MICHAEL ADE 2020 is still going to be a difficult year for the metals and engineering sector, with ongoing pressure on margins
The volatile prices of domestic steel producers and merchants are likely to continue in 2020, says national employer federation the Steel and Engineering Industries Federation of Southern Africa (Seifsa) chief economist Dr Michael Ade.
Domestic steel producer prices decelerated by 21% in November last year, compared with those in November 2018, while the prices of domestic steel merchants generally followed a similar trend by decelerating by 17% in October 2019, compared with the prices in October 2018, he explains.
Ade notes that this deceleration was consistent with global trends that affect commodity and metal prices.
He explains that, traditionally, the slower growth in local steel demand has had a negative impact on steel prices. The lower trend in steel consumption is expected to continue in 2020, also providing a rationale for the forecast lower metal prices.
Further, notable steel consumption is predicted to rise by only 1.9% this year – down from 2.6% in 2019 – as “a rare steel recession”, which started in 2019, persists. This, says Ade, is worrisome, considering its implications for the South African economy and its steel and steel-related products industry.
Other factors that could affect the steel price include electricity costs and prices of raw materials, as well as the dumping of imported steel products on the South African market.
Despite these challenges, Ade mentions that, with steel being an integral and vital component of the metals and engineering sector, there is hope that demand for metals and engineering-related services from sub-Saharan Africa will pick up in 2020 and improve further in 2021.
This is based on positive developments, such as the African Continental Free Trade Area agreement, which presents an enormous opportunity for the sector to capitalise on trade opportunities in Africa, he says.
Moreover, export competitiveness in the region is envisaged to improve to 2.9% in 2020 and 3.1% in 2021, thereby providing a basis for increased exports from the metals and engineering sector.
Ade further points out that improving investor confidence in some large economies will bring in much needed foreign currency and boost the demand for steel, construction and engineering products.
However, he tells Engineering News that 2020 is still going to be a difficult year for the metals and engineering sector, with ongoing pressure on margins.
“For the sector to moderately rebound from last year’s rapid slowdown and contraction in production, there is a need for energy supply to be urgently stabilised; intermediate input costs to be contained; new construction projects or new investments, as opposed to the expansion of existing projects; and local preferential procurement requirements to be effectively adhered to,” he concludes.