Metals output hit hard by strike in July

Seifsa economist says sector will ‘almost certainly contract’, writes Mark Allix

THE month-long strike by metal workers in July had a drastic effect on the output of the metals and engineering sector, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) says.

Month-on-month data from Statistics SA show a 17% fall in metals production in July compared with June. And July production was 40% lower than the peak in 2007 and 20% lower than in July last year.

Seifsa says a 20.4% year-on-year decline in July output of basic iron and steel, nonferrous metal products and metal products and machinery, and a 29% plunge in the production of motor vehicles, parts, accessories and other transport equipment, account for 7% of the 7.9% year-on-year decrease in total manufacturing in that month.

The worst hit subindustries in the sector in July were the basic iron and steel industry, where production declined 18%, structural metals, which plunged 25%, and other fabricated metals, which plummeted 27%. Electrical machinery and equipment output also plunged, by 25%.

Seifsa chief economist Henk Langenhoven says the sector will “almost certainly contract” this year compared with last year. “These numbers reflect the short-term effect of the production disruptions,” he says.

The medium-term implications for employment in the sector could be as detrimental, Mr Langenhoven says, through layoffs or greater automation in factories, which will reverse 16 years of declining investment-to-output ratios.

Investec says the short-term, negative effects of the strike will dissipate in subsequent months as production returns to normal. But it sees the purchasing managers index remaining depressed in August.

The banking group says that overall manufacturing production in SA is constrained by high operating costs, weakening domestic demand and sluggish export growth.

It says further constraint comes from “the slow implementation” of the gov-

Month-on-month data show a 17% fall in metals production in July compared with June

ernment’s infrastructure programme, and noncompliance with public procurement policy and regulations.

Mr Langenhoven says that in the longer term, already low profit margins in the metals and engineering sector will see companies go out of business.

Duro Pressings, a large privately held maker of metal doors and windows, is in liquidation, and Alert Steel Holdings, an AltX-listed retailer of steel products and services to the construction, manufacturing and building industries, went into business rescue this year.

The two largest listed steel producers are also in the doldrums — internationally owned groups ArcelorMittal SA and Evraz Highveld Steel and Vanadium.

Mr Langenhoven says it will take time for any damage to the confidence of SA’s international metals customers to show. But he says the sector might see diminished exports, which represent 60% of its market.

This comes at a time when the randdollar exchange rate is favourable for many South African-based exporters, but not all.

Despite a highly favourable tariff agreement with Eskom, global mining house BHP Billiton has switched off one of its two aluminium smelters in Richards Bay, saying it was too costly to operate. It imports alumina from Australia to make into aluminium for domestic and export markets.

Trade and Industry Minister Rob Davies wants monopoly industrial producers in SA to dramatically discount their domestic prices to help implement the National Development Plan.

He says ArcelorMittal SA and gas and synthetic fuels producer Sasol will face action in terms of the Competition Act if they do not reduce their local prices. But subsidising domestic industry through nonmarket pricing does not remedy the economic fallout from industrial action.

Master Builders SA executive director Itumeleng Dlamini says “the aftermath of the strike has been dreadful for some of our members and its effects are still felt today”.

She says there is still a shortage of certain steel products in the construction and building sectors, although overall tonnage “is acceptable”.