Rise in construction and building material sales bodes well for M&E sector

The uptick in sales of construction and building materials, amid increased construction activity, is encouraging and bodes well for the Metals and Engineering (M&E) sector, attests the Steel and Engineering Industries Federation of Southern Africa (SEIFSA).

Wholesale trade sales data released by Statistics South Africa (StatsSA) recently showed an increase in sales of 10.6% in March 2021, compared with March 2020, while month-on-month wholesale trade sales decreased by 1.6% in March 2021, when compared with February. In the construction and building materials category, sales increased from R10.8-billion in February 2021 to R12.3-billion in March 2021, with year-on-year growth of 38.6% in March 2021.

The increase in the sale of construction and building material was driven mainly by the increase in demand of building supplies such in basic steel products, cement and bricks, as construction activity ramps up amid relaxed Covid-19 regulations. The increase in M&E production sales, which improved significantly from R70-billion in February 20201 to R79-billion in March 2021 also supports the trend.

Commenting on the data, SEIFSA Chief Economist Chifipa Mhango said the increase in construction and building material is positive news for the M&E sector as it indicates increased activity, which will continue to drive demand for the sector’s products. He noted that the Government’s increased focus on localisation will help sustain this improvement.

“As we try to rebuild our economy by being more inward-looking to drive the local manufacturing capacity of, among other things, construction and building material, the government needs to ensure that State entities comply with local content procurement requirements to drive demand, protect and create jobs,” Mhango said.

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SEIFSA urges M&E businesses to showcase their environmental stewardship

APRIL 2021 – The Steel and Engineering Industries Federation
of Southern Africa (SEIFSA) once again calls on companies in the Metals and
Engineering (M&E) sector to submit their entries for the 2021 SEIFSA Awards for
Excellence in the Environment Stewardship Award category.

Now in their seventh year, the SEIFSA Awards for Excellence seek to promote and
reward innovation and excellence in the M&E sector, with this year’s entrants to be
assessed on their performance during the period 1 July 2019 to 31 December 2020.
The Environment Stewardship Award celebrates a company that has taken
the environmental challenges that confront the world seriously and has successfully
implemented the necessary steps to ensure that the natural environment is preserved.

The company will have demonstrated in its entry that it has gone out of its way to
invest in the environment and has successfully implemented initiatives in its day-to-day business operations.

In 2019, the Award was won by Babcock for its water conservation initiatives. The
company had taken it upon itself to protect, control and conserve water usage in the
business through several initiatives, including using water meters at its different sites
and reusing water.

“South Africa faces significant environmental challenges such as water scarcity and
air pollution. Together as the business community, we need to find lasting solutions to
these challenges. By showcasing companies mitigating their negative effect on the
environment through sustainable initiatives, we not only create a platform to engage
on how to further protect our environment, but we also offer examples that other
companies can emulate,” said SEIFSA Chief Executive Kaizer Nyatsumba.

The Award ceremony will take place on 20 May 2021 at a venue yet to be confirmed.
In addition to the Environmental Award, the other categories include:
• Most Innovative Company of Year;
• Health and Safety Award of the Year;
• Best Corporate Social Responsibility Programme of the Year;
• Customer Service Award of the Year;
• Most Transformed Company of the Year; and
• The Artisan Award of the Year.

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Increased infrastructure activity needed to boost economy

The decline in manufacturing production, at a time when increased industrial activity is important to revive the ailing economy, is very concerning, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

SEIFSA Chief Economist Chifipa Mhango said the decline once again highlights the negative impact Covid-19-induced lockdown regulations had on the manufacturing industry and the economy in general, and that this situation needs to reversed urgently. According to figures released by Statistics South Africa (StatsSA), total manufacturing production declined by 3,4% year on year in January, with a slight 0,5% month-on-month increase from December 2020. Total manufacturing sales increased by 1,4% year on year in January 2021 and by 0,9% from December 2020.

However, Mhango welcomed the 5,3% year-on-year increase in January 2021 in the performance of the Metals and Engineering (M&E) sector, which accounts for 29% of manufacturing production. Total sales across the sector’s 13 sub-industries increased by 10,6% to reach R68,3-billion. He said this performance would need to be sustained through the speedy implementation of the Government’s infrastructure plans if the sector and the economy as a whole are to recover.

StatsSA figures also showed that total capacity utilisation in the manufacturing sector was 72,3%, down from 81% in 2019. In the M&E sector, average total capacity utilisation for 2020 was only 68%, again demonstrating how Covid-19 has inhibited production within the sector.

Mhango noted that with the economy has contracted by 7% in 2020, it is imperative that the Government intensifies its efforts to revive the ailing economy and focuses on the implementation of its recovery plans. He said while the Government’s policies were attractive on paper, more needed to be done to speed up the implementation of critical interventions such as the Steel Master Plan in order to benefit both the upstream and downstream of the M&E sector.

Mhango said the current state of the M&E sector remains dire, with declining levels of employment and investment, as well as a weak trading position with the rest of the world. He said with the country’s unemployment rate now at 32,5%, it is important to ensure that the industrial base is not eroded any further. “Fixed investment is key to reviving the sector. To grow the country’s industrial base, the fixed investment share of GDP needs to move to levels above 40%, from the current level where it is below 20%,” he said.

Mhango said while the Government’s commitment to spend R791,2-billion in the next three years on various infrastructure projects is commendable, the slow rate of implementation and the mismanagement of funds have derailed progress towards achieving a higher ratio of fixed investment to GDP.

“The M&E sector is heavily reliant on demand from key Government infrastructure projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. The lack of progress towards the implementation of these projects will only serve as a hinderance to reviving the South African
economy,” Mhango said.

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Slow pace of recovery in manufacturing sector

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about the slow pace of recovery in the manufacturing sector, as depicted by the lower manufacturing PMI index number of 50.9 in January, which is lower than the 2020 fourth-quarter average.

According to the Bureau for Economic Research, South Africa’s Absa Manufacturing PMI rose slightly to 50.9 in January from 50.3 in December 2020. Despite the improvement, the latest reading is much lower than the average recorded in the final quarter of 2020. Indeed, the business activity index declined for a fourth consecutive month, pointing to a further loss of momentum in recovery. Meanwhile, there were gains in the sub-indices tracking new sales orders and expected business conditions in six months’ time.

The manufacturing sector remains key to the growth and development of South Africa due to its multiplier effect into other sectors of the economy, such as the construction sector, especially through the Metals and Engineering (M&E) industry as a supplier of crucial inputs such as steel. According to SEIFSA Chief Economist Chifipa Mhango, the signs of this slow pace in recovery show that the sector is in for a bumpy ride in 2021.

He said the price trends for intermediate products, which were discouraging new investment into the manufacturing sector, were also a concern. “Prices are a key component of decision-making by businesses on how revenue will be generated, either taking the approach of growing price or volume. Within the manufacturing sector, historical patterns show that on average, since January 2013, prices of goods have increased below 10% year on year. This is for both final manufactured goods and intermediate goods, of which most M&E products are part,” Mhango said.

Producer price index data suggests that in 2020 electricity prices increased at a much faster pace than that of intermediate manufactured goods. However, prices for mining products increased more than both electricity and intermediate manufactured goods between January and December 2020. Mhango said this reflects the prevailing difficulty in the operating environment, characterised by rising intermediate inputs costs from the mining sector.

He said there is a prevailing discouraging trend of generally decreasing price patterns in both the intermediate and final manufactured goods PPI since 2016.

“It is important to keep electricity price increases under control in order to ensure business’s sustainability since their negative effect on turnover can lead to the shutting down of businesses and more job losses in the short to medium term.”

SEIFSA Chief Economist Chifipa Mhango

He said the massive surge in prices of mining input products to 32.5% in 2020, according to Statistics South Africa, which is above price increases of intermediate manufactured goods, was a concern for the survival of the M&E sector. Had said the high electricity prices had compounded the existing gap between the selling prices for M&E intermediate goods and production.

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Oxygen shortage amid Covid-19 second wave has affected industrial production

Covid-19 has had a significant negative impact on businesses across all sectors and taken a toll on healthcare systems and facilities in South Africa. In recent weeks, there have been news reports of a high demand of medical oxygen, putting immense pressure on oxygen suppliers and affecting industrial supply.

In an attempt to assess the scale of the oxygen shortage, the Steel and Engineering Federation of South Africa (SEIFSA) surveyed its member companies to establish their experiences around oxygen shortage within the metals and engineering (M&E) sector and to understand the impact of the shortage on their production levels and whether alternative measures were being sought regarding input supply chains.

According to the survey results, which was sent to all 1 600 companies that are members of SEIFSA through its affiliated Associations, 76.92% of the respondents said they had experienced oxygen shortages and had considered alternative supplies in the process. Several companies whose analytical instruments use oxygen had to alter their inspection regularly to reduce consumption and find alternative supply, in one case at a cost of R4 000 per bottle versus the standard cost of R140 per bottle.

Some of the respondents mentioned that they were at risk of running out of oxygen within 14 days. Others said the impact had been so severe that they had to apply for extensions on their projects or stop production altogether.
“Based on the views of the respondents, SEIFSA is of the view that the oxygen shortage has, indeed, disrupted industrial production. However, we concur with our respondents who believe that lives need to be saved, hence the supply of medical oxygen should be prioritised,” said SEIFSA Chief Economist Chifipa Mhango.

He said, however, the SEIFSA survey indicated that the issue of oxygen supply is a concern as the Covid-19 pandemic persists. He said it is clear that the second wave had placed a strain on sectors heavily reliant on oxygen as a result of the high rate of daily hospital admissions. He said that going forward, strategic interventions and engagements will be required with oxygen suppliers to salvage the crisis.

“However, with the Covid-19 vaccine rollout soon to be implemented in the country and a managed approach by Government to reduce Covid-19 infections, we expect a return to normality in oxygen supplies in the coming weeks and months as hospitalisation rates decline,” Mhango concluded.

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