The Steel and Engineering Industries Federation of Southern Africa (Seifsa) is warning that absent a sustained recovery in domestic demand there is a risk that South Africa’s persistently weak production, investment and capacity utilisation outcomes could transition from a cyclical to a structural trend.

In his ‘State of the Metals and Engineering Sector 2025’ presentation, COO Tafadzwa Chibanguza highlighted that following the initial upturn from the Covid shock, production had since failed to recover to levels in line with the sector’s long-run average.

Production fell by 1.4% last year and has shrunk by 1.3% on a compound annual growth rate basis since its 2007/8 peak.

Likewise, average capacity utilisation of 75.4% last year was well below the “optimal” level of 85%, with all subsectors recording sub-optimal outcomes.

Chibanguza also stressed that the 6.2% rise in the sector’s gross fixed capital formation last year was deceptive, as it was directed overwhelmingly towards sustaining rather than growth capital – an investment trend that had potentially deleterious implications for the long-term sustainability of the sector as a whole, as well as its various subsectors.

The subsectors tracked by Seifsa include basic iron and steel, plastic products, non-ferrous metal products, structural metal products, other fabricated metal products, general and special purpose machinery, household appliances, electrical machinery and other transport equipment.

The 1.4% decline in production in 2024 had been driven primarily by a contraction in downstream activities relating to fabricated metal products, as well as general and special purpose machinery, while the potential closure of ArcelorMittal South Africa’s longs business was creating uncertainty for the upstream outlook in 2025.

Chibanguza said the domestic market was insufficient to sustain the sector, which currently exported more than 45% of its production.

However, the rising geopolitical temperature and the threat of trade wars meant that its immediate fortunes would hinge largely on there being a sustained recovery in economic growth, together with an accelerated implementation of economic reform.

The export headwinds could be further strengthened should the US withdraw South Africa’s eligibility for the preferential market access granted under the Africa Growth and Opportunity Act and if its products fell victim to the reciprocal tariffs that President Donald Trump had proposed.

Last year, 12% of the South African metals and engineering sector’s exports, or R32.9-billion, flowed to the US, while South Africa imported R40.6-billion-worth of American products in the same category, leaving a R7.7-billion trade balance in favour of the US.

However, South Africa’s exports to the US are primarily in the form of non-ferrous metal products and basic iron and steel products, both areas that are poised to be subjected to higher tariffs.

Chibanguza also does not see much scope to redirect product to other markets, including China, whose exports to South Africa continue to dramatically outpace imports in both pace and scale.

While South Africa exported R43-billion to China last year, the country imported R231-billion-worth of Chinese metals and engineering products, leaving a negative trade balance of R188-billion.

In Europe, meanwhile, Seifsa was concerned about the sustained competitiveness of South African products in light of the planned phased introduction of the carbon border adjustment mechanism.

Under these circumstances, Chibanguza said it was crucial that the domestic market did most of the “heavy lifting” by reversing both the protracted period of weak demand, as well as the falling metals-intensity of the country’s overall GDP.

To do so, it was vital that there was delivery on the infrastructure promises being made, including delivery through public-private partnerships in key areas such as electricity, water and transport.

“The [downward] trends we are observing in the metals and engineering sector are indicative of what happens when commitments to reforms are not followed up by action, or where action is pedestrian,” Chibanguza said.

“In times of turbulent global dynamics, the domestic market has a crucial role to play in cushioning the local industry,” he added.