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%).