SEIFSA concerned about continuing pressures in the metals and engineering sector

SEIFSA warns of possible further job losses.

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) says it is concerned about persistently lower confidence and production levels, which could lead to possible further job losses in the metals and engineering sector as indicated by analysis of recent data.

“The metals and engineering sector is probably on a cliff and not at the bottom of a trough. The first half 2016 data has disappointed,” said SEIFSA Chief Economist Henk Langenhoven.

“The latest capacity utilisation data for the sector, as well as the July purchasing managers’ business activity subindex, do not indicate the bottoming-out of the current contraction experienced by the metals and engineering sector.”

He explained that, after a slight improvement in resource utilisation during the first quarter, the sector fell back into lethargy by nearly 0.8% in the second quarter, with utilisation recorded at 77% against the full capacity benchmark of 85%.

He added that capacity utilisation during the first half of the year was 1% lower than in the first half of 2015.

“Anecdotal evidence from both primary producers in the sector and merchants taking orders from downstream industries, as well as the mining and construction sectors leads to a description of the situation in the following words: ‘the bottom has fallen out of demand’ and ‘we are becoming stockists again’. The second quarter of 2016 was better for only the rubber, plastics and basic ferrous sub-industries,” said Langenhoven.

He added that the trends in the latest (July) purchasing managers’ business activity sub-index that leads metals and engineering production by 12 to 18 months unfortunately confirmed the conclusions made above. He said that while the index had declined by only 1,7% over the first seven months of 2016 on the same period during 2015, recently there appeared to be renewed severe weakness.

July 2016 was nearly 9% lower than June 2016 and 5% lower than a year ago (July 2015), he said.