South Africa

Bad news for one of South Africa’s most important industries

Factory

South Africa’s factory mood fell for the third straight month in January, as businesses worried about the impact of Mozambique’s post-election unrest on trade, recent jet fuel shortages and the planned closure of ArcelorMittal’s long steel production units.

Absa’s purchasing managers’ index, compiled by the Bureau for Economic Research, declined to 45.3 from 46.2 in December, the Johannesburg-based lender said Monday in an emailed statement. It was the lowest reading since August.

“Respondents flagged some issues that were hurting production and demand, including trade disruptions with Mozambique due to the political turmoil and fuel shortages affecting air freight,” Absa said.

“The upcoming closure of ArcelorMittal’s longs business in South Africa was flagged as potentially impacting some producers over the next six to 12 months.”

The main border crossing between South Africa and Mozambique was repeatedly disrupted in December and January amid protests over the results of Mozambique’s October election, which the opposition dismissed as fraudulent.

A key rail corridor from South Africa to Mozambique was also affected which led to a shutdown of the line for a month. 

The PMI reading was the third consecutive month below 50, signaling a contraction, reflecting a loss of momentum in the county’s manufacturing after a rebound last year.

The decline was largely led by a sharp drop in the gauge measuring supplier deliveries which decreased to 49.9 from 56, while the employment index fell to 44.4 from a previous 46.5.

South African businesses have also raised concerns about the shuttering of the steel plants, which risks disrupting supply chains and would add to cost pressures for manufacturing businesses. 

A gauge of expected business conditions in six months’ time fell to 64.9, from 67.6, Absa said. 

“Uncertainties about global trade dynamics could have added to the drop,” the lender said. “That said, despite the fall, the current level indicates that manufacturers remain fairly optimistic about business conditions in the future.”

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