Manufacturing output rises to the highest since October

BANKING group Absa yesterday said the South African manufacturing sector was relatively optimistic about the sixmonth outlook after factory activity rose to a four-month high last month.

The group said its manufacturing purchasing managers index (PMI) rose to 53 points in February from 50.9 points in January – the strongest increase in the country’s factory sector since October, as the index moved further above the 50-point mark, which separates expansion from contraction.

“The improvement was supported by better export sales relative to the previous month, while the loosening of local lockdown restrictions likely also contributed to an uptick in domestic demand,” Absa said.

The PMI showed that production and new sales orders increased as business activity ticked up on the loosening under adjusted lockdown level 3.

The survey report noted that export orders lifted relative to January, while domestic demand also improved, likely as a function of the “loosening of lockdown restrictions”. New sales orders rose further to 54 points, supporting an increase in the business activity index, inching up a sizeable 8.6 points in February following four consecutive declines.

Absa said purchasing managers’ expectations for the six-month outlook index remained unchanged at 59.2 points. However, the survey report cautioned that a further intensification of cost pressures, and the limited ability to fully pass on higher costs, could dampen sentiment in the upcoming surveys.

Fuel prices were expected to rise further in coming months on the back of a higher Brent crude oil price and fuel levies, while a sharp hike in electricity tariffs will also push up costs.

“A factor which may quell sentiment going forward could be continued upward pressure on costs,” it said. “This, especially if the demand environment remains relatively weak and producers cannot pass on these costs to mitigate some pressure on profitability.”

The supplier deliveries index, however, declined by more than seven points to its lowest level since the middle of last year following a sharp increase in January.

Investec economist Kamilla Kaplan said the intensification of supply shortages translated into increases in the prices of raw materials globally.

“In South Africa, manufacturing cost inflation strengthened in February, with the prices sub-index rising for the third consecutive month. The fuel price hikes in February were identified as a contributing factor. “However, the slightly stronger rand exchange rate likely helped to mitigate these upward price pressures,” Kaplan said.