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