By Lehlohonolo Lehana.
South African manufacturing activity improved in October, but rolling power cuts and a crippling strike at freight rail and ports company Transnet prevented a stronger recovery, a survey showed on Tuesday.
The seasonally-adjusted Absa Purchasing Managers’ Index (PMI) was at 50.0 points in October from 48.2 points in September, hitting the 50-point mark that separates contraction from expansion.
Absa and the Bureau for Economic Research (BER) explain that this PMI level is slightly better than the average recorded during the third quarter – 49.6 – however, the 11-day strike at State-owned freight utility Transnet in October hurt exports.
October’s PMI performance has also been impacted by persistent loadshedding, capping any recovery in activity and demand.
The business activity index ticked up from September, possibly owing to the intensity of loadshedding being less severe in October. The business activity index came in at 48.8 points, which is nine points higher than the prior month.
This level still indicates weak output, but marks the best reading of the index since March.
The new sales orders index rose to 46.4 in October, compared with a level of 39.8 in September, but remains stuck in negative terrain for a fifth consecutive month.
Respondents to the PMI noted that loadshedding was hurting demand for their products, resulting in them having to curtail production. This while exports were also poor owing to the Transnet strike and global demand factors.
The PMI readings from Europe point to a sharp slowdown in new sales order activity, which is also testament to faltering global demand.
“Indeed, worries about the strength of global growth going forward may help to explain the downtick in the expected business conditions index. The index tracking business conditions in six months slipped to 49.2.
“This is the most pessimistic purchasing managers have been about the outlook since May 2020. The persistence of loadshedding and little hope that this will be alleviated over the near term likely also weighed on sentiment,” BER and Absa note.
The purchasing price index also moved lower for a fourth month, dwindling to 75.4, compared with 79 in September and a record high of 95.9 in March.
Absa and the BER state that official data for factory-gate prices has started trending lower and that, while producer price inflation remains elevated, it seems input cost pressures have peaked.
That said, with a hefty diesel price hike due in the first week of November, controlling costs will remain a challenge, particularly for factories that use diesel generators during loadshedding.