Metals, engineering production on an upward trend

The Steel and Engineering Industries Federation of South Africa’s (Seifsa’s) latest metals and engineering production and sales volumes data highlighted a continued upward trend since 2008, with year-on-year growth of 10% recorded for July.

Production increased by 3% from June to July this year, while the first seven months of 2013 showed a 2.3% decline in production compared with that of the corresponding period in 2012.

The federation noted that the general steel and engineering sector performance was characterised by uncertainty and extreme volatility.

Meanwhile, the latest purchasing managers’ index (PMI) showed strong improvements in the new orders and expected business conditions subindices, as well as the overall PMI, of between 5% and 18% over the eight months ended August and the 12 months ended August respectively.

“In contrast to the progressive optimism reflected by the PMI, confidence patterns revealed by component industries in the metals and engineering sector are tenuous; however, this is not a contradiction but rather a reason for further optimism, as the PMI survey reflects more recent tendencies than the Bureau for Economic Research’s manufacturing survey, which is the main source of information for the component industries,” Seifsa said.

It added that the overall stronger performance of the PMI reflected confidence in the general manufacturing sector and, therefore, also in the metals and engineering sector.

Meanwhile, Seifsa’s latest data for the basic ferrous metals industry seemed to confirm that a lower turning point had been reached, with production growing by 9% between June and July. On a year-on-year basis, ferrous metals output was up 30% for July.

The nonferrous industry was back at its precrisis peak levels of 2007, with July production being 30% higher than that recorded in July 2012.

Further, fabricated metals production was approaching the 2007 precrisis levels, with growth in output of 9% for the 12 months ended July, compared with the 12 months ended July 2012.

Structural metal production increased 7% year-on-year for the month of July.

Further, Seifsa also reported on Friday that price movements in the metals and engineering sector reflected an alarming inflationary environment, with all indices recording increases.

The producer price index for intermediate goods, of which the subsectors that constitute steel and engineering make up 70%, recorded a 9.4% increase year-on-year in July, up from an 8.03% increase year-on-year in June.

The consumer price index breached the 3% to 6% target set by the Reserve Bank and would now be closely watched. The 6.35% year-on-year increase recorded in July eroded any hope of an interest rate cut and constituted a policy dilemma between choosing growth in the economy and inflation containment, Seifsa said.

“Rising fuel prices, a weaker exchange rate, high energy costs and above inflation wage settlements are all factors that contribute to the upward trend,” it added.

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