South Africa’s seasonally adjusted Purchasing Managers’ Index (PMI) for the manufacturing industry moved lower for the third straight month, dropping by 3.1 points to 44.3 in May, mainly due to significant worsening in business activity and employment, while demand also remained weak, Kagiso Tiso Holdings, which sponsors the survey conducted by the Bureau for Economic Research (BER) and CIPS Africa, said in a statement.

The country’s manufacturing industry has thus remained below the 50 mark that separates expansion from contraction for the second straight month. Moreover, it continues to underperform developed economies, as PMI surveys showed improvements in the US and China, while the Eurozone, although dipping slightly, remained in the expansion zone above 50. According to Abdul Davids, Head of Research at Kagiso Asset Management, the “improving conditions in developed economies, as well as signs that Chinese factory activity is picking up, could bode well for South African manufacturers targeting the export market”, with the continued weakness in the local rand currency potentially providing further support to exporters.    

Among the headline PMI’s components, the business activity index dropped by 6.0 points to 42.5 in May. In line with the slowdown in activity, the employment index plunged by 7.2 points to a five-year low of 37.2, suggesting new job losses in the manufacturing sector after some stabilisation since Q3 2013.

The new sales orders index edged up by 1.3 points to 44.8, but remained below 50 for the third month in a row, as an ongoing for more than four months now strike in the platinum mining sector has cut orders to mine suppliers. The prolonged wage strikes shut mines operated by the world’s top three platinum producers - Anglo American Platinum (Amplats), Impala Platinum (Implats), and Lonmin – and forced the three companies to declare force majeure on a number of suppliers.

The price sub-index fell for a third straight month to 70.8, reaching a level by 25 points below the record high of 95.1 reached in February 2014. The decline does not necessarily mean lower output prices, but suggests a moderation in price increases, Davids comments. According to the latest available data from Statistics South Africa, producer prices rose 8.8% y/y in April, speeding up from an 8.2% y/y growth in February and an average rise of 6.0% in 2013.

The index measuring expected business conditions in six months’ time rose by 5.4 points to 59.6 and the PMI Leading Indicator (the ratio between new sales orders and inventories) also improved slightly, but remained below 1, implying that inventory levels were high compared to the volume of sales orders.

South Africa’s seasonally-adjusted whole economy Purchasing Managers’ Index (PMI) for May, compiled by Markit on behalf of HSBC, is due for release on June 4.