Quarterly Review: State of the Metals and Engineering Sector in South Africa

State of the Metals and Engineering Sector Report in South Africa First-half of 2021 review

September 2021

A Sector showing some green-shots:

Implementation of key policy interventions should be a priority

State of the Metals & Engineering Sector Report - First half of 2021 review

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Dashboard of the M&E Sector in South Africa Comparison of the first six-months to June 2019

2020

2021

M&E Production (% growth)

-0.7%

-23.0%

179.9%

M&E Share of Manufacturing production (%)

28.99%

28.99%

29.04%

M&E Production sales (Rand value)

R404.2

R318.9

R457.1

billion

billion

M&E capacity utilisation (%)

79.5%

64.9%

77.0%

M&E employment (number)

440 321

398 257

397 586

R201.6

R150.4

R226.7

R250.5

R203.2

R254.1

-R48.9

-R52.8

-R27.4

Economic variable

M&E Export value (Rand value)

billion

billion

M&E Import value (Rand value)

billion

M&E Net trade balance (Rand value)

billion

M&E Real per capita income

PPI: Intermediate goods (%)

Construction and building material sales (Rand value)

billion

billion

billion

billion

billion

billion

R56 920.70 R46 867.52 R55 296.66

5.3%

1.1%

12.1%

R56.5

R41.3

R69.9

billion

billion

billion

State of the Metals & Engineering Sector Report - First half of 2021 review Source: Stats SA

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STEERING THE WAY

FOR CHANGE

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is a national employer Federation representing the metal and engineering industry.

For 75 years, SEIFSA has provided active support for employer Associations and lobbied for policies that have improved the business environment in which its members operate.

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

INTEGRITY

DIVERSITY

EXCELLENCE

STEWARDSHIP

PASSION

INNOVATION

TABLE OF CONTENT Preface 07 Executive summary 09 1.

Global economic overview – major economies

12

2.

An overview performance of the South African economy

18

3.

The composition of South African Metals and Engineering Eector

24

4.

South African Metals and Engineering Sector Production Trends

26

5.

Employment trends in the Metals and Engineering Sector

54

6.

Per capita earnings in the manufacturing sector

60

7.

Trade in the Metals and Engineering Sector

66

8.

Gross fixed capital formation in the Metals and Engineering Sector

82

9.

Price and cost dynamics in the Metals and Engineering Sector

84

10.

Key challenges facing the Metals and Engineering Sector and

recommended policy interventions 88 11.

Steel and fabrication master plan highlights of key policy interventions

92

12.

Projections for the m&e sector for 2021 and beyond

94

13.

Conclusion 96 ANNEXURE A 97

Produced by SEIFSA Economic and Commercial Team Chifipa Mhango - BSoc (Econ, Acc & Stats)

- MCom (Econ, Econometrics) Palesa Molise - BCom (Econ), BCom (Hons)

- MCom (Loc. Econ Dev) Eleen Snyman - BSoc. Sci (in progress) Edited by Mpho Lukoto - Communications Manager Designed by Zandile Ngubeni - Creative designer

State of the Metals & Engineering Sector Report - First half of 2021 review

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Preface The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is committed to its role as the recognised voice of the Metals and Engineering (M&E) sector in South Africa and the Southern African region. Its vast knowledge and experience in the sector remains undisputed.

SEIFSA has, throughout its 78 years of existence, been an integral part of the M&E sector and has kept abreast of all developments, providing the necessary input and voice on a range of matters, including government policy, and engaging with the relevant stakeholders to ensure the industry is heading in the right directiom.

As an industry and employer federation, SEIFSA is also a critical player in the industry’s collective bargaining and is mandated by employer associations affiliated to it to negotiate conditions of employment and wage rate on their behalf at the Metals and Engineering Industries Bargaining Council. It also offers various products and services to support member companies in areas such as transformation, industrial and legal relations and occupational health and safety, among others.

Over the years, the Economic and Commercial (EC) Division of SEIFSA has become akey source of industry information and for the last xxx years has been publishing the SEIFSA Price and Index Pages (PIPS),while conducting training in Contract Price Adjustments (CPA).

In continuation of its tradition, SEIFSA once again presents the State of the Metals and Engineering Sector: First Half-year review of 2021, compiled by Chief Economist Chifipa Mhango and Economist Palesa Molise.

The year 2020 was challenging for the M&E sector, with restrictions put in place to curb the spread of COVID-19, hampering manufacturing activity and adding to the strain the sector had been experiencing even before the virus struck in December 2019.

However, green shots in the first six months of 2021 have been observed. In particular, in June 2021, the Department of Trade, Industry and Competition (DTIC) released and launched The Steel and Metal Fabrication Master Plan 1.0, which outlines policy interventions to address the challenges facing the industry. SEIFSA has welcomed its launch and will monitor its implementation.

SEIFSA, therefore, presents to you the “State of the Metals and Engineering Sector First Half-year review of 2021” and encourages all stakeholders to grab a copy of the publication which is an update of the annual report released in February. We at SEIFSA, once again wish you a pleasant last sixmonth of 2021, as we work on the revival of the M&E sector.

Lucio Trentini

Chief Executive Officer

State of the Metals & Engineering Sector Report - First half of 2021 review

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Chifipa Mhango The core business of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is to represent and promote the interests of business in Southern Africa, in particular in the M&E industries, through lobbying, advocacy, capacity building, provision of related services and building of good relations with key stakeholders.

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Executive summary The core business of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is to represent and promote the interests of employers operating in the M&E sector, through lobbying, advocacy, capacity building, the provision of related services and building of good relations with key stakeholders.

Through its Economic and Commercial (EC) Division, SEIFSA is publishing its first of its kind deep-dive of “The First half of the year 2021 review State of the Metals and Engineering Sector Report. In this edition of the report, we also take a deep dive into the sector to cover all elements in understanding the sector’s performance with a key focus on developments to June 2021, updating from the annual report of February 2021.

The Metals and Engineering (M&E) sector is important in global economic dynamics. It is a key integral part of the global economy for its livelihood and economic development. Any disruptions in the sector’s industrial activity feeds through into the rest of other sectors of the global economy. From the end user’s perspective, the M&E sector is a crucial supplier of inputs into major sectors such as construction and other manufacturing subindustries. In 2020, the M&E sector faced enormous challenges globally, with supply chain disruptions, declining market demand and disruptions in trade.

The South African industrial landscape was not spared from this challenge.

In recent years, even before the COVID-19 pandemic, the South African industrial landscape has continued to be dominated by a shrinking domestic market, declining production, low capacity utilisation levels, weak production sales, declining contribution to the overall total economy, declining employment numbers, increasing real per capital income impacting negatively on cost base, increasing levels of imports, weak global trade balance position, low investment levels and low product price increase in relation to input prices.

However, in the first six months of 2021, green-shots began emerging in the sector. For the M&E sector, key positives during this period were improvements in production volumes and production sales, capacity utilisation improvements, exports improving in value terms, narrowing of the M&E trade deficit, growing export value for the African continent within

the M&E sectors, improvement in overall prices for intermediate goods, coupled with improving market conditions as demonstrated in the rise in demand for construction and building material sales from the low level of R10.9 billion in January 2021 to reach R11.6 billion in June 2021, thus reaching a total of R69.9 billion in the first six months of 2021. Business confidence also picked up to an index measure of 50 in the second quarter of 2021 from 35 in the first quarter of 2021, with the Purchasing Managers’ Index (PMI) also averaging 55.5 in the first six months of 2021, thus an expansionary phase in industrial activity. In June 2021, the PMI was at 57.4 index level.

Total manufacturing sector has been improving since March 2021, with average year-on-year growth rate of 36%. However, in the first two months of January and February, the sector was still in depressed condition, registering declines of 4.3% and 2.5% year on year. Statistics South Africa (Stats SA) data shows that total manufacturing production improved to 12.5% on a year-on-year basis in June 2021, when compared to June 2020, despite a monthly decline of 0.7% from May 2021. Total manufacturing sales increased by 29.3% year on year in June 2021, while declining marginally by 0.3% from May 2021. Year to date to June 2021, manufacturing production increased by 16.3%, with manufacturing sales improving by 28.9%.

Total manufacturing capacity utilisation was 78.6% in the second quarter of 2021 compared with 59.8% in second quarter of 2020, thus representing an increase of 18.8%. Within the M&E sector, capacity utilisation significantly improved to 77.1% in the second quarter of 2021, from 52,9% in second quarter of 2020. Between the first quarter of 2021 to the second quarter of 2021, total manufacturing capacity utilisation improved from 76.3% to 78.6%, with that of M&E also improving from 76.9% to 77.1%.

South Africa’s unemployment rate rose to 34.4% in the second quarter of 2021 from 32.6% in the previous quarter. It was the highest jobless rate in the 13 years, amid the ongoing pandemic lockdown. Unemployment in South Africa is far above other economies, including its BRICS counterparts Brazil (14.7%), China (5%), India (9.2%) and Russia (4.9%).

State of the Metals & Engineering Sector Report - First half of 2021 review

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Within the M&E sector, total employment declined by 8%, from 429 617 in the first quarter of 2020 compared to 397 586 in the first quarter of 2021.

In first quarter of 2021, total M&E employment improved by 2 031 from the fourth quarter of 2020, representing a 0.5% increase while total employment for entire manufacturing sector improved by 4 431 in the same period.

Real per capita earnings in the manufacturing sector increased from R35 074.99 in 2002 quarter three to reach R52 487.37 in 2021 quarter one, thus representing an increase of 49.6%. During the same period, real per capital income in the entire M&E sector also increased from R36 867.55 to reach R55 296.66, representing a 50% increase. On average, the M&E sector’s real per capital earnings is more than the total manufacturing sector’s real per capital earnings.

Total trade in the M&E sector has favoured imports since 1995. South Africa’s net trade balance in the M&E sector averaged –R52 billion to second quarter of 2021. According to data from Quantec, South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two was -R350.6 billion, suggesting that the country continues to import more than it is exporting. Total exports during this period were R1.8 trillion, with imports at R2.1 trillion.

According to the data of 2021 first six months to June, the South Africa’s M&E’s total net trade balance was –R27.4 billion, thus indicating a bias towards importing than producing. In most of the products within the M&E sector, South Africa is still importing more than its exporting. South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two in the African region is R463.9 billion. The country continues to export more than it is importing in the African region than in any other region. Total exports for the African region during this period were R525.5 billion, with imports at R61.6 billion.

a depressed market conditions this may have negative implications in terms of affordability from the customer base, thus affecting sales volumes.

The mining sector remains the key raw material supplier into the M&E sector, and the PPI data for Mining is truly reflected of the input costs pressures for the M&E sector. Mining PPI increases is still above the 20% level from the May 2021 movement, averaging 17% in the first six months of 2021 to June.

SEIFSA commends the Government on the implementation of targeted initiatives to address some of the structural problems facing the M&E sector as stated in its policy documents. In this year’s National Budget Speech, it was announced that the Government planned to spend R791.2 billion over the next three fiscal years on public infrastructure. It is imperative that there is engagement on the planned a projects with the implementing agencies such as Transnet, Eskom and Sanral, among others, so that the local industry is well positioned to be the preferred supplier in keeping with local procurement policy.

SEIFSA is also encouraged by the various policy interventions that have been set out in the Steel and Metals Fabrication Mater Plan 1.0 and reiterates calls for the prioritisation of the implementation these interventions.

Chifipa Mhango Chief Economist

In the first six months of 2021 to June, Producer Price inflation (PPI) rose from 7.4% in May 2021 to 7.7% in June 2021 for final manufactured goods, with metals products, food products and computing equipment being among the largest contributors to the increase.

The rise in PPI is concerning for the overall domestic inflation outlook; as producers pass on costs increases to consumers in a retail market.

Prices for intermediate manufactured goods increased to a highest level of 16.4% in the year in June 2021. This is the category within which most products within the M&E sector fall in. In 10

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

In most of the products within the M&E sector, South Africa is still importing more than its exporting. South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two in the African region is R463.9 billion. The country continues to export more than it is importing in the African region than in any other region.

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1. Global economic overview – major economies The global economy is expected to rebound in 2021 on expansive fiscal and monetary stances and the vaccine rollout. However, fast-spreading COVID-19 variants will lead to stop-start restrictions in some countries, weighing on activity. Potential vaccineresistant strains of the virus, supply constraints and US-China tensions pose downside risks.

Global inflation is also expected to increase in 2021— particularly in developed economies—amid sizable stimulus, higher commodity prices, supply bottlenecks and recovering economic activity. However, inflation should decline in some developing economies amid reduced currency pressures and ongoing economic slack.

In the US, GDP growth accelerated to 6.5% in

Economic activity in the eurozone is forecast to grow by 1.3% in the second quarter, before accelerating to 2.9% in the third, on the back of continued easing of containment measures and the resumption of social activities. Growth momentum in the fourth quarter is forecast to ease but to remain solid at 1.3%.

seasonally adjusted annualised rate terms in the second quarter of 2021, from 6.3% in the first quarter, although this figure considerably undershot market expectations.

Private consumption roared ahead with 11.8% growth in the second quarter, which was above the first quarter’s 11.4% expansion, driven by the return of Americans to restaurants and other in-person activities. However, public spending went into reverse, contracting 1.5% in second quarter of 2021 against 4.2% in first quarter of 2021. Meanwhile, fixed investment growth slowed, with only a 3.0% rise in the second quarter, marking the worst result since second quarter of 2020 against a first quarter 13.0% growth rate. This was likely due in part to supply bottlenecks, particularly in the construction sector, with a sharp fall in inventories of goods being testament to such difficulties.

Exports of goods and services bounced back, growing 6.0% in second quarter of 2021 against -2.9% in the first quarter. Conversely, growth in imports of goods and services slowed to 7.8% in the quarter versus first quarter 9.3% growth rate.

In Euro Area,detailed national accounts data revealed ththe two main reasons for the revision are that activity in the first quarter of the 2021 exceeded expectations and the improved health situation prompted a swifter easing of pandemic restrictions in the second quarter.

The economies in Euro Area have been able to reopen faster than expected thanks to an effective containment strategy and progress with vaccinations. Gross domestic product in the 19-member eurozone is expected to grow by 4.6% in 2021, according to IMF July 2021 projections.

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In 2022, the eurozone economy is expected to expand by 4.3%. According to the EU commission, some member states will see their economic output return to their precrisis levels already by the third quarter of 2021, but others will have to wait longer.

Among the largest member states, Poland is expected to have returned to pre-crisis levels of output in the second quarter of 2021 and Germany and the Netherlands in the third quarter, while Spain and Italy will do so one year after, in the third quarter of 2023.

Private consumption and investment are expected to be the main drivers of growth, supported by employment that is expected to move in tandem with economic activity. The swift reopening underway in the EU member states is bringing back spending opportunities earlier than previously expected. Strong growth in the EU’s main trading partners should also benefit goods exports. Furthermore, despite remaining constraints to international tourism, there is evidence of a revival in intraEU tourist activity, which should further benefit from the new EU Digital COVID Certificate.

Rising energy and commodity prices, production bottlenecks, as well as strong demand at home and abroad are expected to put upward pressure on consumer prices in 2021. The European Commission has revised its inflation forecasts to 1.9% in 2021, from 1.7% in the Spring forecasts and to 1.4% in 2022 from 1.3%. Although prices pressures in 2022 should moderate gradually as production constraints are resolved with supply and demand converging.

Uncertainty and risks surrounding the growth outlook are high, but remain balanced overall. The risks posed by the spread of COVID-19 variants underscore the importance of further increasing the pace of vaccinations.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

In China, GDP growth lost momentum in the second

quarter, falling to 7.9% year-on-year from 18.3% in the first quarter. The slowdown was influenced by the base effect growing less favourable, although underlying momentum—as indicated by comparing the quarters of 2021 to the same period in 2019—improved, with growth in second quarter of 2021 relative to second quarter of 2019 speeding up to 5.5% from 5.0% in first quarter of 2021. This shows the economy is still growing more sluggishly than its pre-COVID levels.

Adjusting for base effects, momentum in the secondary sector was broadly stable, likely weighed on by chip shortages affecting vehicle production, while the tertiary and primary sectors gained steam. In particular, consumer spending dynamics appeared to improve in second quarter of 2021, as demonstrated by faster growth in retail sales compared to the same period in 2019. Activity appeared to fluctuate during the quarter: After a weak set of data in May for indicators such as industrial output, fixed investment and retail sales, the figures for June were more positive than markets were expecting, suggesting a stronger end to the quarter.

On a seasonally-adjusted quarter-on-quarter basis, economic growth gathered pace, accelerating to 1.3% in second quarter of 2021, compared to the previous period’s 0.4% increase.

According to the IMF, annual growth rates are expected to continue to moderate in the second half of the year on a less favourable base effect, and as consumption in developed markets pivots from goods to services, tempering China’s export sector. Moreover, downside risks to the economy are gathering, as higher raw material prices hurt firms’ profit margins and government restrictions on the property sector and efforts to reduce carbon emissions dampen activity.

Meanwhile in Africa, Sub-Saharan Africa’s GDP

is seen increasing in 2021, supported by the gradual removal of restrictions. Pent-up foreign demand and recovering commodity prices are set to boost exports.

That said, downside risks remain, including strained public finances and social unrest in several countries. The spread of the Delta strain and a slow vaccine drive cloud the outlook further.

Regional inflation dropped to a preliminary 13.0% in June, from May’s 13.5%, amid easing price pressures in Cote d’Ivoire, Nigeria and Zimbabwe, and declining consumer prices in Rwanda. Although inflation is seen dropping from last year as pandemic-induced supply chain disruptions fade, upside risks stem from higher price pressures for food and transport.

Table 4 below provides a summary of the IMF’s 2021 GDP projections for major economies.

Table 1: IMF GDP growth rates as of July 2021

IMF GDP GROWTH RATES Region/country

2019

Percentage

2020

2021

Actual

2022 Projections

World

2.8

-3.2

6.0

4.9

Advanced economies

1.7

-4.6

5.60

4.4

United States

2.2

-3.5

7.0

4.9

Euro area

1.3

-6.5

4.6

4.3

United Kingdom

1.5

-9.8

7.0

4.8

Japan

0.7

-4.7

2.8

3.0

Emerging and

3.7

-2.1

6.3

5.2

China

6.1

2.3

8.1

5.7

India

4.2

-7.3

9.5

8.5

Brazil

1.1

-4.1

5.3

1.9

Russia

1.3

-3.0

4.4

3.1

Sub-Saharan Africa

3.2

-1.8

3.4

4.1

Nigeria

2.2

-1.8

2.5

2.6

South Africa

0.2

-7.0

4.0

2.2

Developing countries

Source: IMF Report Jan 2021

State of the Metals State& of Engineering the MetalsSector & Engineering Report -Sector First half Report: of 20212021-22 review

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The above view on the global economy suggests that the global economy should rebound in 2021. However,

more needs to be done to drive more COVID-19 vaccinations in developing and emerging economies.

1.2 Commodity prices Commodity prices have influenced trends in manufacturing production over the years. The year 2020 will be remembered for the global COVID-19 pandemic, which put industrial and global trade activities on hold due to strict lockdown measures that Governments worldwide implemented mostly from March 2020. This led to a significant drop in commodity prices, especially in March and

April 2020. In the first six month of 2021 to June, commodity prices have improved drastically for instance in the case of the five commodities being monitored by SEIFSA in the figure 1, prices across have increased by an average of 29% between January 2021 to June 2021 amid return to industrial activity global thus driving demand especially from countries such as China.

Figure 1: Global commodities prices- 2015 to 2021 June

Source: World Bank

1.2.1 Nickel Nickel started the year trading at US$17,344, following an uncertain 2020 that saw the metal fall in Q1, but bounce back by the end of the year. Speculation surrounding demand for electric vehicle (EV) batteries drove prices last year, with many analysts agreeing that the metal’s valuation was not reflecting market fundamentals. So far in 2021, nickel’s story has been volatile.

Prices hit their lowest point in early March at US$15,907 — just a few days after hitting their highest level of the period in late February at US$19,689. The nickel price tanked in early March after Tsingshan’s announcement that it would convert nickel pig iron (NPI) into nickel matte to serve the battery sector.

Further explaining the news and its impact on the sector which raised concern that potentially a substantial amount of the country’s vast NPI industry could adapt to satisfy demand for both the stainless steel and battery sectors. Nickel continued to perform in a choppy fashion throughout the first half and ended the six-month period 14

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

trading above US$18,000. This was due to strong demand from the stainless steel and battery sectors. The narrative for strong nickel demand from batteries amid President (Joe) Biden’s USA Green New Deal for an economic recovery, and general tightness in the nickel market, has also helped to support prices.

In the first six months of 2021 to June, Nickel prices averaged US$ 17 488.67 /mt.

taking a tonne of Hot Rolled Coil (HRC) in Europe to €1050 – up by more than 80%.

With USA HRC prices now $1,815 USD/T (up over 200% in 12 months) and trending higher, they remain attractive export markets for Chinese mills.

In the first six months of 2021 to June, Steel prices averaged US$ 921.47 /mt.

1.2.3 Iron ore prices

1.2.2 Steel prices Much has happened in recent weeks in the steel and the stainless-steel commodities and finished product markets. Prices soared higher to record levels across the globe – particularly China, fuelled by speculation in the futures markets. China’s steel output hit an all-time high in April pushing production figures for the quarter up 15.6%. Mills ramped up to 90% capacity levels despite China’s government targeting to reduce industry capacity by 5% in 2021 to cut carbon emissions and stem increasing commodity prices.

In order to meet these targets and despite increasing demand and high prices the State Council had ordered steelmakers in Tangshan in North China’s Hebei province to cut output by 3050%. To put this directive in perspective, Tangshan produced 144 million tonnes of steel last year (~50% flat rolled products), accounting for 13.5% of China’s total output, 45% more than produced by the world’s second largest steelmaker, India. The production cuts in Tangshan instead pushed up Chinese domestic steel prices through March, April and May – as China’s businesses battled for supply to meet continuing growth in the construction, infrastructure and manufacturing sectors.

As a further measure to shore up domestic supply, slow the growth of carbon emissions and secure more steel resources domestically – China removed its’ 13% export tax rebate for 146 steel products and cut tariffs for ferrous / semi-finished steel imports effective 1st May 2021. This move resulted in a 13% increase in Asia-Pacific market prices.

Though China accounts for 30% of global manufacturing and 50% of steel product manufacturing, surging steel prices are a global story. Producers outside of China are scrambling to keep pace. Earlier this month, ArcelorMittal lifted its steel prices for the 12th time since November,

When the COVID-19 pandemic first hit, appetite for raw materials nosedived. As demand fell, so did commodity prices. At first, the cost of metals, such as copper and zinc, plummeted. The value of agricultural raw materials, like cotton and rubber, also fell sharply. And in a world first, oil recorded negative prices. But for other commodities, 2020 marked the beginning of a spectacular ascent, with prices rising to levels not seen for years. As the best-performing major commodity of 2020, iron ore prices became red hot, hitting a record high of US$229.50 a tonne in May 2021.

In recent months of 2021, the price of iron ore has wobbled as China’s State Council vowed to strengthen its management of commodity supply and demand. But despite setbacks, the value of iron ore has continued to climb, increasing by 103.25% in the last year. The reasons for this dramatic rise are several. As an essential steelmaking ingredient, iron ore continues to play a crucial role in the construction of skyscrapers, bridges, and motorways. It also serves as a critical component in manufacturing goods such as cars, fridges, and mobile telephones. With the roll-out of vaccines across the world’s largest economies stimulating growth, demand for stell from infrastructure projects and manufacturing has begun to recover. In turn, this increased demand has led iron ore prices to soar.

The surge in iron ore prices has been particularly underpinned by increased demand in China – by far the largest importer and consumer of iron ore globally. Indeed, China requires more than 1 billion tonnes of steel each year to feed its long-standing infrastructure and building boom. Returning to prepandemic growth rates at the end of 2020, China’s appetite for iron ore skyrocketed, with data released in May showing imports grew 43% in April year on year.

In the first six months of 2021 to June, Iron ore prices averaged US$ 184.08 /dmt.

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1.2.4 Copper prices Copper prices reached an all-time high of $10,512 per metric ton on 9th of May 2021, marking a 130% growth since March 22, 2020. The consensus forecast from three leading sources (IMF, World Bank, and the Australian Government) for 2021 is $8,357. The average year-to-date price as of May 20 was $8,915, which means the forecasts do not reflect an expectation of further increases over the second half of the year.

The copper price growth over the course of the past year was driven primarily by the high demand from China, the top copper consumer, as well as growing optimism about the overall economic recovery in view of COVID-19 vaccine rollouts. The demand for copper is expected to rise further amid rising concerns about low copper inventories.

Copper is the most widely used metal in energy generation, transmission infrastructure, and energy storage. It is the next most used metal after aluminum and steel in the construction, telecommunications, transportation, and automobile manufacturing sectors.

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In the first six months of 2021 to June, Copper prices averaged US$9 091.67 /mt.

1.2.5 Aluminium prices Aluminum futures traded near $2,600 a tonne, the highest since June 2011 on higher demand and tight supply as China suppresses smelting to reduce pollution and meet green targets. Aluminum producers in Yunnan province were told to reduce power consumption and smelter Yunnan Shenho is set to miss its 2021 output target due to the power cuts. Adding to the bullish tonne, China’s state reserves administration announced it will sell 90,000 tonnes of aluminum, less than the market expected following 50,000 tonnes sales on July 5th. Global aluminum consumption this year is seen rising 8% on the back of climate change investment.

In the first six months of 2021 to June, Aluminium prices averaged US$2 245.50 /mt.

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1.3 Global Manufacturing Purchasing Managers Index As can be seen in Figure 2, the global JP Morgan Manufacturing PMI plunged to a lowest level in April 2020 of 39.6, reflecting the impact of hard COVID-19 lockdown restrictions on industrial activity globally. Thus, production levels also declined across the global M&E sector amid low demand conditions. As lockdown measures were

being relaxed, industrial activity returned, with the PMI moving into expansionary territory of industrial activity.

In the first six months of 2021 to June, global PMI averaged 55 index level. Global PMI improved from 53.6 in January 2021 to June 55.5 index level.

Figure 2: Global manufacturing PMI Index in to June 2021

Source: HIS Markit

the Metals & Engineering Report First of review 2021 review State State of theofMetals & Engineering SectorSector Report - First -half of half 2021 2021-22

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2. An overview performance of the South African economy The global economic recovery has seen a divergence in prospects, with economic growth forecasts for emerging markets and developing economies lowered, while those for advanced economies have been revised up. Nearly 40% of the population in advanced economies has been fully vaccinated, with less than half that number in emerging market

economies. South Africa is lagging behind its emerging market peers: by the end of July, the country had fully vaccinated only 4.8% of the population (2.8 million adults). The drive towards more vaccinations is imperative for further opening up of the domestic economy and industrial activity.

2.1 Gross Domestic Product growth rates to first quarter of 2021 Gross Domestic Product (GDP) data released by Stats SA for the second quarter affirmed an uptick in economic growth in the second quarter of 2021.

According to Stats SA, real gross domestic product (measured by production) increased by 1.2% in the

second quarter of 2021, following an increase of 1.0% in the first quarter of 2021. Second-quarter growth was mainly attributed to six sectors recording positive growth between the first quarter and second quarter of 2021.

Figure 3: Trends in South African GDP growth rate to 2021 Q1

Source: Stats SA

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

The uptick in GDP is certainly a welcome development, especially given the current economic environment against the backdrop of rising unemployment level, rising input costs, increasing energy costs and the COVID-19 pandemic. Encouragingly, the agriculture sector and mining sector showed the best growth rates at 6.2% and 1.9% respectively.

Gross Fixed Capital Formation (GFCF) data released along-side the GDP figures is also supportive of the

positive trend in GDP and production figures, as GFCF increased by a marginal 0.9% in the second quarter of 2021.

Another positive element in the latest Stats SA data released along-side GDP figures is the increase in exports of goods and services of 4.0% in the second quarter of 2021, mainly attributed to increases in mineral products, precious and semi-precious stone and sand vehicles.

2.2 South African Purchasing Manager’s Index trend to

June 2021 The PMI has averaged 55.5 index level for the first six months of 2021 to June, thus indicating that the country industrial activity has been in expansionary territory. PMI for South Africa improved from 50.9

index level in January 2021 to reach 57.4 in June 2021, as depicted in figure 4. This demonstrates the greenshoots in the economy from the industrial activity point.

Figure 4: Manufacturing PMI Trends in South Africa to June 2021

Source: BER

State of the Metals & Engineering Sector Report - First half of 2021 review

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2.3 Gross Fixed Capital Formation in South Africa Gross Fixed Capital Formation (GFCF) includes land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; and the construction of roads, railways, and the like, including schools, offices, hospitals, private residential buildings.

South Africa needs to increase its share fixed investment to GDP from current levels if the country is to deal with the challenges of poverty and inequality as identified in 1994. In 2020, GFCF share to GDP was 17% and this is below other emerging economies such as China (42.6%).

also supportive of the positive trends in GDP figures, as GFCF increased by a marginal 0.9%. The main contributors of this increase were machinery and equipment, other assets and transport equipment. In the second quarter of 2021, GFCF share to GDP was 13.5% with total value of 152 billion, a decline of 1.3% from the first quarter of 2021 in real terms. This decline in GFCF was driven by a decrease in residential buildings, non-residential buildings, and construction works, demonstrating the strain being felt by the construction sector. Thus, Infrastructure spending into the economy is key in driving the increase in fixed investment ratio to GDP.

Gross Fixed Capital Formation recent data released along-side the rebased quarter 2 GDP figures, is

Figure 5: Gross Fixed Capital Formation trends in South Africa

Source: Stats SA

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

2.4 South Africa’s public

infrastructure spending The Government has continued to offer a stimulus package in the form of infrastructure spend to boost fixed investment into the local economy, across sectors. A total of R959.3 billion was spent on infrastructure-related investment by the Government in the last four fiscal years to 2020/21. In the next three fiscal years, R791.2 billion is allocated for key public infrastructure projects, according to National Treasury Department.

2.5 Construction and building

material sales in South Africa As can be seen in Figure 6, after a dip in construction and building materials products sales in April 2020 to R1.2 billion due to COVID-19 lockdown restrictions,

monthly sales started to improve into December 2020, reaching a total of R109 billion in 2020.

From March 2020, sales for construction and building materials products were lower than those recorded in 2019, with the exception of July, September, October, November, December 2020, during which yearon-year growth rates were positive, thus indicating improvements in business activity under eased lockdown levels. StatsSA data shows that the yearon-year growth rate of construction and building materials sales since September 2019 into February 2020 averaged 2.5%. The impact of the COVID-19 lockdown was the massive year-on-year decline in sales of -86.4% and -54.3% in April and May 2020 respectively. Total construction and building sales for 2020 were R110.3 billion, a decline of -3.7 from 2019.

In the first six-months of 2021 to June, total Construction and Building material sales were R69.9 billion, growing by 69.2% when compared to the first six-months of 2020.

Figure 6: Construction and building material sales to June 2021

Source: Stats SA

State of the Metals & Engineering Sector Report - First half of 2021 review

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2.6 Business Confidence in South Africa The RMB/BER business confidence index in South Africa rose to 50 in the second quarter of 2021 from 35 in the previous period and well above pre-pandemic levels, amid the gradual relaxation of some COVID-19 restrictions. It was the highest reading since the last quarter of 2014, as confidence rebounded especially sharply in the manufacturing, retail trade and motor

trade sectors. By contrast, sentiment among building contractors and the wholesale trade sector improved only marginally. Still, it was noted that the economy faced risks from a fast-spreading third wave of coronavirus infections, additional lockdowns and Eskom’s unstable electricity grid.

Figure 7: South African Business Confidence Index to Second quarter of 2021

Source: BER

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

2.7 South African Monetary policy environment The Monetary Policy Committee of the South African Reserve Bank (SARB) unanimously decided to leave the repurchase rate on hold at 3.5%, which was in line with market expectations. The headline Consumer Price Index growth rate has been within the Reserve Bank target range of 3% to 6% since as far back as May 2020, with the Repo rate remaining unchanged since August 2020 at 3.5%.

The decision to hold the Repo rate at 3.5% in the latest Monetary Policy Committee of July 2021 was largely on the back of uncertain growth prospects and a relatively contained inflation outlook. While the economic performance surprised on the upside in the first quarter, the recent protests in KwaZulu-Natal and Gauteng are set to weigh on activity in the short term, particularly by hampering investor sentiment and

employment. Moreover, the recovery remains uneven across sectors, while the road back to pre-crisis levels is long amid a slow vaccine rollout, renewed restrictions due to a rise in new COVID-19 cases, policy uncertainty and electricity shortages. Turning to inflation, although higher prices for food, electricity and oil could exert upward pressure on prices in the coming months, price pressures are seen remaining contained overall in 2021 and 2022 as the SARB projects easing core inflation, before increasing to around the midpoint of the Bank’s 3.0%–6.0% target range in 2023.

The SARB projects a 25 basis-point hike in fourth quarter of 2021 and each quarter of next year, its stance will remain highly accommodative as it continues to support the economic recovery.

Figure 8: South African Headline CPI and Repo rate to June 2021

Source: SARB

State of the Metals & Engineering Sector Report - First half of 2021 review

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3. The composition of South African Metals and Engineering Eector The M&E sector is an integral part of the broader manufacturing sector, which is made up of 10 main divisions, further divided into 20 major groups or sub-sectors. The M&E sector comprises 13 subcomponents. According to Stats SA, the manufacturing sector places the cumulative weights for the M&E

sector at 29.04%. This is further adjusted to obtain an absolute weighting for the sub-components of the M&E sector, relative to the overall manufacturing sector weights.

Table 2: Composition of the Metals and Engineering Sub-Components

Manufacturing division and major group.

13 Metals and Engineering (M&E) Sub-Components

Manufacturing Weights (M&E division

%

%

Petroleum, chemical product, rubber and plastic products

Rubber products

1.19

4.10

Plastic products

2.69

9.26

Basic iron and steel, non-ferrous metal

Basic iron and steel products

3.49

12.02

products, metals product and

Non-ferrous metal products

2.68

9.23

machinery

Structural metal products

2.02

6.96

Other fabricated metal products"

3.73

12.84

General purpose machinery

2.57

8.85

Special purpose machinery

3.35

11.54

Household Appliances

0.75

2.58

Electrical Machinery and apparatus

Electrical machinery and apparatus

1.64

5.65

Motor vehicles, parts and accessories

Bodies for motor vehicles, trailers and semi-trailers

0.49

1.69

and other transport equipment

Parts and accessories (Motor Vehicle)

3.21

11.05

ther transport equipment

1.23

4.24

29.04

100.00

Total

Source: StatsSA

M&E adjusted weights show that the other fabricated metals products sub-sector (12.84%) contributed the most weight, followed by the basic iron and steel products subsector (12.02%) and the special purpose machinery sub-sector (11.54%), as defined by StatsSA, with bodies for motor vehicles/trailers and semi-trailers products and household appliances product sub-sectors contributing the least weights of 1.69% and 2.58% respectively.

24

Adjusted for M&E Weights

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

The M&E sector comprises 13 sub-components.

According to Stats SA, the manufacturing sector places the cumulative weights for the M&E sector at 29.04%. This is further adjusted to obtain an absolute weighting for the sub-components of the M&E sector, relative to the overall manufacturing sector weights

State of the Metals & Engineering Sector Report - First half of 2021 review

25

4. South African Metals and Engineering Sector Production Trends The manufacturing sector has remained under pressure since 2010, after the completion of mega infrastructure projects related to the 2010 Soccer World. Total manufacturing production reached its peak around 2007. The surge from the January 2003 to 2008 period was mainly driven by increased

demand from construction activities supporting the 2010 Soccer World Cup, as well as Eskom’s energy projects at Medupi and Kusile. After completion of most projects, demand levels from the sector declined, leading to reduced production.

4.1 Overview of the Manufacturing sector in South Africa Figure 9, shows that the manufacturing sector has been improving since March 2021, with average yearon- year growth rate of 36%. However, in the first two months of January and February, the sector was still in depressed condition, registering declines of 4.3% and 2.5% year-on-year. Latest manufacturing data released

by Stats SA, show that total manufacturing production improved to 12.5% year on year basis in June 2021, when compared to June 2020, despite a monthly decline of -0.7% from May 2021. Total manufacturing sales increased by 29.3% year on year in June 2021, while declining marginally by 0.3% percent from

May 2021. Year to date, manufacturing production increased by 16.3%, with sales improving by 28.9%.

The manufacturing sector has remained under pressure for some time, however, the latest data showing improvements should also be taken in the context that 2020 was not a normal year due to the strict COVID-19 restrictions, especially the from March.

Figure 9: Total manufacturing production and year on year monthly production growth rates

Source: StatsSA

26

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

4.2 Manufacturing Capacity Utilisation Trends in total

manufacturing and M&E sectors Total manufacturing capacity utilisation was 78.6% in the second quarter of 2021 compared with 59.8% in second quarter of 2020, thus representing an increase of 18.8%. Within the M&E sector, capacity utilisation significantly improved to 77.1% in the second quarter of 2021, from 52,9% in second quarter of 2020.

Between 2021 first quarter and second quarter of 2021, total manufacturing capacity utilisation improved from 76.3% to 78.6% with that of M&E also improving from 76.9% to 77.1%.

This is good news as it demonstrates if lockdown regulations are eased with more vaccine roll-out, production levels will increase further in the sector under improved demand conditions.

Subsequently, in recent months the manufacturing sector has also showed signs of improvement in terms of production patterns as demonstrated earlier.

Figure 10: Total Capacity utilisation in manufacturing and the M&E sector

Source: StatsSA

During the first half of 2021 to June, total manufacturing sales have been improving growing at year-on-year average growth rate of 36.9%. In the month of June, Total manufacturing sales increased by

29.3% year on year in June 2021 as depicted in figure 11, while declining marginally by 0.3% from May 2021.

Year to date, manufacturing production sales improved by 28.9%.

State of the Metals & Engineering Sector Report - First half of 2021 review

27

Figure 11: Total manufacturing sales value and year-on-year monthly sales growth rates

Source: Stats SA

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

4.3 Overall view of production patterns in the Metals and

Engineering sector across all sub-sectors Since the lockdown measures were implemented at level 5 in March 2020, production in the M&E sector dropped by its lowest level of -70.7 in April 2020, thus ending the 2020 with a decline of 13.7%. From January 2021, we have observed improvements in M&E production, with year-on-year growth averaging

179.9% in the first six months of 2021. M&E production growth rate reached a highest level in April 2021 compared to April 2020, demonstrating that a recovery from the hard lockdown of last year is on the way in the sector. In the month of June 2021, Production growth rate was 27.6% year on year, as demonstrated in Table 3.

Table 3: Year-on-year percentage change across sub-sectors

13 Metals and Engineering M&E) Sub-components

Year-on-year percentage change in production of M&E products 2020

Jan-21 Feb-21 Mar-21 Apr-21

Rubber products Plastic products

-14.4 -6.4

11.1 -3.4

Basic iron andsteel products

-23.4 -16.4

May-21 Jun-21

-9.6 -3.5

13.9 -1.3

275.7 48

60.7 14.8

8.2 1

-24.3

-9.2

337.9

71.2

41.1

-7.9

1.1

0.8

5.6

22.5

11.6

2.2

-14.4

-1.9

-7.7

2.1

499.2

65.4

3.1

Other fabricatedmetal products

-8.1

13.7

0

17.5

291.7

33.7

11.2

General purpose machinery

-8.7

-4.4

0.1

0.1

189.1

49.6

20.7

Special purpose machinery

-12.4

4.8

10.8

3.2

105 34.8

27.5

17.4

-8.9

-7.4

-6.7

217.2 135.1

55.2

-16.3

10.1

2.2

0.3

198

31.2

17.1

-7.3

9.9

29.1

27.2

872.9

86.4

9.9

Parts and accessories (Motor Vehicle)

-19.3

40.7

23.9

44.3 8605.9 278.4 104.5

Other transport equipment

-22.2

-8.8

12.7

-7.4

AVERAGE

-1.47

3.69

0.13

6.89 968.45 72.71 27.56

Non-ferrous metal products Structural metal products

Household Appliances Electrical machinery and apparatus Bodies for motor vehicles, trailers and semi-trailers

926.7

72.3

56.6

Source: Stats SA

State of the Metals & Engineering Sector Report - First half of 2021 review

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4.4 Overall view of production sales patterns in the Metals and Engineering sector across all sub-sectors Since the lockdown measures were implemented at level 5 in March 2020, production sales in the M&E sector dropped to their lowest level of R24 billion in April 2020. From January 2021, we have observed improvements in M&E production sales values, with a monthly average of R76.2 billion in the first six months

of 2021 to June. During this period, M&E production sales reached a highest level in March 2021 at R89 billion. In the month of June 2021, M&E production sales was R80.1 billion, as depicted in Table 4.

Table 4: Production sales value across sub-sectors

13 Metals and Engineering M&E) Sub-components

Production sales of M&E products (Rand million) 2020

Jan-21

Feb-21

Mar-21

Apr-21

May-21

1 591 6 297

1 382 5 977

1 547 6 438

Jun-21

Rubber products Plastic products

16 030 66 434

1269 4 946

1 665 5 818

Basic iron andsteel products

98 880

9 238

9 155 12 489 12 059

11 783 13 013

161 974 15 032 15 356 24 259 17 239

18 174 19 144

Non-ferrous metal products

1 612 6 454

Structural metal products

32 461

2 296

3 130

3 816

2 980

3 482

3 555

Other fabricatedmetal products

69 661

5 770

6 422

7 500

7 132

7 381

7 196

General purpose machinery

44 179

2 976

3 832

4 273

4 028

4 314

4 552

Special purpose machinery

58 097

4 319

5 506

6 582

5 231

5 986

5 924

Household Appliances

12 170

1 111

1 188

1 291

1 193

1 267

1 266

Electrical machinery and apparatus

50 486

3 734

4 835

5 089

4 468

4 702

4 926

Bodies for motor vehicles, trailers and semi-trailers

11 819

807

1 171

1 268

1 229

1 230

1 356

Parts and accessories (Motor Vehicle)

79 311

8 612 10 138 11 563

10 484

10 425

9 388

Other transport equipment

25 104

2 031

2 942

2 166

2 214

2 568

726 606 62 141 70 515 88 960

75 568

AVERAGE

2 299

78 943 80 954

Source: Stats SA

In the aftermath of the level-5 lockdown measures in March 2020, production sales in the M&E sector dropped to their lowest level of -69.3% in April 2020, thus ending the 2020 with a decline of 12.3%. From January 2021, we have observed improvements in M&E production sales, with year-on-year growth averaging 106.7% in the first six months of 2021. M&E

30

production sales growth rate reached a highest level in April 2021 compared to April 2020, demonstrating that a recovery from the hard lockdown of last year is on the way in the sector. In the month of June 2021, M&E production sales growth rate was 38.6% year on year, as depicted in Table 5.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Table 5: Year-on-year percentage sales value across sub-sectors

13 Metals and Engineering M&E) Sub-components

Year-on-year percentage change in sales value across sub-sectors 2020

Jan-21 Feb-21 Mar-21 Apr-21

May-21 Jun-21

-8.8 -5.6

3.3 4.6

1.6 6.7

10.0 9.0

316.3 71.0

47.9 47.8

20.7 20.3

Basic iron andsteel products

-20.4

13.4

-1.2

32.5

267.5

60.9

52.1

Non-ferrous metal products

-6.5

23.3

3.1

67.7

104.6

49.9

52.1

-14.2

3.6

-3.2

22.5

387.7

83.8

24.6

Other fabricatedmetal products

-7.5

18.6

96

22.3

320.8

53.5

28.5

General purpose machinery

-5.1

0.7

2.9

6.3

196.6

41.4

28.4

Special purpose machinery

-9.4

4.4

7.2

7.5

124.4

34.7

30.5

Household Appliances

13.1

-10.3

-1.4

-4.2

249.9 116.2

47.0

Electrical machinery and apparatus

-8.7

6.5

8.3

11.6

140.5

35.3

23.6

-20.4

-1.1

11.7

18.2 1048.6 114.3

26.1

-7.8

45.4

28.2

60.3 2184.1 203.7

78.7

Other transport equipment

-19.9

-5.6

-9.3

-2.6

999.5

84.8

68.8

AVERAGE

-12.3

8.2

4.9

20.1

493.2

74.9

38.6

Rubber products Plastic products

Structural metal products

Bodies for motor vehicles, trailers and semi-trailers Parts and accessories (Motor Vehicle)

Source: Stats SA

State of the Metals & Engineering Sector Report - First half of 2021 review

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4.5 Production trends in the Metals and Engineering sector

across products Production trends in rubber products were in high territory in the period January 2003 to November 2008, with production in plastic products also moving upwards during the same period. In the first six months

of 2021 to June, the patterns of production in both subsectors have been in positive growth territories, which is encouraging for the recovery of the sub-sectors

Figure 12: Rubber and Plastic products production trends in South Africa

Source: Stats SA During the period 2003 to quarter three in 2009, both the rubber and plastic sub-sectors registered positive movement in capacity utilisation, averaging 85% and 82% respectively. This was at the time of an overall pick in total production in the sub-sectors.

Since 2010, the average rate of capacity utilisation has been lower than these percentages, and reached lowest levels of 50% for rubber products and 76.3% for plastic products in the second quarter of 2020, as

32

the country was under hard lockdown restrictions. In 2020, the capacity utilisation for rubber products and plastic products sub-sectors averaged 70.2% and 81.2% respectively. In the year 2021 to June, capacity utilisation has improved for both, averaging 80.8% and 83.8% for rubber products and plastic products subsectors respectively, as demonstrated in figure 13.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 13: Rubber and Plastic products capacity utilisation trends in South Africa

Source: Stats SA

The production and capacity utilisation trend patterns for both rubber and plastics products were in correlation. It has to be noted that production in 2020 was weaker when compared to 2019 for both subsectors, with average declines of -14.4% for Rubber products sub-sector and 6.3% for Plastic products sub-sectors. In the first six months of 2021 to June,

there has been massive improvements in average year on year growth rates, at 60.1% for Rubber products sub-sector and 9.3% for Plastic products sub-sector, thus following similar patterns with improvement in capacity utilisation in 2021 to date. The highest growth rates for both sub-sectors were during the first six months of 2021 was in April as depicted in figure 14.

Figure 14: Rubber and Plastic products production growth rates trends in South Africa

Source: Stats SA

State of the Metals & Engineering Sector Report - First half of 2021 review

33

In April 2020, after a dip in sales of rubber and plastic products to R286 million and R3.5 billion respectively, monthly sales started to improve into November 2020, closing the year at R16 billion for rubber products and R66 billion for plastic products in total, as depicted in

figure 15. In the first six months of 2021 to June, total sales value for rubber products and plastic products was R9.1 billion and R35.9 billion respectively, an improvement of 30.1% and 23.3% accordingly, from the first six months of 2020.

Figure 15: Rubber and Plastic products monthly sales value trends in South Africa

Source: Stats SA

Figure 16 shows that from March 2020 sales for both rubber and plastic products were lower than in 2019, with the exception of September and October 2020 for rubber products, during which period growth was positive at 4.2% and 8.3% respectively. For plastic products, year on year growth rates were positive only for October 2020 at 3.7% and 6.4% for November 2020, indicating improvements in business activity under eased lockdown conditions. The two subsectors however, ended the year 2020 with declines of

34

8.8% for Rubber products sub-sector and 5.6% Plastic products sub-sectors.

In the first six months of 2021 to June, the average year-on-year sales growth rates of rubber product sales was 66.6%, whilst plastic products sales averaged 26.6%. This indicates improvements in demand patterns as depicted in Figure 16. During this period, the highest sales growth rates were recorded in the month of April.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 16: Rubber and Plastic products monthly sales growth rate in South Africa

Source: Stats SA

Production trends in the basic iron and steel products sub-sector were in high territory in the period January 2003 to August 2008, with production in the non-ferrous metals products also moving upwards during the same period. The patterns of production in both sub-sectors have been cyclical into negative

growth territories since October 2008. The lowest level reached was in April 2020, as depicted in Figure 17, due to the impact of hard lockdown restrictions under levels 5 and 4. In the first six months of 2021 to June, the patterns of production in both sub-sectors have been upward, which is encouraging for the recovery of the sub-sectors.

Figure 17: Basic iron and steel products and non-ferrous metals products production trends in South Africa

Source: Stats SA, Quantec

State of the Metals & Engineering Sector Report - First half of 2021 review

35

During the period 2003 to quarter three 2008, capacity utilisation for both the basic iron and steel products and non-ferrous metals products sub-sectors was above 80%. This was at the time of an overall pick-up in total production in these sub-sectors. Since 2008, the average rate of capacity utilisation was lower than these percentages and reached lowest levels in the second quarter of 2020 at 40.1% for basic iron and steel products and 55.2% for non-ferrous metals

sub-sector products. In 2020, the capacity utilisation for the basic iron and steel products and non-ferrous metals products sub-sectors averaged 54.2% and 67.7% respectively. In the year 2021 to June, capacity utilisation has improved for both, averaging 72.6% and 73.2% for the basic iron and steel products and nonferrous metals products sub-sectors respectively, as demonstrated in figure 18.

Figure 18: Basic Iron and Steel products and Non-ferrous metals products capacity utilisation trends in South Africa

Source: Stats SA, Quantec

The production and capacity utilisation trend patterns followed similar movements for both basic iron and steel products and non-ferrous metals products. It has to be noted that production growth rates for both subsectors in 2020 was weaker when compared to that in 2019, with average declines of 22.4% and 7.9%% for basic iron and steel products and non-ferrous metals products sub-sectors respectively. In the first

36

six months of 2021 to June, there has been massive improvements in average year on year growth rates, at 66.7% for basic iron and steel products sub-sector and 7.3% for non-ferrous metals products sub-sector, thus following similar patterns with improvement in capacity utilisation in 2021 to date. The highest growth rates for both sub-sectors were during the first six months of 2021 was in April as depicted in figure 19.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 19: Basic Iron and Steel products and Non-ferrous metals products production growth rates in South Africa

Source: Stats SA

In April 2020 2020, after a dip in sales of basic iron and steel and non-ferrous metal products to R3.3 billion and R8.4 billion respectively, monthly sales started to improve into November 2020, reaching R9.9 billion for basic iron and steel products and R16.7 billion for non-ferrous metal products, thus closing the year at R98.8 billion for basic iron and steel products

and R162 billion for non-ferrous metal products in total, as depicted in figure 20. In the first six months of 2021 to June, total sales value for of basic iron and steel and non-ferrous metal products was R67.7 billion and R109.2 billion respectively, an improvement of 47.2% and 46.2% accordingly, from the first six months of 2020.

State of the Metals & Engineering Sector Report - First half of 2021 review

37

Figure 20: Basic iron and steel & Non-ferrous metal products monthly sales value trends in South Africa

Source: Stats SA

Overall, sales for both basic iron and steel and nonferrous metal products were lower than they were in 2019, indicating tough business activity, despite the easing of lockdown restrictions. Sales in both sub-sectors hit a record low of -69% and -39.9% respectively in April 2020, with a slow movement in recovery into November 2020, as demonstrated in Figure 21.

Stats SA data shows an average year-on-year decline in sales of basic iron and steel since September 2019 into February 2020, at -16.2%, whilst non-ferrous metal products sales grew by 6.1% on average during the same period. This indicates that demand challenges were prevalent in the basic iron and steel sub-sector

38

prior to the lockdown measures implemented in March 2020, unlike in the case of the non-ferrous metal products sub-sector. The two sub-sectors however, ended the year 2020 with sales declines of 20.4% for basic iron and steel products sub-sector and 6.5% non-ferrous metal products sub-sectors.

In the first six months of 2021 to June, the average year-on-year sales growth rates for basic iron and steel products product sales was 70.9%, whilst non-ferrous metal products at 50.1%. This indicates improvements in demand patterns as depicted in Figure 21. During this period, the highest sales growth rates were recorded in the month of April.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 21: Basic iron and steel & Non-ferrous metal products monthly sales growth rates in South Africa

Source: Stats SA

Production trends in the structural metals and other fabricated metals products sub-sectors were on the upward trend in the period January 2003 to end of 2008. The patterns of production in both sub-sectors have been cyclical into a downward slope since November 2008, with the lowest level reached in April

2020, as depicted in figure 22, due to the impact of hard lockdown restrictions under levels 5 and 4. In the first six months of 2021 to June, the patterns of production in both sub-sectors have been upward, which is encouraging for the recovery of the subsectors.

Figure 22: Structural metals and other fabricated metals products production trends in South Africa

Source: Stats SA, Quantec

State of the Metals & Engineering Sector Report - First half of 2021 review

39

During the period 2003 to quarter four 2008, capacity utilisation for structural metal and general purpose and special purpose machinery products was above 80% on average. This was also at the time of an overall pick-up in total production in the sub-sectors. Since then, the average rate of capacity utilisation has been lower than these percentages, and reached lowest levels in the second quarter of 2020, at 44.2% for structural metal products and 73% for the general purpose and special purpose machinery products sub-sector. As the restrictions were being eased into the third quarter of 2020, the two sub-sectors

showed improvements, with capacity utilisation surging up to 60.1% for structural metal products and 76% for general purpose and special purpose machinery products, as demonstrated in figure 22.

In 2020, the capacity utilisation for structural metal products was 61.9% with general purpose and special purpose machinery products sub-sectors averaging 76.8%. In the year 2021 to June, capacity utilisation improved for structural metal products to 73.6% and with that of general purpose and special purpose machinery products marginally declining to 75.6% as demonstrated in figure 23.

Figure 23: Structural metal and General purpose and special purpose machinery capacity utilisation trends in

South Africa

Source: Stats SA, Quantec

The production and capacity utilisation trend patterns followed similar movements for both structural metal and other fabricated metal products. In both sub-sectors, production in 2020 was weaker when compared to that in 2019. Figure 30 demonstrates that production growth rates for both sub-sectors in 2020 was weaker when compared to that in 2019, with average declines of 14.4% and 8.2% for structural metal and other fabricated metal products sub-sectors respectively.

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In the first six months of 2021 to June, there has been massive improvements in average year on year growth rates, at 93.4% for structural metal products sub-sector and 61.3% for other fabricated metal products sub-sector, thus following stability in capacity utilisation in 2021 to date. The highest growth rates for both sub-sectors were during the first six months of 2021 was in April as depicted in figure 24.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 24: Structural metal and Other fabricated metal products production growth rates in South Africa

Source: Stats SA

In April 2020, monthly sales for structural metal and other fabricated metal products dropped to R630 million and R1.7 billion respectively. However, monthly sales started to improve into November 2020, reaching R3.6 billion for structural metal products and R7.3 billion for other fabricated metal products, thus closing the year at R32.5 billion for structural metal products

and R70 billion for other fabricated metal products in total. In the first six months of 2021 to June, total sales value for structural metal and other fabricated metal products was R19.3 billion and R41.4 billion respectively, an improvement of 38.6% and 42.8% accordingly, from the first six months of 2020.

Figure 25: Structural metal and other fabricated metal products monthly sales trends in South Africa

Source: Stats SA

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Figure 26 shows that sales for structural metal and other fabricated metal products were lower than they were in 2019, with the exception of other fabricated metal products, which registered positive year-on-year growth rates from September 2020 to November 2020, as demand for products picked up due to the easing of lockdown restrictions, and as activity returned in its market segment. In April 2020, sales in both sub-sectors hit a record low of -79.7% and -75% respectively.

During the period September 2019 into February 2020, the average year-on-year sales growth rate for structural metal was 6.1%, whilst that of other fabricated metal products declined by -4.2% on average year on year.

This indicates that the demand challenges were more prevalent in the other fabricated metal products subsector before the lockdown measures were implemented in March 2020. The two sub-sectors however, ended the year 2020 with sales declines of 14.2% for structural metal products sub-sector and 7.5% for other fabricated metal products sub-sectors.

In the first six months of 2021 to June, the average yearon-year sales growth rates for structural metal products sub-sector sales was 86.5%, whilst other fabricated metal products at 75.6%. This indicates improvements in demand patterns as depicted in Figure 26. During this period, the highest sales growth rates were recorded in the month of April.

Figure 26: Structural metal and other fabricated metal products monthly sales growth rates in South Africa

Source: Stats SA

Production trends in the General Purpose machinery and Special Purpose machinery sub-sectors was on an upward trend in the period January 2003 to around October 2008. Since November 2018, the patterns of production in both sub-sectors were on a decline, with the lowest level reached in April 2020, as depicted in

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figure 27. This was due to the impact of hard lockdown restrictions under levels 5 and 4. In the first six months of 2021 to June, the patterns of production in both subsectors have been upward, which is encouraging for the recovery of the sub-sectors.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 27: General purpose machinery and special purpose machinery products production trends in South Africa

Source: Stats SA

Capacity utilisation for General Purpose machinery and Special Purpose machinery products, as covered previously in figure 27, averaged 75.6% in the first six months of 2021 to June.

The production and capacity utilisation trend patterns followed similar movements for both general purpose machinery and special purpose machinery products.

Production in 2020 was weaker when compared to that in 2019 for both sub-sectors. Figure 28 shows that since April 2020, under hard lockdown restrictions of levels 5 and 4, production in both general purpose machinery and special purpose machinery sub-sectors declined year on year, with the exception of July and September 2020, when the General purpose machinery products subsector registered positive growth rates of 9.6% and 5.7% respectively. The Special Purpose products sub-sector also improved by 2.5% year on year in November 2020.

The lockdown impact was prevalent in April 2020, with production declines of -64.8% and -54.5% respectively for both sub-sectors. Figure 28 demonstrates that production growth rates for both sub-sectors in 2020 was weaker when compared to that in 2019, with average declines of 8.8% and 12.2% for general purpose machinery and special purpose machinery sub-sectors respectively.

In the first six months of 2021 to June, there has been massive improvements in average year on year production growth rates, at 42.5% for general purpose machinery products sub-sector and 31% for special purpose machinery products sub-sector, thus following stability in capacity utilisation in 2021 to date. The highest production growth rates for both sub-sectors were during the first six months of 2021 was in April as depicted in figure 34.

Figure 28: General purpose machinery and special purpose machinery production growth rates in South Africa

Source: Stats SA

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In April 2020, monthly sales for the General purpose machinery and the special purpose machinery subsectors dropped to lowest levels of R1.4 billion and R1.9 billion respectively. However, monthly sales started to improve into November 2020, reaching R4.4 billion for general purpose machinery and R6 billion for special purpose machinery respectively, thus closing the year at R44.2 billion for General purpose

machinery and R58.1 billion for special purpose machinery products in total. In the first six months of 2021 to June, total sales value for General purpose machinery and the special purpose machinery subsectors was R24 billion and R33.6 billion respectively, an improvement of 27.5% and 28.9% accordingly, from the first six months of 2020.

Figure 29: General purpose machinery and special purpose machinery products monthly sales trends in South Africa

Source: Stats SA

Figure 30 illustrates monthly sales for general purpose machinery and special purpose machinery were lower than in 2019, with the exception of General purpose machinery, which registered positive year-on-year growth rates in July, September and November 2020 as demand for products picked up due to easing of lockdown restrictions, coupled with the return of activity in its market segment. The year-on-year growth in sales for special purpose machinery was only positive in November 2020. Sales in both sub-sectors hit a record low of -63.6% and -57.8% respectively in April 2020. The two sub-sectors however, ended

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the year 2020 with sales declines of 5.1% for general purpose machinery products sub-sector and 9.4% for other special purpose machinery products subsectors.

In the first six months of 2021 to June, the average year-on-year sales growth rates for general purpose machinery sub-sector sales was 46.1%, whilst other special purpose machinery at 34.8%. This indicates improvements in demand patterns as depicted in Figure 30. During this period, the highest sales growth rates were recorded in the month of April.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 30: General purpose machinery and special purpose machinery products monthly sales growth rates in South Africa

Source: Stats SA

Production trends in the household appliances and electrical machinery products sub-sector were cyclical, moving at a constant trend level in the period January 2003 to March 2014. The patterns of production in both sub-sectors have been on a downward trajectory since March 2014 and reaching

their lowest levels in April 2020, as depicted in figure 31, due to the impact of hard lockdown restrictions under levels 5 and 4. In the first six months of 2021 to June, the patterns of production in both sub-sectors have been upward, which is encouraging for the recovery of the sub-sectors.

Figure 31: Household appliances and electrical machinery products production trends in South Africa

Source: Stats SA, Quantec

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During the period 2003 to quarter two 2008, capacity utilisation for other fabricated metal products and electrical machinery products was on average above 80%, at 87% and 82% respectively, as depicted in Figure 32. Since then, the average rate of capacity utilisation has been lower than these percentages, and reached lowest levels of 55.3% for other fabricated metal products and 55% for electrical machinery products in the second quarter of 2020. As the restrictions were being eased into the third quarter of 2020, the two sub-sectors showed improvements, with capacity utilisation surging up to 64.8% for other

fabricated metal products and 62.7% for electrical machinery products.

In 2020, the capacity utilisation for other fabricated metal products was 66.6% with electrical machinery products sub-sectors averaging 68%. In the year 2021 to June, capacity utilisation improved for other fabricated metal products to 74% and with that of electrical machinery products to 79.7% as demonstrated in figure 32.

Figure 32: Other fabricated metal products and electrical machinery products capacity utilisation trends in South Africa

Source: Stats SA, Quantec

Note: The other fabricated metal products sub-sector includes household appliances, general purpose machinery and special purpose machinery products

In 2020, production of household appliances and electrical machinery products in 2020 was weaker than in 2019. Figure 33 shows that since April 2020, under hard lockdown restrictions of levels-5 and 4, production of both household appliances and electrical machinery products declined year on year, with the exception of October and November 2020, when production of household appliances registered positive year-on-year growth rates of 3.7% and 7.3% respectively. The lockdown impact was prevalent in April 2020, with production declines of -67.8% and -66.6% respectively for both sub-sectors. Production growth rates for both sub-sectors in 2020 registered

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average declines of 17.4% and 15.1% for household appliances and electrical machinery products subsectors respectively.

In the first six months of 2021 to June, there has been massive improvements in average year on year production growth rates, at 64.1% for household appliances sub-sector and 43.2% for and electrical machinery products sub-sector, thus following stability in capacity utilisation in 2021 to date. The highest production growth rates for both sub-sectors were during the first six months of 2021 was in April as depicted in figure 33.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 33: Household appliances and electrical machinery products production growth rates in South Africa

Source: Stats SA

In April 2020, monthly sales for household appliances and electrical machinery dropped to lowest levels of R341 million and R1.9 billion respectively. However, monthly sales started to improve into November 2020, reaching R1.4 billion for household appliances and R5.3 billion for electrical machinery products respectively, thus closing the year at R12.2 billion for

household appliances products and R50.5 billion for electrical machinery products in total. In the first six months of 2021 to June, total sales value for household appliances and electrical machinery sub-sectors was R7.3 billion and R27.8 billion respectively, an improvement of 31.1% and 26.2% accordingly, from the first six months of 2020.

Figure 34: Household appliances and electrical machinery products monthly sales trends in South Africa

Source: Stats SA

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Figure 35 demonstrates that monthly sales for household appliances and electrical machinery products were lower than in 2019. However, the electrical machinery sub-sector registered improvements, with positive year-on- year growth rates from September to November 2020. Sales in both sub-sectors hit a record low of -69% and -57.5% respectively in April 2020. The two sub-sectors however, ended the year 2020 with sales declines of 13.1% for household appliances products sub-sector

and 8.7% for electrical machinery products subsectors.

In the first six months of 2021 to June, the average year-on-year sales growth rates for household appliances sub-sector sales was 66.2%, whilst electrical machinery products at 37.6%. This indicates improvements in demand patterns as depicted in Figure 35. During this period, the highest sales growth rates were recorded in the month of April.

Figure 35: Household appliances and electrical machinery products monthly sales growth rates in South Africa

Source: Stats SA

Production trends in the bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, other transport equipment products sub-sectors were on and upward trend in the period January 2003 to October 2007. The patterns of production in all three sub-sectors reached the lowest levels in April 2020, as depicted in figure 36, due to

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the impact of hard lockdown restrictions under levels 5 and 4. In the first six months of 2021 to June, the patterns of production in both sub-sectors have been upward, which is positive for the recovery of the subsectors.

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Figure 36: Bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products production trends in South Africa

Source: Stats SA, Quantec

During the period 2003 to quarter two 2008, capacity utilisation in the bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, other transport equipment products sub-sectors averaged 85.9%, 84.9% and 75.5% respectively, as depicted in figure 37, when the three sub-sectors’ production growth patterns were on an upward surge.

Since then, capacity utilisation has been lower than these percentages, reaching lowest levels in the second quarter of 2020, at 47.7% for bodies for motor vehicles, trailers and semi-trailers products, 46.3% for motor vehicle parts and accessories products and other transport equipment products at 38.8%. As the restrictions were being eased into the third quarter

of 2020, the three sub-sectors showed improvements, with capacity utilisation surging up to 69.7%, 68% and 58.1% respectively.

In 2020, the capacity utilisation for bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, other transport equipment products sub-sectors averaged 70.5%, 58.4% and 68.7% respectively. In the year 2021 to June, capacity utilisation improved for bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, other transport equipment products sub-sectors averaged 82.6%, 70.4% and 80.8% respectively, as depicted in figure 37.

Figure 37: Bodies for motor vehicles, motor vehicle parts and accessories, and other transport equipment

products capacity utilisation trends in South Africa

Source: Stats SA, Quantec

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In 2020, production of bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products was weaker than in 2019. Figure 38 shows that since April 2020, under hard lockdown restrictions of levels 5 and 4, production of bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products was on a decline year on year, with the exception of September and November 2020, when production of both bodies for motor vehicles, trailers and semi-trailers products registered positive year-on-year growth rates of 30.1% and 12.8% respectively. Marginal positive year-on-year growth was registered for motor vehicle parts and accessories in November 2020. The lockdown impact was prevalent in April 2020, with huge production declines of -90.1%, -99.5% and -89.7% respectively.

Production declines rates for bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products sub-sectors in 2020 averaged 7.5%, 19.8% and 23.4% respectively.

In the first six months of 2021 to June, there has been massive improvements in average year on year production growth rates, bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products at 172.6%, 1516.3% and 171.1% respectively, thus following stability in capacity utilisation in 2021 to date.

The highest production growth rates for both subsectors were during the first six months of 2021 was in April as depicted in figure 38.

Figure 38: Bodies for motor vehicles, motor vehicle parts and accessories, and other transport equipment

products production rates in South Africa

Source: Stats SA

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

In April 2020, monthly sales for bodies for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products dropped to R103 million, R789 million and R228 million respectively. However, monthly sales started to improve into November 2020, reaching R1.4 billion, R10 billion and R2.5 billion respectively, as depicted in figure 39, thus closing the year a R11.8 billion for motor vehicles, trailers and semi-trailers,

R79.3 billion for motor vehicle parts and accessories, and R25.1 billion for other transport equipment in total.

In the first six months of 2021 to June, total sales value for motor vehicles, trailers and semi-trailers, motor vehicle parts and accessories, and other transport equipment products dropped to R7.1 billion, R60.6 billion and R14.2 billion respectively improvements of 48.6%, 95.2% and 29.9% accordingly, from the first six months of 2020.

Figure 39: Bodies for motor vehicles, motor vehicle parts and accessories, and other transport equipment products monthly sales trends in South Africa

Source: Stats SA

As depicted in figure 40, overall monthly sales for bodies for motor vehicles, trailers and semi-trailers, parts and accessories and other transport equipment products were lower than in 2019. However, bodies for motor vehicles, trailers and semi-trailers, and motor vehicle parts and accessories registered positive yearon-year growth rates from September to October 2020 and September to November 2020 respectively. In April 2020, sales in all sub-sectors hit a record low of -92.2%, -88.9% and -89.6% respectively.

The three sub-sectors namely bodies for motor vehicles, trailers and semi-trailers, parts and

accessories and other transport equipment products however, ended the year 2020 with sales declines of 20.4%, 7.8% and 19.9% respectively.

In the first six months of 2021 to June, the average year-on-year sales growth rates for bodies for motor vehicles, trailers and semi-trailers, parts and accessories and other transport equipment products were 203%, 433.4% and 189.3% respectively. This indicates improvements in demand patterns as depicted in Figure 40. During this period, the highest sales growth rates were recorded in the month of April.

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Figure 40: Bodies for motor vehicles, motor vehicle parts and accessories, and other transport equipment products monthly sales in South Africa

Source: Stats SA

4.6 Overall conclusion In conclusion, the M&E sector was under pressure, as evidenced by the data analysis in this section.

Production remained weak throughout 2020 due to the impact of COVID-19 lockdown regulations, with a total production decline of -13.7% year on year.

Production sales were also affected by the restrictions, as demand from key market segments declined. Total sales in 2020 amounted to R726.6 billion, which was lower by 12.3% year on year.

However, in the first six month of 2021 to June, M&E production growth rate, average 179.9% year on year.

M&E production growth rate reached a highest level in April 2021 compared to April 2020, demonstrating that a recovery from the hard lockdown of last year is on the way in the sector.

Capacity utilisation in 2020 was also at its lowest level in a decade. Since the lockdown measures were implemented at level 5 in March 2020, total manufacturing capacity utilisation dipped to 59.8% in the second quarter of 2020, and capacity utilisation within the M&E sector was at its lowest level of 52.8%.

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Total manufacturing capacity utilisation was 72.3% in 2020, with that of total M&E at 67.6% Total manufacturing capacity utilisation improved to 78.6% in the second quarter of 2021 compared with 59.8% in second quarter of 2020, thus representing an increase of 18.8%. Within the M&E sector, capacity utilisation significantly improved to 77.1% in the second quarter of 2021, from 52.9% in second quarter of 2020. All of the manufacturing divisions showed increases in utilisation of production capacity in May 2021 compared with May 2020. Within the M&E sector motor vehicles, parts and accessories and other transport equipment recorded the highest capacity utilisation of above 80% in the second quarter of 2021.

This is good news as it demonstrates if lockdown regulations are eased with more vaccine roll-out, production levels will increase further in the sector under improved demand conditions.

Subsequently, in recent months the manufacturing sector has also showed signs of improvement in terms of production patterns.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

However, in the first six month of 2021 to June, M&E production growth rate, average 179.9% year on year.

M&E production growth rate reached a highest level in April 2021 compared to April 2020, demonstrating that a recovery from the hard lockdown of last year is on the way in the sector

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5. Employment trends in the Metals and Engineering Sector The most recent unemployment rate of 34.4% reflects the devastating impact of the COVID-19 lockdown on employment and overall productivity across the economy.

According to Stats SA, the manufacturing sector, of which the M&E industry is a part, was one of the biggest contributors to the jobs bloodbath, with 83 000 jobs shed between the first quarter and second quarter of 2021. Stats SA

It is important to note that job creation should be consolidated effort by both the Government and the private sector. Investment-driven economic recovery is crucial to preserving jobs. Therefore, the Government needs to focus on creating an enabling and business friendly environment, including providing policy certainty..

5.1 Employment in the Manufacturing Sector Within the manufacturing sector, from the period 2002 third quarter to 2020 quarter three, total employment has declined from 1.3 million to 1.1 million as depicted in figure 41. During the same period, total employment within the M&E sector also declined from 448 532 to 402 760, thus representing a decline of 10%. Total employment within the M&E sector represents 35.9% of the total employment in the manufacturing sector as of the third quarter of 2020. Between 2010 quarter one and 2012 quarter three, the share of M&E employment in total manufacturing was on the surge, reaching the highest level of 37.7%. Thereafter, this share dropped

drastically to 34.9% in 2016 quarter one, its lowest level in the last five years to 2020, as major subsectors in the M&E sector experienced job shedding amid low production and demand.

In 2020, total manufacturing employment dropped from 1 203 743 in the first quarter to reach 1 104805 in the fourth quarter of 2020, with 98 938 jobs being lost in the year. Within the M&E sector, jobs dropped from 429 617 to 395 555, thus 34 062 jobs lost during the same period.

Figure 41: Total M&E and total manufacturing employment and M&E percentage share

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

5.2 Employment trends in the Metals and Engineering Sector According to figure 42, during the period 2002 quarter three and 2020 quarter three, total employment in the rubber products sub-sector declined from 16 816 to 11 546, while that in the plastic products sub-sector also declined from 49 012 to 44 932. Within the plastic products sub-sector, massive job shedding took place from 2007 quarter four to 2010 quarter two, with 8 421 jobs being lost in the sub-sector, whilst within the rubber products

sub-sector 4 016 jobs were lost between 2008 quarter three to 2010 quarter one.

The rubber products sub-sector lost 1 239 jobs between the first quarter of 2020 and the fourth quarter of 2020, whilst in the plastic products sub-sector 2 819 jobs were lost in the same period. In first quarter of 2021 compared to first quarter of 2020, rubber products sub-sectors lost 1 240 jobs whilst the plastic products sub-sector lost 3 006 jobs.

Figure 42: Rubber and Plastic Products Employment Trends

Source: Quantec

According to figure 43, during the period 2002 quarter three and 2020 quarter three, total employment in the basic iron and steel products sub-sector declined from 44 761 to 26 726, while that in the non-ferrous metal products sub-sector declined 19 897 to 13 215.

Within the basic iron and steel products sub-sector, massive job shedding took place from 2004 quarter one to 2006 quarter four, with 7 618 jobs being lost in the sub-sector, whilst within the non-ferrous metal

products sub-sector 4 900 jobs were lost between 2007 quarter three and 2009 quarter two.

The basic iron and steel products sub-sector lost 3 270 jobs between the first quarter of 2020 and the fourth quarter of 2020, whilst in the non-ferrous metal products sub-sector 1 440 jobs were lost in the same period. In first quarter of 2021 compared to first quarter of 2020, basic iron and steel products sub-sectors lost 4 559 jobs whilst the non-ferrous metal products subsector lost 1 311 jobs.

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Figure 43: Basic iron and steel & Non-ferrous metal products Employment Trends

Source: Quantec

According to figure 44, during the period 2002 quarter three and 2020 quarter three, total employment in the structural metal products sub-sector increased from 27 836 to 34 518, while that in the other fabricated metal products sub-sector declined from 79 950 to 60 482.

Within the structural metal products sub-sector, massive job increases occurred between quarter two of 2010 and quarter two of 2013, with 15 649 jobs added into the sub-sector, even though thereafter the sub-sector started to shed jobs. Within the other fabricated metal products sub-sector, as many as 17

882 jobs were lost between 2006 quarter three and 2010 quarter one.

The structural metal products sub-sector lost 3 620 jobs between the first quarter of 2020 and the fourth quarter of 2020, whilst in the other fabricated metal products sub-sector 6 304 jobs were lost in the same period. In first quarter of 2021 compared to first quarter of 2020, structural metal products subsectors lost 3 418 jobs whilst the other fabricated metal products sub-sector lost 6 125 jobs.

Figure 44: Structural metal & Other fabricated metal products Employment Trends

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

According to figure 45, between quarter three of 2002 and quarter three of 2020, total employment in the General-purpose machinery sub-sector increased from 31 618 to 44 006, while that in the special purpose machinery products sub-sector increased from 49 218 to 63 127.

Within the General-purpose machinery products sub-sector, massive job increases occurred between quarter three of 2002 and quarter four of 2006, with 13 054 jobs added. Within the special purpose machinery products sub-sector, a high number of 12 133 jobs

were added between 2002 quarter four to 2007 quarter two.

The General-purpose machinery metal products sub-sector lost 4 228 jobs between the first quarter of 2020 and the fourth quarter of 2020, whilst in the other special purpose machinery sub-sector 2 737 jobs were lost in the same period. In first quarter of 2021 compared to first quarter of 2020, General purpose machinery products sub-sectors lost 3 908 jobs whilst the special purpose machinery products sub-sector lost 2 683 jobs.

Figure 45: General purpose machinery & Special purpose machinery Employment Trends

Source: Quantec

According to figure 46, during the period 2002 quarter three and 2020 quarter three, total employment in the household appliances sub-sector declined from 6 752 to 5 692, while that in the electrical machinery products sub-sector increased marginally from 37 440 to 37 571.

Within the household appliances products sub-sector, massive job losses occurred between quarter three of 2005 and the first quarter of 2007, with 1 416 jobs lost.

Within the electrical machinery products sub-sector, a

high number of 7 750 jobs were added between 2009 quarter three to 2011 quarter four.

The household appliances products sub-sector gained 271 jobs between in the first quarter of 2020 and the fourth quarter of 2020, whilst in the electrical machinery sub-sector 2 890 jobs were lost in the same period. In first quarter of 2021 compared to first quarter of 2020, household appliances products subsectors gained 176 jobs whilst the electrical machinery products sub-sector lost 2 652 jobs.

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Figure 46: Household appliances & Electrical machinery Employment Trends

Source: Quantec

According to figure 47, between quarter three of 2002 and quarter three of 2020 total employment in the bodies for motor vehicles, trailers and semitrailers sub-sector increased from 9 076 to 13 048 and declined from 70 520 to 42 688 in the motor vehicle parts and accessories products sub-sector. In the other transport equipment sub-sector, employment declined marginally from 5 636 to 5 209.

Within the bodies for motor vehicles, trailers and semitrailers sub-sector, massive job increases occurred between quarter three of 2009 and quarter one of 2013, with 3 679 jobs added. Within the Parts and accessories for motor vehicles products sub-sector, a high number of 22 221 jobs were lost between 2003 quarter four and 2009 quarter four. The other transport

equipment sub-sector experienced a massive job loss between 2010 quarter three and 2013 quarter one, with 1 140 jobs being lost.

The bodies for motor vehicles, trailers and semi-trailers sub-sector products sub-sector lost 547 jobs, motor vehicle parts and accessories sub-sector lost 5 290 jobs and other transport equipment sub-sector gained 151 jobs, thus between the first quarter of 2020 and the fourth quarter of 2020. In first quarter of 2021 compared to first quarter of 2020, bodies for motor vehicles, trailers and semi-trailers sub-sector lost 395 jobs whilst the motor vehicle parts and accessories sub-sector and the other transport equipment subsector lost 2 986 jobs and gained 76 jobs respectively.

Figure 47: Bodies for motor vehicles, motor vehicle parts and accessories, and other transport equipment Employment Trends

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

5.3 Conclusion A general conclusion that can be drawn from the above trends in employment for all M&E sub-sectors, in comparison with the previous sections on production trends, that during the times of a high pick-up in production trends, employment in the sub-sectors was also either high or increasing. This trend also correlates well with the time the country had a massive injection of infrastructure projects related to the 2010 Soccer World Cup, energy, roads, and the Gautrain, among others. As the projects were being completed, employment creation was also subdued, with similar trends depicted in production patterns, especially for the key infrastructure-related input supplying sub-sectors such as basic iron and steel products.

It is also clear that the manufacturing sector faced massive job losses over a longer period. In the short run, the COVID-19 lockdown restrictions put a dent on both the manufacturing sector and the M&E sub-sectors, with almost 100 000 jobs and 35 00 jobs lost respectively in 2020 alone. In the first quarter of 2021, Employment in the overall Manufacturing sector has declined over the years to date. Overall total manufacturing employment contribution to the economy has declined from 17% in 2002 to 11.5% in first quarter of 2021.

Employment in the overall Manufacturing sector has declined over the years to date. Overall total manufacturing employment contribution to the economy has declined from 17% in 2002 to 11.5% in first quarter of 2021

Total employment in the key 13 subsectors increased by 2031 jobs between fourth quarter of 2020 and first quarter of 2021, representing a 0.5% increase. This reflects improved economic conditions, as we also saw productions patterns improving, under a more relaxed lockdown restriction. However, year on year, total employment in the M&E sector declined by 8%, from 429 617 in the first quarter of 2020 to 397 586 in the first quarter of 2021. In first quarter of 2021, total M&E employment improved by 2 031 from the fourth quarter of 2020, while total employment for entire Manufacturing sector improved by 4 431 in the same period.

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6. Per capita earnings in the manufacturing sector Per capita income or earnings in the manufacturing sector is a measure of the amount of money earned

per person employed in the sector, and the same principle applies when categorised by sub-sector.

Figure 48: Total Manufacturing and M&E Real per capita earnings trend

Source: Quantec

As depicted in figure 48, real per capita earnings in the manufacturing sector increased from R35 074.99 in 2002 quarter three to reach R52 487.37 in 2021 quarter one, thus representing an increase of 49.6%.

During the same period, real per capital income in the

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entire M&E sector also increased from R36 867.55 to reach R55 296.66, representing a 50% increase. On average, the M&E sector’s real per capital earnings is more than the total manufacturing sector’s real per capital earnings.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

6.1 Real per capital income trends within the M&E sector subsectors Figure 49 shows that real per capita earnings in the rubber products sub-sector increased from R43 982.47 in 2002 quarter three to reach R62 299.11 in 2021 quarter one, representing a 41.6% increase.

During the same period, real per capita income in the plastic products sub-sector increased from R31 735.32 to reach R39 871.53, representing a 25.6% increase.

Figure 49: Rubber & Plastic products: Real per capita earnings trend

Source: Quantec

Figure 50 shows that real per capita earnings in the basic iron and steel products sub-sector increased from R47 422.16 in 2002 quarter three to reach R73 472.53 in 2021 quarter one, representing a 54.9%

increase. During the same period, real per capital income in the non-ferrous metal products sub-sector increased from R45 691.92 to reach R79 754.07, representing a 74.5% increase.

Figure 50: Basic iron and steel & Non-ferrous metal products: Real per capita earnings trend

Source: Quantec

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Real per capita earnings in the structural metal products sub-sector increased from R26 165.48 in 2002 quarter three to reach R42 190.02 in 2021 quarter one, as depicted in figure 51, representing a 61.2% increase. During the same period, real per

capita income in the other fabricated metal products sub-sector increased from R37 421.31 to reach R45 841.79, representing a 22.5% increase as depicted in figure 51.

Figure 51: Structural & Other fabricated metal products: Real per capita earnings trend

Source: Quantec

Real per capita earnings in the General purpose machinery products sub-sector increased from R40 038.99 in 2002 quarter three to reach R66 926.86 in 2021 quarter one, as depicted in figure 52, representing a 67.2% increase. During the same

period, real per capita income in the Special purpose machinery products sub-sector increased from R48 341.84 to reach R65 236.49, representing a 34.9% increase.

Figure 52: General purpose machinery & Special purpose machinery: Real per capita earnings

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Real per capita earnings in the household appliances products sub-sector increased from R24 397.54 in 2002 quarter three to reach R48 251.00 in 2021 quarter one, as depicted in figure 53, representing

a 97.8% increase. During the same period, real per capital income in the electrical machinery products sub-sector increased from R38 935.27 to reach R58 072.30, representing a 49.2% increase.

Figure 53: Household appliances & Electrical machinery: Real per capita earnings trend

Source: Quantec

Real per capita earnings in the bodies for motor vehicles products sub-sector increased from R30 076.20 in 2002 quarter three to reach R36 274.02 in 2021 quarter one, as depicted in figure 54, representing a 20.6% increase. During the same period, real per capita income in the motor vehicle

parts and accessories products sub-sector increased from R30 149.89 to reach R58 156.45, representing a 92.9% increase. In the other transport equipment sub-sector, real per capita income increased from R34 919.79 to reach R42 510.35 during the same period, representing a 21.7% increase.

Figure 54: Bodies for motor vehicles; Motor vehicle Parts and accessories and Other transport equipment: Real per capita earnings

Source: Quantec

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6.2 Conclusion A general conclusion that can be drawn from the analysis in this section is that overall, the wage bill has been increasing since 2002.

The level of increase in the wage bill varies across sub-sectors. Real per capita earnings in the manufacturing sector increased from R35 074.99 in 2002 quarter three to reach R52 487.37 in 2021 quarter one, thus representing an increase of 49.6%. During the same period, real per capital income in the entire M&E sector also increased from R36 867.55 to reach R55 296.66, representing a 50% increase. On average, the M&E sector’s real per capital earnings is more than the total manufacturing sector’s real per capital earnings.

Based on the data, the highest percentage increase in the wage bill during the period under review was in the Household appliances products sub-sector at 97.8%, followed by Motor vehicle parts and accessories products sub-sector at 92.9%. The lowest increases were in the bodies for motor vehicles, trailers, and semi-trailers product sub-sector, at 20.6%, followed by other transport equipment products sub-sector at 21.7%.

One of the challenges faced by the M&E sector has been an increase in labour costs and the empirical analysis in this section provides the evidence.

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

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7. Trade in the Metals and Engineering Sector Total trade in the M&E sector has favoured imports since 1995. South Africa’s net trade balance in the M&E sector averaged –R52 billion to second quarter of 2021. Figure 55 shows that imports continued to rise, reaching a peak of R604 billion in 2019. Total exports have also increased over the same period, reaching a peak of R418 billion in 2019.

During the year 2020, Quantec data suggests that, imports dropped to R432 billion from R511 billion in

2019 and exports dropped to R372 billion from R417 billion in 2019, thus indicating a slowdown in trading activities caused by lockdown measures across countries. In the first six months of 2021 to June, both exports and imports values improved from quarter one to second quarter by 14.2% and 3.2% in value terms.

However, the total net trade balance in the period was -R27 billion, showing that imports continue to dominate SA international trading environment.

Figure 55: Total Exports and Imports of M&E products for South Africa since 1995

Source: Quantec

According to data from Quantec, South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two was -R350.6 billion, suggesting that the country continues to import more than it is exporting. Total exports during this period were R1.8 trillion, with imports at R2.1 trillion.

South Africa continued to import more motor vehicle parts and accessories (R553 billion) and General purpose machinery (R335.5 billion), followed by motor

66

vehicles and bodies for motor vehicles, trailers and semi-trailers (R277.7 billion) during the period 2017 to 2021 second quarter.

On the export side, the top three exports are motor vehicles and bodies for motor vehicles, trailers and semi-trailers (R611.3 billion), followed by basic iron and steel products (R356.8 billion) and motor vehicle parts and accessories products (R179.1 billion), as demonstrated in figure 56.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 56: Total Exports and Imports of M&E products for South Africa

Source: Quantec

According to the data of 2021 first six months to June, as depicted in table 6, the South Africa’s M&E’s total net trade balance was –R27.4 billion, thus indicating a bias towards importing than producing. In most of the products within the M&E sector, South Africa is still importing more than its exporting, as depicted in the negative net trade balance. Only in the basic iron

and steel (R28.3 billion), non-ferrous metal products (R6 billion) and motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R53.5 billion) as well as Structural metal products (R291.5 million) subsectors was the net trade balance positive during this period.

Table 6: Total exports and imports for South Africa in the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

2 918 685683

8 840 443 468

-5 921 757 785

Plastic products

4 666 911 250

9 548 799 645

-4 884 888 395

Basic iron and steel products

41 542 469 934

13 251 754 982

28 290 714 952

Non-ferrous metal products

23 711 248 908

17 738 750 874

5 972 498 034

Structural metal products

1 334 217 751

1 042 670 538

291 547 213

Other fabricated metal products

7 566 173 748

10 855661 009

-3 289 487 261

General purpose machinery

13 646 995 545

38 500 020 003

-24 853 024 458

Special purpose machinery

9 611 575 746

18 354 087 576

-8 742 511 830

Household Appliances

1 349 762 033

4 676 038 061

-3 326 276 028

Electrical machinery

7 246 095 843

21 831 731 020

-14 585 635 177

81 224 205 706

27 726 193 740

53 498 011 966

27 597 920 273

72 270 950 700

-44 673 030 427

4 306 982 148

9 441 194 426

-5 134 212 278

226 720 244 568

254 078 296 042

-27 358 051 474

Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

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7.1 Metals and Engineering Sector Regional trade patterns South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two in the African region is R463.9 billion. This suggests that the country continues to export more than it is importing in the African region. Total exports for the African region during this period were R525.5 billion, with imports at R61.6 billion.

South Africa continued to export more of motor vehicles plus bodies for motor vehicles, trailers and

semi-trailers (R92.4 billion), followed by general purpose machinery (R87.1 billion) and basic iron and steel products (R75.6 billion) during the period 2017 to 2021 quarter two, as shown in Figure 57.

On the import side, the top three imports are nonferrous metal products (R33.8 billion), electrical machinery (R10.4 billion) and Other transport equipment products sub-sector (R4.3 billion), as depicted in figure 57.

FIgure 57: Total Exports and Imports of M&E for South Africa to the rest of Africa

Source: Quantec

Table 7 suggests that, according to first six months of 2021 data from Quantec, South Africa’s total net trade balance for the M&E sector in the African region was R52 billion, thus indicating a bias towards exports for the African region. In most of the products within the

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M&E sector trade in the African continent, South Africa is still importing more non-ferrous metal products than it is exporting as well as other transport equipment, as depicted in a negative net trade balance of -R3.1 billion and -R1.3 billion respectively.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Table 7: Total exports and imports for South Africa in Africa for the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN AFRICA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

1 989 154 942

18 770 693

1 970 384 249

Plastic products

3 749 185 278

372 245 851

3 376 939 427

Basic iron and steel products

8 055 756 466

276 997 944

7 778 758 522

Non-ferrous metal products

748 107 875

3 892 649 801

-3 144 541 926

Structural metal products

941 533 582

41 314 479

900 219 103

4 787 490 191

113 129 023

4 674 361 168

General purpose machinery

10 104 107 594

282 877 418

9 821 230 176

Special purpose machinery

6 870 732 932

106 847 245

6 763 885 687

Household Appliances

1 268 173 160

69 635 696

1 198 537 464

Electrical machinery

5 531 782974

1 202 094 998

4 329 687 976

12 196 217 351

85 113 510

12 111 103 841

3 611 933 993

132 226 454

3 479 707 539

1 096 737 798

2 407 133 879

-1 310 396 081

60 950 914 136

9 001 036 991

51 949 877 145

Other fabricated metal products

Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two for SADC (excluding the SACU region) is R234.9 billion.

This suggests that the country continues to export more than it is importing in the SADC region. Total exports for the SADC region during this period were R250.4 billion, with imports at R15.5 billion.

South Africa continued to export more General purpose machinery (R49.7 billion), basic iron and

steel products (R40.3 billion) and motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R31.8 billion) during the period 2017 to 2021 quarter two.

On the import side, the top three imports are nonferrous metal products (R9.8 billion), basic iron and steel products (R1.7 billion) and General purpose machinery (R800 million), as depicted in figure 58.

Figure 58: Total Exports and Imports of M&E for South Africa to the SADC region

Source: Quantec

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According Quantec 2021 six month to June trade data, presented in table 8, the M&E sector’s total net trade balance in the SADC region was R26.5 billion, thus indicating a bias towards exports to the SADC region. In most of the products within the M&E sector

trade in the SADC region, South Africa is still importing more non-ferrous metal products than it is exporting, as depicted in a negative net trade balance of –R1.2 billion.

Table 8: Total exports and imports for South Africa in SADC (excluding SACU) for the M&E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN SADC (excl. SACU): 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

975 925 829

2 438 729

973 487 100

Plastic products

1 706 670 850

44 701 185

1 661 969 665

Basic iron and steel products

4 812 071 413

189 668 229

4 622 403 184

Non-ferrous metal products

347 093 601

1 541 078 158

-1 193 984 557

Structural metal products

402 097 134

16 534 839

385 562 295

Other fabricated metal products

2 211 576 755

59 443 948

2 152 132 807

General purpose machinery

5 860 868 994

41 067 921

5 819 801 073

Special purpose machinery

3 428 842739

33 477 982

3 395 364 757

526 885 732

3 183 561

523 702 171

Electrical machinery

2 397 970 534

90 748 952

2 307 221 582

Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories

3 709 671 888

2 012 792

3 707 659 096

1 669 934 934

14 561 107

1 655 373 827

537 825 065

7 833 983

529 991 082

28 587 435 468

2 046 751 386

26 540 684 082

Household Appliances

Other transport equipment TOTAL Source: Quantec

South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two in the SACU region (excluding SA) is R146.6 billion. This suggests that the country continues to export more than it is importing in the SACU region. Total exports to the SACU region during this period were R190.2 billion with imports at R43.6 billion.

South Africa continued to export more of motor vehicles plus bodies for motor vehicles, trailers

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and semi-trailers (R41.4 billion), general purpose machinery (R24.6 billion) and electrical machinery (R21 billion) during the period 2017 to 2021 quarter two.

On the import side, the top three imports were non-ferrous metal products (R24 billion), electrical machinery (R9.1 billion) and Other transport equipment products sub-sector (R3.3 billion), as depicted in figure 59.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Figure 59: Total Exports and Imports of M&E for South Africa to the SACU region

Source: Quantec

The M&E sector’s total net trade balance in the SACU region was R16.6 billion, thus according to Quantec 2021 trade data of first six months to June, presented in table 9. This indicates a bias towards exports to the SACU region. In most of the products within the

M&E sector trade in the SACU region, South Africa still imports more non-ferrous metal products than it exports, as depicted in the negative net trade balance of –R2.2 billion and other transport equipment with R2 billion in table 9.

Table 9: Total exports and imports for South Africa in SACU for the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN SACU: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

801 795 956

14 440 940

787 355 016

Plastic products

1 820 602 939

303 742 720

1 516 860 219

Basic iron and steel products

2 495 531 966

27 322 856

2 468 209 110

Non-ferrous metal products

200 942 107

2 350 617 582

-2 149 675 475

Structural metal products

435 884 280

22 379 921

413 504 359

Other fabricated metal products

2 000 460 068

48 619 447

1 951 840 621

General purpose machinery

2 953 027 485

199 398 426

2 753 629 059

Special purpose machinery

2 287 091 102

44 515 078

2 242 576 024

673 280 498

39 063 150

634 217 348

Electrical machinery

2 504 298 000

1 046 331 627

1 457 966 373

Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories

4 987 237 294

82 034 401

4 905 202 893

1 703 393 579

27 792 519

1 675 601 060

293 084 837

2 337 097 413

-2 044 012 540

23 156 630 147

6 543 356 080

16 613 274 067

Household Appliances

Other transport equipment TOTAL Source: Quantec

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South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two with the American region is -R38.1 billion. This suggests that the country continues to import more than it is exporting to the American region. Total exports to the American region during this period were R204 billion, with imports at R242.1 billion.

On the export side, the top three exports were motor vehicles plus bodies for motor vehicles, trailers

and semi-trailers (R53.8 billion), basic iron and steel products (R45.6 billion) and non-ferrous metal products (R38.2 billion), as depicted in figure 60.

South Africa continued to import more of motor vehicle parts and accessories products (R56.8 billion), general purpose machinery products (R49 billion) and other transport (R34.7 billion) during the period 2017 to 2021 quarter two.

Figure 60: Total Exports and Imports of M&E for South Africa to the America region

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

South Africa’s total net trade balance with the American region in the M&E sector was R3.1 billion, according to the Quantec trade data of first six months of 2021 as presented in table 10. This indicates a bias towards exports for the American region. In most

of the products within the M&E sector trade with the American region, South Africa only has an evenly spread of positive and negative net trade balance across the M&E products for America, as depicted in table 10.

Table 10: Total exports and imports for South Africa in America for the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN AMERICA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

224 246 000

859 362 583

-635 116 583

Plastic products

322 609 613

575 488 120

-252 878 507

Basic iron and steel products

5 044 696 773

1 044 244 281

4 000 452 492

Non-ferrous metal products

5 264 959 377

1 144 670 060

4 120 289 317

Structural metal products

134 035 012

31 295 589

102 739 423

Other fabricated metal products

767 640 438

697 837 604

69 802 834

General purpose machinery

1 039 512 473

5 270 613 440

-4 231 100 967

Special purpose machinery

886 950 635

2 114 104 777

-1 227 154 142

21 977 245

70 212 112

-48 234 867

481 977 448

1 798 024 798

-1 316 047 350

10 435 292 469

2 379 725 478

8 055 566 991

4 146 963 675

7 685 047 754

-3 538 084 079

1 003 363 388

3 012 211 678

-2 008 848 290

29 774 224 546

26 682 835 274

3 091 386 272

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

South Africa’s total net trade balance in the M&E sector in the period 2017 to 2021 quarter two for the North American Free Trade Area (NAFTA) region is –R28.2 billion. This suggests that the country continued to import more than it exported to the NAFTA region. Total exports for the NAFTA region during this period were R173.6 billion, with imports at R193.8 billion.

South Africa continued to import more General purpose machinery (R45.1 billion), motor vehicle parts

and accessories (R40 billion) and other transport (R33.2 billion) during the period 2017 to 2021 quarter two.

On the export side, the top three exports were motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R49.1 billion), basic iron and steel products (R40.1 billion) and non-ferrous metal products (R32.9 billion), as depicted in figure 61.

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Figure 61: Total Exports and Imports of M&E for South Africa to the NAFTA region

Source: Quantec

South Africa’s total net trade balance with the NAFTA region in the M&E sector was R4.2 billion, according the Quantec 2021 first six-month trade data presented in table 11. This indicates a bias towards imports from the NAFTA region. In most of the products within the

M&E sector trade with the NAFTA region, South Africa only has a negative net trade balance in the eight M&E product categories with five M&E products in the positive trade balance, as depicted by the positive net trade balance in table 11.

Table 11: Total exports and imports for South Africa in NAFTA for the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN NAFTA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Rubber products

199 699 795

711 171 118

-555 471 323

Plastic products

293 921 629

487 274 562

-193 352 933

Basic iron and steel products

4 342 922 279

407 751 416

3 935 170 863

Non-ferrous metal products

4 115 893 794

179 792 087

3 936 101 707

90 382 491

28 868 211

61 514 280

Other fabricated metal products

648 891 304

641 780 052

7 111 252

General purpose machinery

837 040 697

4 902 895 659

-4 065 854 962

Special purpose machinery

783 983 026

1 846 069 049

-1 062 854 962

21 084 079

67 765 009

-46 680 930

425 874 414

1 402 905 386

-977 030 972

9 778 570 218

2 153 633 629

7 624 936 589

3 462 595 484

5 925 417 326

-2 462 821 842

952 853 381

2 975 384 695

-2 022 531 314

25 953 712 591

21 730 708 199

4 223 004 392

Structural metal products

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

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Exports-Imports

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

South Africa’s total net trade balance with the Asia region in the M&E sector in the period 2017 to 2021 quarter two is -R526 billion. This suggests that the country continues to import more than it is exporting to the Asia region. Total exports to the Asia region during this period were R363.3 billion, with imports at R889.3 billion.

South Africa continued to import more motor vehicle parts and accessories (R197.8 billion) and General

purpose machinery (R132 billion), followed by motor vehicles plus bodies for motor vehicles (R122.6 billion) during the period 2017 to 2021 quarter two.

On the export side, the top three exports were basic iron and steel products (R165.7 billion), non-ferrous metal products (R79.3 billion) and motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R60.1 billion), as depicted in figure 62.

Figure 62: Total Exports and Imports of M&E for South Africa to the Asia region

Source: Quantec

South Africa’s total net trade balance the Asia region in the M&E sector was –R70.2 billion, according to the Quantec 2021 first six-months trade data presented in table 12. This indicates a bias towards imports from the Asia region. In most of the products within the

M&E sector trade with the Asia region, South Africa only has a positive net trade balance for basic iron and steel products (R11.4 billion) and non-ferrous metal products (R5.8 billion), as depicted by the positive net trade balance in table 12.

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Table 12: Total exports and imports for South Africa in Asia region for the M& E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN ASIA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

239 930 585

5 263 217 490

-5 023 286 905

Plastic products

135 461 459

4 538 986 800

-4 403 525 341

Basic iron and steel products

19 813 302 122

8 396 070 025

11 417 232 097

Non-ferrous metal products

11 150 708 366

5 302 960 220

5 847 748 146

88 396 377

479 035 725

-390 639 348

1 257 141 647

6 395 437 586

-5 138 295 939

General purpose machinery

882 976 980

16 332 004 662

-15 449 027 682

Special purpose machinery

800 747 107

8 200 371 050

-7 399 623 943

19 583 364

3 734 054 046

-3 714 470 682

410 428 512

11 725 951 409

-11 315 522 897

5 051 253 394

14 180 697 508

-9 129 444 114

2 794 257 268

27 409 404 026

-24 615 146 758

266 129 853

1 113 963 106

-847 833 253

42 910 317 034

113 072 153 653

-70 161 836 619

Structural metal products Other fabricated metal products

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Stats SA, Quantec

South Africa’s total net trade balance with the Oceania region in the M&E sector in the period 2017 to 2021 quarter two was –R4.7 billion. This suggests that the country continued to import more from the Oceanian region than it exported to it. Total exports to the Oceanian region during this period were R38.1 billion, with imports at R42.8 billion.

South Africa continued to import more non-ferrous products (R33 billion), general purpose machinery

(R2.5 billion) and special purpose machinery (R2.2 billion) during the period 2017 to 2021 quarter two.

On the export side, the top three exports were motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R21 billion), general purpose machinery (R3.3 billion) and General purpose machinery products (R3.2 billion), as depicted in figure 63.

Figure 63: Total Exports and Imports of M&E for South Africa to the Oceania region

Source: Quantec

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State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

South Africa’s total net trade balance with the Oceania region in the M&E sector was R718 million, thus according the Quantec 2021 first six months trade data presented in table 13. This indicates a bias towards exports to the Oceania region. In most of the products within the M&E sector trade with the Oceania

region, South Africa has a positive net trade balance for most of the products, with the exception of basic iron and steel products (-R142 million) and non-ferrous metal products (-R2.7 billion) and Special purpose machinery (-R58.2 million) as depicted in table 13.

Table 13: Total exports and imports for South Africa in Oceania for the M&E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN OCEANIA: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Exports-Imports

Rubber products

48 455 833

12 690 851

35 764 982

Plastic products

55 085 044

46 528 443

8 556 601

Basic iron and steel products

99 139 059

241 564 190

-142 425 131

Non-ferrous metal products

201 669 852

2 904 067 230

-2 702 397 378

Structural metal products

87 945 683

2 684 198

85 261 485

Other fabricated metal products

85 788 928

42 063 907

43 725 021

General purpose machinery

411 857 179

253 782 146

158 075 033

Special purpose machinery

233 536 462

291 736 285

-58 199 823

11 322 008

6 008 905

5 313 103

239 135 231

103 072 620

136 062 611

2 882 607 026

1 584 899

2 881 022 127

157 900 044

74 382 033

83 518 011

205 299 927

21 536 976

183 762 951

4 719 742 276

4 001 702 683

718 039 593

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

South Africa’s total net trade balance with the European Union region in the M&E sector in the period 2017 to 2021 quarter two was –R222.5 billion. This suggests that the country continues to import more from the European region than it exports to it. Total exports to the European Union during this period were R642.1 billion, with imports at R864.6 billion.

South Africa continued to import more motor vehicle parts and accessories (R294.8 billion), general

purpose machinery (R142.5 billion) and motor vehicles plus bodies for motor vehicles, trailers and semitrailers (R130.5 billion) during the period 2017 to 2021 quarter two.

On the export side, the top three exports were motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R377 billion), motor vehicle parts and accessories (R101.7 billion) and basic iron and steel products (R65.4 billion), as depicted in figure 64.

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Figure 64: Total Exports and Imports of M&E for South Africa to the European Union region

Source: Quantec

South Africa’s total net trade balance with the European Union region in the M&E sector was –R9.1 billion, according the Quantec 2021 first six-months trade data presented in table 14. This indicates a bias towards imports from the European Union region. In most of the products within the M&E sector trade

with the European Union region, South Africa has a positive net trade balance only for basic iron and steel products (R5.2 billion), motor vehicle plus bodies for motor vehicles, trailers and semi-trailers (R39 billion) and non-ferrous metal products (R3.6 billion), as depicted by the positive net trade balance in table 14.

Table 14: Total exports and imports for South Africa in European Union for the M&E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN EUROPEAN UNION: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Rubber products

404 442 830

2 646 070 378

-2 241 627 548

Plastic products

371 856 521

3 848 258 269

-3 476 401 748

Basic iron and steel products

8 350 394 695

3 116 218 162

5 234 176 533

Non-ferrous metal products

5 736 769 444

2 143 004 031

3 593 765 413

69 281 962

459 854 212

-390 572 250

611 504 854

3 398 102 988

-2 786 598 134

General purpose machinery

1 033 603 683

15 535 461 415

-14 501 857 732

Special purpose machinery

587 601 942

7 042 710 968

-6 455 109 026

25 385 890

741 755 596

-716 369 706

523 552 547

6 452 775 481

-5 929 222 934

49 874 701 201

10 945 031 585

38 929 669 616

16 851 833 961

36 730 626 172

-19 878 792 211

1 650 531 130

2 152 684 903

-502 153 773

86 091 460 660

95 212 554 160

-9 121 093 500

Structural metal products Other fabricated metal products

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

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Exports-Imports

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South Africa’s total net trade balance with Europe in the M&E sector in the period 2017 to 2021 quarter two was -R233.4 billion. This suggests that the country continued to import more from Europe than it is exported to that continent. Total exports to Europe during this period were R658.5 billion, with imports at R891.9 billion.

South Africa continued to import more motor vehicle parts and accessories (R295.7 billion), general purpose machinery (R146.5 billion) and motor

vehicles plus bodies for motor vehicles, trailers and semi-trailers (R130.8 billion) during the period 2017 to 2021 quarter two.

On the export side, the top three exports were motor vehicles plus bodies for motor vehicles, trailers and semi-trailers (R383.3 billion), motor vehicle parts and accessories (R101.8 billion) and basic iron and steel products (R66.9 billion), as depicted in figure 65.

Figure 65: Total Exports and Imports of M&E for South Africa to Europe

Source: Quantec

South Africa’s total net trade balance with Europe in the M&E sector was –R10.9 billion, according to the Quantec 2021 first six-months trade data presented in table 15. This indicates a bias towards imports from Europe. In most of the products within the M&E sector trade with Europe, South Africa has a positive net trade

balance only for basic iron and steel products (R5.2 billion), motor vehicle plus bodies for motor vehicles, trailers and semi-trailers (R39.7 billion) and non-ferrous metal products (R2.1 billion), as depicted by the positive net trade balance in table 15.

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Table 15: Total exports and imports for South Africa to and from Europe for the M&E Sector in 2020

TOTAL TRADE OF M&E SECTOR FOR SOUTH AFRICA IN EUROPE: 2021 Q1 TO Q2 (RAND VALUE) Product

Total Exports

Total Imports

Rubber products

410 046 563

2 673 277 390

-2 263 230 827

Plastic products

382 484 959

3 968 131 806

-3 585 646 847

Basic iron and steel products

8 470 462 111

3 278 581 273

5 191 880 838

Non-ferrous metal products

6 342 789 661

4 198 458 718

2 144 330 943

70 740 308

463 630 773

-392 890 465

640 213 455

3 539 780 994

2 899 567 439

General purpose machinery

1 142 841 691

15 991 700 966

-14 848 859 275

Special purpose machinery

758 385 936

7 229 735 762

-6 471 349 826

25 719 534

791 993 082

-766 273 548

549 710 467

6 791 907 598

-6 242 197 131

50 639 920 174

10 946 070 478

39 693 849 696

16 861 878 145

36 866 411 993

-20 004 533 848

1 700 518 058

2 201 539 670

-501 021 612

87 995 711 062

98 941 220 503

-10 945 509 441

Structural metal products Other fabricated metal products

Household Appliances Electrical machinery Motor vehicles plus bodies for motor vihecles, trailers and semi trailers Parts and accessories Other transport equipment TOTAL Source: Quantec

7.2 Conclusion Total trade in the M&E sector has favoured imports since 1995 to 2021 second quarter. South Africa’s net trade balance in the M&E sector during this period was on average –R52 billion. Imports continued to rise, reaching a peak of R604 billion in 2019, with exports reaching a peak of R418 billion in the same year.

Between quarter first and quarter two of 2021, both imports and exports values improved. Imports improved from R125 billion to R129 billion, while exports improved from R106 billion to R121 billion, thus indicating a normalisation of business activities after lockdown measures across countries.

South Africa continued to have a favourable net trade balance with the African region in the M&E sector. In the first six months of 2021 alone, the net trade balance for South Africa with the rest of the African region was R51.9 billion in total. This suggests that South Africa’s local producers have more opportunities to increase their market footprint on the continent, especially by takin advantage of the African Continental Free Trade Area agreement effected which took effect on 1 January 2021.

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Exports-Imports

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8. Gross fixed capital formation in the Metals and Engineering Sector The broader definition of Gross Fixed Capital Formation (GFCF) includes spending on land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings.

This also applies to the M&E sector with regards to fixed investment made.

The deep-dive in GFCF in the M&E sector is only covered in the full year State of the Metals and Engineering sector report released in February, as quarterly data is not available, hence reference should be made to the report of February 2021 for this section.

However just for a snap-view reminder, total GFCF by value for the M&E sector increased from 1994 to 2008, from R1.3 billion to R3.2 billion, as the country

embarked on a rebuilding of the economy, with massive infrastructure projects, which also supported investment into the sector under overall favourable market conditions. Massive infrastructure projects implemented between 2003 and 2009, which included the 2010 Soccer World Cup, provided a huge boost for the sector. However, as the economy started experiencing a subdued construction activity, there was a dip in GFCF in the M&E sector. Since then, the level of GFCF in the sector has remained lower than during the 2008 peak, reaching R2.2 billion in 2020, as depicted in figure 66.

Between 2008 and 2020, the average annual percentage change in GFCF for the M&E sector was -2.5%, a clear reflection of reduced investment into the sector in the last 12 years. In 2020 alone, investment into the sector declined by 3.8% as COVID-19 lockdown measures were in effect.

Figure 66: Total GFCF of M&E for South Africa and annual percentage change

Source: Quantec

The GFCF across the entire M&E sector followed similar patterns into third quarter of 2020, with all sub-sectors experiencing massive drops in investment levels in 2009. The investment levels achieved in

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2008 have not been experienced, demonstrating a lack of attractiveness to invest into the sector due to challenging market conditions.

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9. Price and cost dynamics in the Metals and Engineering Sector Prices are a key component of the decision-making process in business to guide how revenue will be generated, either taking the approach of increasing price or volume. Within the manufacturing sector, historical patterns show that since January 2013 to June

2021, average prices increase of final manufactured goods was 5.2% while that of intermediate manufactured goods was 5% year on year, as depicted in figure 67.

Figure 67: PPI for Final and Intermediate manufactured goods

Source: Quantec

In the year 2020, PPI data suggests that electricity prices increased at a much faster pace than those of prices for intermediate manufactured goods. However, prices of mining products increased more than those of both electricity and intermediate manufactured goods during the period of January 2020 to December 2020.

This reflects the prevailing difficulty in the operating environment, characterised by rising intermediate inputs costs from the mining sector.

Since 2016, there is a prevailing discouraging trend of generally decreasing price patterns in both the intermediate and final manufactured goods PPI. It is important to keep electricity price increases under control in order to ensure businesses’ 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. The massive surge in prices of mining input products to 32.5% in 2020, which is above price increases of intermediate manufactured goods, is of great concern when it comes to the survival of the M&E sector. The high electricity prices have compounded the existing gap between the selling prices for M&E intermediate goods and production.

In the first six months of 2021 to June, PPI showed a rise from 7.4% in May 2021 to 7.7% in the month of

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June 2021 for final manufactured goods, with metals products, food products and computing equipment being among the largest contributors to the increase.

This rise in PPI is concerning for the overall domestic inflation outlook; as producers pass on costs increases to consumers in a retail market.

Prices for intermediate manufactured goods increased to a highest level of 16.4% in the year in June 2021. This is the category within which most products within the M&E sector fall in. In a depressed market, this may have negative implications in terms of affordability from the customer base, thus affecting sales volumes.

The mining sector remains the key raw material supplier to the M&E sector and mining PPI data highlights some the input cost pressures faced by the M&E sector.

Mining PPI increases remain above the 20% level from the May 2021 movement, averaging 17% in the first six months of 2021 to June.

Currently, the global economy is also taking a similar trend, with global producer price inflation picking up to levels averaging above 5%, for the Euro area, China and the US, amid resurgent global demand and supply constraints.

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Figure 68: Monthly PPI for Electricity, Mining and Intermediate manufactured goods

Source: Quantec

9.1 Producer Price Index growth rates trend by sub-sector Figure 69 presents a similar picture of products prices within the M&E sector. Year-on-year monthly prices for rubber, plastic and other fabricated metal products between January 2013 and June 2021 were 6.8%, 4.3% and 6.3% respectively. This put pressure on revenue for the sub-sectors under increasing input costs, such as mining products and electricity prices.

In the last six-months to June 2021, PPI for rubber, plastic and other fabricated metal products increased by an average of 9.5%, 16.5% and 21% respectively, showing some green-shots in prices.

Figure 69: Monthly PPI for Rubber, Plastic and Other Fabricated metal products

Source: Quantec

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Figure 70 presents a similar picture of products prices within the M&E sector. Year-on-year monthly price increases for basic iron and steel, non-ferrous metal and structural metal products between January 2013 and June 2021 were 6.5%, 6.7% and 4.6% respectively. This put pressure on revenue for the subsectors under increasing input costs, such as mining products and electricity prices.

In the last six-months to June 2021, PPI for basic iron and steel, non-ferrous metal and structural metal products increased by an average of 29.5%, 11.3% and 11.8% respectively, once again improvements coming in prices for 2021.

Figure 70: Monthly PPI for Basic Iron and Steel, Non-ferrous metal and Structural metal products

Source: Quantec

Year-on-year monthly price increases for general and special purpose machinery, household appliances and other transport equipment products between January 2013 and June 2021 were 5.3%, 4.5% and 5.8% respectively, as depicted in figure 71. This put pressure on revenue for the sub-sectors under increasing input costs, such as mining products and electricity prices.

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In the last six-months to June 2021, PPI for general and special purpose machinery, household appliances and other transport equipment products increased by an average of 1.6%, 2.1% and 3.1%, thus demonstrating the pressures in these three sub-sectors for producers on the revenue side.

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Figure 71: Monthly PPI for General & Special purpose machinery, Household appliances & Other transport equipment

Source: Quantec

Note: PPI Data for Motor vehicle parts and accessories, Electrical machinery and Bodies for motor vehicles, trailers and semi-trailers is not available

9.2 Conclusion Since 2016, there is a prevailing discouraging trend of generally decreasing price patterns of intermediate manufactured goods PPI. High electricity prices have compounded the existing gap between the selling prices for M&E intermediate goods and production.

The massive surge in prices of mining input products to 32.5% in 2020, which is above intermediate manufactured goods’ price increases, is a concern when it comes to the survival of the M&E sector.

Across sub-sectors, in the first six months of 2021 to June there was a pick in monthly year-on-year percentage changes in prices for plastic, rubber and other fabricated metal products. There was an increase in prices of structural metal products, non-ferrous and basic iron and steel products, while prices for general and special purpose machinery, household appliances and other transport equipment sub-sectors experienced lowest prices increases in 2021 to June.

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10. Key challenges facing the Metals and Engineering Sector and recommended policy interventions As has been demonstrated in the report, the M&E sector in South Africa is in a recovery phase from the negative effects of COVID-19 lockdown measures.

In the latest view of the first six months of 2021, the sector has experienced the following challenges: a shrinking domestic market size of key markets, lowcapacity utilisation levels (below 80%), declining contribution to the bigger manufacturing sector, declining employment numbers, increasing real per capital income, cost pressures; increasing levels of imports, weak global trade balance and low fixed investment levels.

However, green-shoots have appeared, with an improved trading picture with some regions, improvements in production volumes patterns from last year, as well as production sales. We have also observed improvements in construction and building material sales in the first six months of 2021, and improvements in product prices despite being lower than increases of input prices on average.

Our areas of concern, which we continue to monitor on a monthly basis and its proposed interventions remain as follows:

10.1 Low capacity utilisation Due to lack of demand locally, mainly with a depressed economy, as well as reduced activity of infrastructure projects, the industry is now operating at below capacity.

Capacity utilisation levels are below 70%, a situation that has been influenced further by the strict COVID-19 lockdown measures.

GOVERNMENT INTERVENTION REQUIRED: The Government should create incentives to support companies that want to invest and advance their technologies in production to move in step with the fourth industrial revolution, where production can continue even under pandemics. The local industry needs to look into the future to deal with any future pandemics, as the lockdown has had a massive negative impact on production.

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10.2 Rising imports The M&E sector is also facing a declining market environment domestically, with imports depressing the market share of local producers. Imports – especially from China – continue to flood into the local market, despite tariffs imposed on some products, thus putting pressure on the prices of locally-produced goods.

GOVERNMENT INTERVENTION REQUIRED: Despite the Government’s implementation of import tariffs for some products within the M&E sector, imports continue to flood the local market. It is important that there is intensive monitoring of products entering South African borders to ensure that product classification during customs declaration is right. The Government needs to seek more support from industry to assist in training customs officials on regular product identification.

10.3 Rising Energy costs and un-reliable supply One of the key challenges impacting negatively on the competitiveness of the M&E sector is rising energy costs. Eskom has for the last four years been increasing its electricity tariffs, and this has affected the cost base of most local producers in the sector, thus negatively affecting profit margins.

South Africa has also been facing challenges with regard to energy supply. Load shedding continues to be the order to deal with energy shortages facing the country. This has discouraged investment across the economy and within the M&E sector.

GOVERNMENT INTERVENTION REQUIRED: The National Energy Regulator of South Africa (NERSA) should be commended for always seeking input from the public on Eskom’s intended electricity tariff hikes.

However, despite such initiatives, Eskom continues

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to be granted electricity tariff hikes beyond industrial affordability levels. As indicated in the report, increases in prices of electricity continue to be above those of industrial product price increases, thus eroding the competitive base. NERSA should take hard decisions against Eskom to support the economy.

The model of some municipalities providing electricity, instead of Eskom selling it directly, has also distorted the electricity pricing mode since municipalities charge an extra cost upon buying the electricity from Eskom.

This extra cost is a burden to the industry. Therefore, the Government should revisit this model since it is only used to fund municipalities to the disadvantage of industrial and other consumers.

On energy supply, the Government should be commended for the construction of the Medupi and Kusile power plants, which also boosted demand for M&E products during construction. However, the country continues to face electricity supply disruptions.

There is need for the Government to ensure that the two power plants reach maximum capacity soon to feed into the grid.

10.4 Rising logistical costs The problems of logistical costs continue to make the local M&E sector uncompetitive. A responsible Stateowned entity such as Transnet has not only continued to increase its port and railway tariffs, but in some cases it has not been able to offer a proper service on its railway lines, thus leaving local producers with no options but to use the expensive road transport route. In most cases, business has complained about how unreliable the domestic railway system is.

GOVERNMENT INTERVENTION REQUIRED: Transnet’s work is key in supporting industrial development in South Africa. There is a need to modernise the locomotive infrastructure and develop new railway networks that look not only at raw material sources to exports destination, but also connecting to the local industrial areas for beneficiation. Not much railway infrastructure has been developed since 1994.

Transnet should invest and maintain its infrastructure to ensure that it is efficient and reliable for the industry which needs raw material on time to continue with production. Also key to this is to ensure that port tariffs are competitively priced in comparison to other countries that South Africa competes with in international trade.

10.5 Raw material availability The M&E sector still confronts the challenge of raw material availability. South African raw materials suppliers of scrap metals and other minerals such as iron ore tend to have a preference for export due to the export prices on offer. This has affected the availability of such raw materials for local producers in the M&E sector.

GOVERNMENT INTERVENTION REQUIRED: The Government should provide enough protection to discourage exports of scrap metal, which is one of the key inputs required for the M&E sector to survive. We welcome the current dispensation which is in place, which seeks to achieve this goal.

10.6 Availability of skilled labour One of the key components in industrial production in the M&E sector is the availability of skilled labour. Not only is there a shortage of skills, but the industry is also faced with an ageing workforce. This has affected investment and expansion within the sector.

GOVERNMENT INTERVENTION REQUIRED: Provision of artisan training is a key component of industrialisation of any economy. There is a need to continuously develop a pool of young graduates who should be motivated to enter the engineering field at tertiary level. The Government should work with industry to support vocational work and internship programmes.

10.7 Declining trade position footprint COVID-19 lockdown measures implemented across the world economies further depressed any potential for exports into some of the markets, especially Europe, for M&E sector products. Industrial activity is at relatively low levels. General trading trends, as presented in this report, have shown that the African continent is now an area of potential growth opportunity for South African producers. As such, this is an area that requires the Government’s attention to support local industry market expansion on the African continent.

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GOVERNMENT INTERVENTION:

GOVERNMENT INTERVENTION:

The African Continental Free Trade Area agreement offers new opportunities for trade on the African continent in the M&E sector. The Government should support local industries by providing intelligence and required knowledge of the African region’s trading landscape. The African continent is still underdeveloped in infrastructure, and there is activity in that space.

Manufacturing companies are integral to the supply chain of the economy, and may not recover if not supported. This will have a longer-term impact on the competitiveness of some sectors. The Government needs to come up with business support measures, as an urgent intervention, for industries in need of cash flow and liquidity.

The Government should work closely with entities such as the Development Bank of Southern Africa to ensure that one of the criteria for project financing should be utilisation of construction materials manufactured on the continent, and the M&E sector can be one of the suppliers, especially in key products such as steel, which is imported into the continent, to the disadvantage of African producers. SEIFSA can be a key partner to link the Government with industry, through market intelligence gathering and policy research support.

SEIFSA applauds the Government for implementation of targeted initiatives to address some of the structural problems facing the M&E sector as stated in its policy documents. Plans announced in this year’s national budget speech indicate a continued move towards infrastructure spending, with the Government committing to spend an estimated at R791.2 billion in the next three fiscal years. State-owned companies continue to be the largest contributor to capital investment, spending a projected R293.7 billion over the next three years.

10.8 Liquidity challenges Liquidity is one of the most significant issues that the steel industry faces. Working capital is stuck due to lack of industrial activity. Non-payment by first-tier steel users is caused by their customers (second and third tiers) not paying, such as construction companies, component manufacturers and mines. This lack of liquidity will force a spate of defaults and possibly some parts of the industry will not survive this crisis not because they are bad businesses, but simply because the flow of cash dries up.

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It is imperative that there is engagement on the planned and announced Government projects with the implementing agencies such as Transnet, Eskom and SANRAL, among others, so that the local industry is well positioned to be the preferred supplier in adhering to the local procurement policy. The process of engagement should be to understand the variety of products that will be required, such as steel tonnage or product type, so that the local industry can plan ahead to develop the capacity to supply these products, without having any shortages.

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11. Steel and fabrication master plan highlights of key policy interventions

As has been demonstrated in the report, the M&E sector in South Africa is in a recovery phase from the negative effects of COVID-19 lockdown measures.

SEIFSA has also taken note of the various policy interventions from the Government, accommodating some of the proposed areas as presented by SEIFSA above in its input process to the drafting the Steel Master Plan, which has since been launched.

Infrastructure drive: South Africa has a renewed focus on infrastructure, with the establishment of the Infrastructure Fund. The Office of the Presidency is managing the drive directly, providing an important impetus to growth.

Localisation: State-owned entities Transnet purchase significant quantities of steel products, such as rails.

Transnet has committed to review their requirements and to work with the local industry on building

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local supply chains for large-scale projects and consumables. Commitment to promote localisation set out in the Nedlac Economic Recovery Plan covering the 2021 implementation of the localisation commitments made by social partners on the identified value-chains, including steel-intensive products for construction, tools and implements, household goods, capital equipment, transport auto, rolling stock and railway lines, based on a set of targets; a set of products; and champions at CEO level.

Export promotion: The African continent represents a significant opportunity for South African steel makers and downstream processors. African countries (excluding South Africa) purchase nearly R400 billion of iron and steel each year and promotion activities must focus on opening these markets for SA steel, while at the same time promoting local partners in those countries. The Master Plan proposes that consideration be given to combined and integrated efforts to promote exports, particularly to the rest of the continent – an approach described as South Africa Inc.

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Development of industry value chains: key manufacturing and mining value chains offer an immediate opportunity for growth. The implementation of the Automotive Master Plan will increase the demand for locally produced metal components as OEMs pursue their localization commitments under the plan.

Discussions are now underway between the auto industry and steel sector players.

Establishment of a Steel Industry Development Fund: establishment of a fund to support critical industry projects is proposed, with funding sourced from a small levy on all primary steel sold in South Africa.

Government funding: Government has established a R1.5 billion Downstream Steel Development Fund through the IDC to provide funding to the industry at concessional rates, and address weak balance sheets. A R200 billion loan guarantee scheme through the Industrial Development Corporation as part of the COVID-19 relief.

Consideration of input costs: Discussions with key suppliers to the industry (including for instance ore, coal, rail, electricity, scrap as well as the cost of capital etc.) are essential to improve the competitiveness of the industry. It is proposed in this Master Plan that a coordinated effort at reviewing input costs be undertaken, with the dtic bringing key parties together.

Capacitating and aligning key institutions: A number of agencies and institutions play an important role in supporting the steel industry. These include the SABS, NRCS, ITAC, SARS and the IDC. A strategic, industryfocused approach is being developed to ensure key agencies have the capacity to provide world-class service and support.

Trade policy support: Increase in the general rate of customs duty on primary steel products to 10% and safeguard measures on hot rolled coil and plate products. Tariff increases on a range of downstream products to the maximum bound rates allowed; trade remedies; deployment of rebates where products are not manufactured or additional value is added before export. SARS reference price system developed for

steel products to address low-priced imports and inter-agency working group established to tackle illegal imports.

Scrap metal interventions: The longer-term intervention supported by the majority of stakeholders is for an export tax that will be implemented together with an ITAC permit system. The proposed export tax underwent a consultative and parliamentary process and its administration processes are being set up with an expected implementation date of July 2021.

Investment drive into the M&E Sector: a high-level survey of investments in the steel industry was conducted. It indicated projects in the commissioning or construction stage, or where the investment is committed, to total R12,3 billion. Other planned projects, which in most cases are conditional on factors such as stable energy pricing and supply, regulatory permission and increased demand, total between R34 billion to R42 billion.

Electricity pricing support: Long Term Framework (LTF): The long-term NPA framework is targeted at large industrial operations that contribute to the base load electricity consumption and economic well-being of South Africa and require electricity price certainty for their operations. The intention is to provide qualifying consumers with access to a lower tariff for a period of up to 10 years, as the operation / sector would be unsustainable on the applicable standard tariff.

Flat steel pricing: Agreement on a set of principles for flat steel pricing in SA that is priced appropriately to ensure that steel dependent industries are competitive, while at the same time ensuring that the upstream steel mills remain sustainable and reviewed periodically.

COVID-19 highlighted the risk and challenges of a single flat steel producer in South Africa which was unable to supply all of the demand in the domestic market when production restarted. Against this background, two steel producers have signalled their intention to produce flat products.

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12. Projections for the m&e sector for 2021 and beyond The year 2020 was a rough year for the Manufacturing sector and the economy in general, amid COVID-19 lockdown regulations being implemented in March 2020. It is important to reiterate that the industry was under strain even before the pandemic hit. South African industrial base cannot be eroded any further.

Fixed investment remains key to the revival of the sector.

Yet South Africa’s level of Gross Fixed Investment to total GDP is been on average below 20% on average since 1994. To grow the industrial base of South Africa,

fixed investment share of GDP needs to move to levels above 40%, similar to other countries such as China at 42%.

Government’s commitment to spur investment is commendable. This includes the R791.2 billion that is to spent on infrastructure projects over the next three fiscal years.

12.1 Projections for the Manufacturing sector and M&E sector to 2023 The M&E sector is heavily reliant on demand from key Government projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. We applaud Government efforts to address the challenges in the industry through the Steel Master Plan.

SEIFSA expects improved market conditions, which will improve production patterns and capacity utilisation for the total manufacturing and the M&E sectors, with

the vaccine roll-out bringing further confidence in the economy for industry to operate at full capacity.

As noted, there are some green-shoots in the economy, as demonstrated with data to June 2021 such as improving business confidence, improved sales of construction and building materials in recent months, as well as improving production volume and production sales in M&E sector products, we present the following revised projections to 2023, as contained in table 16.

Table 16: Projections for South Africa Manufacturing production and M&E Sector

Macroeconomic performance and projections INDICATOR

2018

2019

2020

2021

Q1

2021

Q2

Q3

Q4

2023

Manufacturing production (y-y %)

1.1

-0.01

10.9

0.5

45.6

16.4

15.1

19.4

1.1

1.3

Manufacturing capacity utilisation (%)

81.4

80.9

72.3

76.3

78.6

76

79.7

77.7

78.8

83.0

1.1

1

13.7

13.7

356.2

94.9

58.9

128.4

0.9

1.0

79.9

78.6

67.6

67.9

77.1

75.2

78.6

77.0

79.2

82.0

M&E production (y-y %) M&E capacity utilisation (%)

Source: Stats SA, Quantec, SEIFSA calculations

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2022

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SEIFSA projections above are under the assumptions of the following:

• Implementation of the Government’s economic recovery plan (infrastructure investments); • A stable labour market environment; • A stable monetary policy environment (low interest rates and inflation rates); • A continued pick-up in construction and building material demand (> 10%); • Low import penetration of related goods into the local market; • Stable electricity supply; and • Improved investment conditions into the sector.

12.2 Projections across M&E sub-sectors to 2023 Across the M&E sub-sectors, SEIFSA projects a moderate production growth rate pattern, with easing declines in production for the Basin iron and steel sub-

sector. As Government infrastructure projects are being implemented, with adherence to the local procurement policy, demand conditions are improving for local producers.

PMI data is suggesting an expansionary phase in the manufacturing sector as order books improve for both domestic and export market on the African region.

The mining industry is recovering well amid improved commodity prices and demand. The automotive sector is receiving more attention from the Government, and we expect improved demand conditions for local and export markets. Building and construction activity is also seeing some new light, with signs of improved activity being depicted. As demand conditions improve further, we are already seeing improvement in capacity utilisation to address supply issues.

The above view leads into a moderate production outlook for the M&E sub-sectors into 2023, as presented in table 17.

Table 17: M&E sub-sectors production growth rates projections to 2023

Year-on-year percentage change in production of M&E products 13 Metals and Engineering (M&E)sub-components

2018

2019

2020

2021

Q1

2021

Q2

Q3

Q4

2022

2023

Rubber products

-1.9

1.1

-14.4

5.3

114.9

32.1

15.2

41.9

12

1.3

Plastic products

6.8

0.8

-6.4

-2.7

21.3

10.3

8.5

9.3

0.5

1.2

Basic iron and steel products

3.1

-6.3

-23.4

-16.6

150.1

78.3

35.6

61.8

-1.5

-0.7

Non-ferrous metal products

0.2

-3.2

-7.9

2.5

12.1

18.5

10.8

11.0

0.9

1.1

-5.0

1.6

-14.4

-2.5

189.2

54.7

35.6

69.3

-1.3

-0.7

2.3

-2.6

8.1

10.4

112.2

43.1

25.9

47.9

1.4

1.1

General purpose machinery

-1.7

2.6

-8.7

-1.4

86.5

39.5

20.3

36.2

1.4

1.1

Special purpose machinery

0.1

0.6

-12.4

6.3

55.8

35.7

18.5

29.1

1.1

0.9

Household appliances

Structural metal products Other fabricated metal products

Electrical machinery and apparatus

4.4

6.9

-17.4

-7.7

135.8

54.2

20.1

50.6

1.2

1.5

-6.5

-2.7

-16.3

4.2

82.1

41.6

17.5

36.4

1.5

1.3

Bodies for motor vehicles, trailers and semi trailers

6.3

-2.0

-7.3

22.1

323.1

129.7

65.8

135.2

3.1

2.8

Parts and accessories (motor veihicle)

9.2

-2.0

-19.3

36.3 2996.3

459.7

3468

959.8

1.3

1.3

Other transport equipment

-3.3

-7.8

-22.1

-9.6

351.9

236.8

145.6

181.2

0.9

0.7

Average

1.1

-1.0

-13.7

3.6

356.2

94.9

58.9

128.4

0.9

1.0

Source: Stats SA, SEIFSA projections

It remains imperative that the Government addresses the challenges the industry is facing through prioritisation of implementation of all policy interventions.

State of the Metals & Engineering Sector Report - First half of 2021 review

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13. Conclusion The SWOT analysis presented below is the current landscape of the M&E sector in South Africa in relation

to the broader dynamics facing the economy in the first half of 2021.

Table 18: SWOT analysis of the South African economy in relation to M&E sector

The recovery of the M&E sector in South Africa, as depicted by the current landscape, will also require implementation of targeted policy interventions, especially in an economy with a 32.6% unemployment rate. Production levels have to continue improving coupled with capacity utilisation to levels above 80%.

The monetary policy (low interest rates and inflation rate) environment, is also conducive to supporting consumption growth.

The M&E sector’s competitiveness has been eroded due to rising costs of electricity and unreliable electricity supply in recent years, coupled with rising logistical costs. The recent electricity tariffs hikes of 15% implemented by Eskom on the 1st of April 2021 are a setback for the industry survival. Prices of locally-produced products in the M&E sector

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have not increased to levels that are sustainable for local producers, with input costs rising more as demonstrated also in the recent data of the first six months of 2021.

While on the above issues, there seem to be some opportunities for the sector to explore. The Government’s infrastructure spending of R791.2 billion in the next three years, offers growth opportunities for the M&E sector in South Africa. It is, therefore, important that local producers that are able to supply the required construction and building material-related products and take advantage of the local procurement policy.

The M&E sector also welcomes the recently launched Steel Master Plan. It is hoped that all policy interventions will be prioritised for implementation.

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

ANNEXURE A

Table 19: Metals and Engineering Sector description

M&E Sub-sectors

Description

Rubber products

Manufacture of rubber tyres and tubes; retreading and rebuilding of rubber tyres Manufacuture of other rubber products

Plastic products

Manufacture of plastic products

Basic iron and steel products

Basic iron and steel industries, except steel pipe and tube mills

Non-ferrous metal products

Refining of precious metals, e.g. gold, silver, platinum Manufacture of primary non-ferrous metal products, excluding precious metals

Structural metal products

Manufacture of structural metal products, tanks, reserviors and steam generators Manufacture of metal structures or parts therof Other structural metal products, e.g. metal doors, windows and gates

Other fabricated metal products

General purpose machinery

Manufacture of engines and turbines, except aircraft, vehicle and motor cycle engines Manufacture of pumps, compressors, taps and valves Manufacture of ovens, furnances and furnance burners Manufacture of other general purpose machinery Manufacture of lifting and handling equipment Manufacture of other general purpose machinery

Special purpose machinery

Manufacture of agricultural and forestry machinery Manufacture of machine tools Manufacture of machinery and metallurgy Manufacture of machinery for mining, quarrying and construction Manufacture of machinery for food, beverage and tobacco processing Manufacture of machiney for textile, apparel and leather production Manufacture of weapons and ammunition Manufacture of other special purpose machinery

Household Appliances Electrical machinery and apparatus

Bodies for motor vehicles, trailers and semi-trailers Parts and accessories (Motor Vehicle)

Other transport equipment

Manufacture of Other fabricated metal products; metal work service activities Forging, pressing, stamping and roll-forming of metal; powder metallurgy Treatment and coating of metals; gneral mechanical engineering on a fee or contract basis Manufacture of cutlery, hand tools and general hardware Manufacture of other fabricated metal products Manufacture of metal containers, e.g. cans and tins Manufacture of cables and wire products Manufacture of springs (all types) Manufacture of metal fasteners Maufacture of other metal products

Manufacture of household appliances Manufacture of office, accounting and computing machinery Manufacture of electric motors, generators and transformers Manufacture of electricity distribution and control apparatus Manufacture of insulated wire and cable Manufacture of accumulators, primary cells and primary batteries Manufacture of electric lamps and lighting Manufacutre of electric bulbs and flurescent tubes Manufacture of illuminated signs and advertising displays Manufacture of lamps and lampshades Manufacture of other electrical equipment Manufacture of motor vehicles Manufacture of bodies (coachwork) for motor vehicles; manufacture of trailers and semi-trailers Manufacture of parts and accessories for motor vehicles and their engines Manufacture of radiators Activities of specialised automotive engineering workshops working primarily for the motor trade Manufacture of other motor vehicle parts and accessories Building and repairing of ships Building and repairing of pleausre and sporting boats Manufacture of railway and tramway loco-motives and rolling stock Manufacture of aircraft and spacecraft Manufacture of transport equipment Manufacture of bicycles and invalid carriages Manufacture of other transport equipment

Source: Stats SA

State of the Metals & Engineering Sector Report - First half of 2021 review

97

MEET THE ECONOMIC AND COMMERCIAL TEAM Chifipa Mhango Chief Economist

Chifipa Mhango joined SEIFSA on 1 November 2020 as Chief Economist. A seasoned economist with over 25 years of experience.He holds a Bachelor of Social Sciences degree in Economics, Accounting and Statistics from the University of Malawi and a Master of Commerce degree in Economics and Econometrics from the University of Stellenbosch.

Palesa Molise Economist

Palesa Molise joined SEIFSA in August 2020 as an Economist within the Federation’s Economic and Commercial Division. She holds an M.Com in Local Economic Development from the University of Johannesburg.

Eleen Snyman Economic and Commercial Officer

Eleen Snyman has more than 15 years expirience in import and economic-related matters. She assist in daily compilation of the SEIFSA PIPS for the broader domestic Economic industry

Economic & Commercial Consultancy SEIFSA’s Economic and Commercial Division promotes the interests of members in various national forums, i.e. BUSA, Nedlac and provides information, advice and training on:

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•

Contract price Adjustment (CPA);

•

Market Intelligence;

•

Economic research and policy advisory;

•

International Trade (Export Development);

•

Development Impact Assessment;

•

Commercial Contracts;

•

Small Business Engagements & Consulting;

• •

Market Research (Sectors);

State of the Metals & Engineering Sector Report - First half of 2021 review 2021-22

Tender Advisory.

PIPS PRICE AND INDEX PAGES

Building Trust, Building Businesses Guard against inflation, exchange-rate fluctuations or input-cost variability negatively impacting on your margins and on the sustainability of your business

pips.seifsa.co.za

PUBLISHED BY Steel and Engineering Industries Federation of Southern Africa (SEIFSA) 6th Floor, Metal Industries House 42 Anderson Street Johannesburg 2001 PO Box 1338 Johannesburg 2000 Tel: +27 11 298-9400 Fax: +27 11 298-9500 Email: info@seifsa.co.za Web: www.seifsa.co.za Reg.No. 1949/03422/08