Ailing manufacturing sector will fare worse this year amid ArcelorMittal woes

Data released by Statistics South Africa (Stats SA) shows that manufacturing production declined by 2.6% in November 2024 year-on-year, with negative contributions coming from motor vehicles, basic iron and steel, metal products and machinery.

If this is anything to go by, the South African manufacturing sector will face great headwinds in 2025, especially with ArcelorMittal SA (Amsa) shutting down its long-steel business.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research, said the fourth quarter of 2024 will most likely have recorded a contraction in manufacturing production.

She said the sector performed quite poorly through 2024, despite there being no load shedding for most of the year. The country has not had rolling blackouts since 26 March 2024.

“The expectation was that that’s [absence of load shedding] going to boost production. There’s a lag, it took manufacturers a while to realise that load shedding was not coming back and they could ramp up production because there would be capacity to do that,”she said.

When load shedding occurs, manufacturing operations are shut down, resulting in increased downtime, decreased productivity and, at times, equipment damage.

The Absa Purchasing Managers’ Index (PMI), a key gauge of confidence in the manufacturing sector, declined by 1.9 points in December to 46.2 – moving further away from the neutral mark of 50.

ALSO READ: ArcelorMittal closing down long-steel works, cutting about 3 500 jobs

Manufacturers ‘quite upbeat’

However, De Schepper noted that the Absa survey showed that manufacturers were quite upbeat about 2025.

“They see higher investments and business conditions continuing to improve. They are quite optimistic. So, all of that working together provides a positive picture,” she said.

“But Amsa alone is going to be a big drag on manufacturing production. They are stopping production by the end of January and that falls away. That will be a negative reading throughout the entire year, weighing on overall production.”

Earlier this month ArcelorMittal announced that it will shut its loss-making long-steel operations in Newcastle and Vereeniging and let go of 3 500 employees.

The shutdown of operations at Amsa will have ripple effects across the broader economy, De Schepper said, especially in the transport manufacturing sector.

The long steel produced by Amsa will no longer be obtained as quickly as it was previously, creating delays and disruptions.

This week carmakers urged ArcelorMittal and Minister of Trade, Industry and Competition Parks Tau to work together to delay the planned closure of the steel mill.

Associations representing both automotive component makers and car manufacturers said they need at least a year to source alternative steel supplies.

ALSO READ: ArcelorMittal shutdown: worry about socio-economic catastrophe

Outlook

Crystal Huntley, an economist from Nedbank, said the challenges faced by the manufacturing sector will persist in 2025.

“The sector is faced with crippling electricity costs, high labour costs relative to productivity, faltering transport networks and struggles at the ports. All of which has eroded the industry’s competitiveness, resulting in a structural break between SA’s manufacturing production and the global business cycle.”

She noted that manufacturing has trended sideways since 2013.

“With global growth expected to remain around last year’s levels, we are unlikely to see any external boost to the industry,” said Huntley.

“While acknowledging recent structural improvements, an overhaul of the obstacles faced by the industry will require extensive work and take years to achieve. Resultantly, we anticipate that the sideways trend in manufacturing production will continue with growth averaging around 1.2% over the next three years.”

The sector’s contribution to GDP has dwindled over the years. The contribution has halved from a peak of 25% in the 1980s to under 13%.

Employment in manufacturing is also down – from 1.8 million in 2007 to less than 1.6 million in 2023, Moneyweb previously reported.

As De Schepper put it: “The problem is that we have not seen sustained momentum. We see a month of growth then we see two months of contraction. There has not been a sustained uptick in years.”

This article was republished from Moneyweb. Read the original here.