 index points, however, the seasonally adjusted PMI for November is still below the neutral 50 index points. This maintains it in the contraction space. More importantly, at 49.02 points, the 12-month average is also shy of the 50 index points, and this shows a sustained contraction,” said Chibanguza.  

Between October and November, prices increased by 10.3%, which is in line with Seifsa’s Composite Cost Index, which recorded an 11.5% increase over the similar period.

Chibanguza said, significant to the metals and engineering sector is the business activity subindex of the PMI, which leads the metals and engineering sector by 12 to 14 months. The seasonally adjusted business activity index increased by 12.4% month-on-month.

However, this is still below the neutral 50 points – which represents contraction – in the 11 months to November, with the index contracting by 1.33%. Comparing statistics year-on-year, the index contracted by 2.07%.

“We have to keep in mind that the low point of an economic cycle is often characterised by volatility and the PMI is testament to that fact. So, in looking at the monthly statistics, we also should consider the longer, dated statistics and place more emphasis on the latter,” he explained.

He added that the point often stressed is that the leading characteristics of the business activity subindex to the metals and engineering sector’s production performance is a statistical one. This means that each successive reading of the business activity subindex gives a better understanding of what to expect in the metals and engineering sector for at least a year ahead.

“Unfortunately, our conclusion from this latest reading of the PMI is that we have not turned the corner as yet, judging from the sustained trend in the PMI.

“With the production in the metals and engineering sector having contracted by 4.18% at our latest reading, it would take a lot more successive monthly increases to turn the trend around,” Chibanguza said.