Manufacturing sector in SA continues decline amid power woes, global trade tensions

Manufacturing activity in South Africa continued to struggle and remained in contractionary terrain in February on the back of global trade tensions and the return of crippling electricity supply.  

The seasonally adjusted Absa Purchasing Managers’ Index (PMI), conducted by the Bureau for Economic Research and released on Monday, lost a further 0.6 of a percentage point in February and fell to 44.7 in February, down from 45.3 in January.

This is the fourth consecutive contraction as activity remained subdued. 

Absa said the manufacturing sector has seemingly not picked up following its poor performance towards the end of last year.

Both the business activity and new sales orders’ indices declined in February. 

The business activity index fell by 2.9 points to 40.6,  from 43.5 previously, reflecting weaker demand and ongoing material supply challenges.

The new sales orders index declined to 38.7 points from 42 in January, as export sales slumped due to global trade tensions, logistical issues, and lower-than-expected demand.

Export sales dropped significantly, falling deeper into contractionary territory, mainly due to lower-than-expected demand, global trade disagreements, and logistical issues.

According to S&P Global, the UK’s February PMI data indicated that manufacturers were “facing an increasingly difficult trading environment”.  

“Uncertainties about global trade dynamics continued, with some respondents flagging that increased tension in SA-US relations had specifically worsened their prospects,” Absa said. 

“The return of load shedding may have also weighed on sentiment.”

Eskom implemented up to Stage 6 load shedding towards the end of February following multiple unit trips at Camden Power stations.

This followed the implementation of Stage 3 load shedding necessitated by multiple unit trips at Majuba Power Station and a unit trip at Medupi, resulting in a loss of 3 864 MW in generation capacity, while 7 506MW was on planned maintenance.

Meanwhile, Absa said the supplier deliveries index increased by 5.1 points to 55 points, indicating slower delivery times. 

While the index has been surprisingly volatile in recent months, the uptick could be a concerning signal that supply chains remain constrained and that orders have slowed down. In line with lower output, the employment index decreased by 2.3 points to 42.2 and remained in contractionary territory for the eleventh consecutive month. 

Finally, the inventories index ticked up slightly, to 46.9 from 46.5 in January.

The purchasing price index increased by 2.2 points to 70.4 in February after increasing by a marked 7.8 percentage points in January, with fuel prices rising “for the fourth consecutive month in SA”. 

The rand exchange rate was relatively weaker in February, while some input material prices rose amid a higher Brent crude oil price. With the weaker rand, fuel prices increased for the fourth consecutive month in SA at the beginning of February.

Possibly amid concerns about further cost pressure and the ability to pass this on given weak demand conditions, the index tracking expected business conditions in six months’ time slid further by 4.4 points, but remained in expansionary territory at 60.5 in February.

BUSINESS REPORT