The outlook for the South African metals and engineering sector in 2025 is far from rosy as it faces a variety of headwinds, both locally and globally, according to the Seifsa State of the Metals and Engineering Sector Report 2025, which the Steel and Engineering Industries Federation of Southern Africa (Seifsa) released yesterday.
The report examines the state of Metals & Engineering (M&E) amid heightened geopolitical tension, low economic growth and a pedestrian execution of the necessary reforms needed to unlock economic growth.
According to the latest full-year estimates for 2024, the sector's production declined by 1.4%, while it employed 362 210 people, an increase of only 0.5% on 2023.
The numbers support the view of Seifsa chief operating officer, Tafadzwa Chibanguza, who said of the estimates: "Where there was improvement in the numbers, it was marginal to negligible."
Along with the fall in production, exports declined 6.3% and imports were down 6.9%. The sector's GDP expanded by just 1.1% and there was a marginal increase in capacity utilisation, though at 75.4% it remains below optimal capacity.
The sector's trade balance is still negative, though there was a slight improvement of about 8% on 2023. "Putting this statistic into context, this is because imports contracted more than exports did," Chibanguza said.
The heightened geopolitical tension is of particular concern because the sector exports about 46% of its output. "What goes on outside the country is extremely important and the foreign policy decisions taken by the country also have implications for external trade," Chibanguza said.
One such market, the US, accounts for 8.3%, or R33 billion, of the sector's exports. SA imports 6.7%, R40.6bn, of imports from the world's largest economy. In 2024 the sector had a trade deficit of about R8bn with the US.
"Trade with the US has historically had a negative trade balance, a function of the fact that we export more primary products while we import mainly high-value products like machinery. Over the past two decades, trade volumes have remained largely flat, while the value of trade has been influenced by the movements of the rand-dollar exchange rate." Chibanguza said.
Moreover, although the overall trade balance is in deficit, sub-sectors of namely non-ferrous metals and basic iron and steel individually have positive trade balances with the United States. The concern is that these are sectors that the United States is contemplating levying export taxes on, which will unfortunately have adverse effects on one of the positive contributions of that trade.
The Brics+countries are also worth some consideration and are important trading partners for SA, with China the dominant player in the bloc. China represents 83% of the metals and engineering sectors trade with that country. The balance of the eight countries, namely, Brazil, India, Russia, Ethiopia, Iran, Egypt, Saudi Arabia and the United Arab Emirates, collectively represent the balance of the trade. Therefore, for the metals and engineering sector, BRICS+ is largely a China play, although the trade deficit of the country was recorded at R188.4bn in 2024.
Closer to home, Africa accounts for the lion's share of the sector's exports - 41% of total exports. "Despite the challenges of intra-African trade, the continent still presents considerable opportunity for the sector. Private capital flows into the continent in the form of foreign direct investment are on the rise. Also, the continent's relatively young age demographic augurs well for the long-term growth of the African economy," Chibanguza said.
Another concern for the sector is carbon border adjustments. "There is considerable concern about the growing global tendency to lean on those instruments. Countries have responded to the EU's early introduction of the instrument, the Carbon Border Adjustment Mechanism (CBAM), in three ways: Those who oppose it, those who impose their own CBAM mechanisms, and those who are considering domestic emission trading systems (ETS) to capture carbon revenues locally and this is also considered as the first step toward developing their own CBAM mechanism," Chibanguza said.
About 36% of the sector's exports would be affected if all the countries that are currently imposing as well as those that are still considering ETS schemes all apply the CBAM mechanisms.
Chibanguza said: "There are also a number of domestic headwinds facing the sector, including persistently pedestrian economic growth, the fact that well-intended reforms by the state have not yet borne fruit, and widespread company closures, for example, the contemplation of the closure of ArcelorMittal South Africa's long steel business and the many other companies across the sector that face weak order books and strong import competition."
