Output at factories, mines falls – Stats SA

Key sectors in the economy are contracting, according to data released by Statistics SA yesterday.

The agency said both the mining and manufacturing sectors shrank in September. Mining production was 8 percent down while manufacturing output shrank 2.3 percent.

The monthly contraction in manufacturing put the year-on-year performance into negative territory: minus 1.1 percent after growth of 2.8 percent in August and 6.3 percent in July.

Ilke van Zyl, an economist at Absa Capital, said the year-on-year September figure was worse than expected as the decline in food and beverage production “caught us by surprise”. It fell 5.2 percent in the year, partly due to the “transport strike action during the latter part of September”.

She noted that dairy production fell by 5 percent year on year “which ties in with anecdotal evidence of lower local milk production due to high input costs and lower output prices, pushing the milk-feed price ratio to multi-year lows”.

Quarterly figures give a different perspective. Shireen Darmalingam, an economist at Standard Bank, said growth of 0.3 percent in the three months to September, seasonally adjusted, compared with minus 0.2 percent in the previous three months. The slight increase was driven by production of wood and wood products; basic iron and steel, non-ferrous metal products, metal products and machinery; and petroleum, chemical products, rubber and plastic products.

“Today’s data confirms that the sector will add positively to third-quarter growth in gross domestic product.” This followed a negative contribution in the second quarter.

However, the sector’s fortunes have been sliding over a long period. Manufacturing’s share of gross domestic product (GDP) has fallen dramatically from about 17 percent 10 years ago to less than 12 percent in the second quarter.

Nicky Weimar, a senior economist at Nedbank, said manufacturers would welcome this year’s weakening in the rand. But she said the currency depreciation had not compensated for the other factors that made local operators less competitive than those in other countries. These included a high cost structure and the weaker rand would eventually push costs higher, she said.

Mining’s share of GDP has also been shrinking over a period. And the sector has been under further pressure since the outbreak of violent strikes in the platinum sector in August. Mining production shrank 0.3 percent year on year in that month. The situation worsened in September when volumes fell 8.3 percent year on year.

Nedbank’s economic unit said: “The main drag on the sector was the platinum group metals category, which accounted for 5.2 percentage points of the 8.3 percent decline over the month and was down 17.8 percent year on year. Gold production contributed 0.33 percentage points to the decline [down 11.1 percent year on year], coal minus 1.2 percentage points [down 4.2 percent] and other non-metallic minerals and copper [minus] 0.7 percentage points each.”