In its review of business conditions for the SA motor industry in the third quarter of 2004, Naamsa said local component (steel based) pricing and OEM production costs would rise steeply if Ispat Iscor hiked its prices by the expected levels next month.

In its review of business conditions for the SA motor industry in the third quarter of 2004, Naamsa said local component (steel based) pricing and OEM production costs would rise steeply if Ispat Iscor hiked its prices by the anticipated levels next month.


How long will it be before the steel price hikes are reflected in the prices of locally-manufactured vehicles or components?


Ispat Iscor Limited is reportedly planning major price increases effective from December 1 – 25 per cent in respect of hot rolled product, 24 per cent for cold rolled product and 12 per cent for electro galvanised steel.


“These increases, if implemented, will have a significant negative impact on local component (steel based) pricing and OEM production costs. The raw material price increases will also impact negatively on the industry’s export competitiveness,” Naamsa director Nico Vermeulen said.


The overall supply of local components remained satisfactory. Supply problems in respect of rubber parts and instances of steel availability problems were reported. The rand’s strength made it difficult for suppliers to compete with imported products on pricing. Rising labour, steel and fuel costs also continued to be cited as the biggest impact on local costs.


In general, the availability of imported raw materials, where applicable, remained good. The strength of the rand continued to have a positive effect on costs. However, global commodity and oil price increases affected costs. Local raw material price movements continued to mirror international pricing trends and availability was stable. However, instances of shortages of local steel were reported.


Meanwhile, more than 1 500 new jobs were generated by the South African motor-manufacturing industry in the first nine months of the year. Compared with the 31 708 positions at the end of June, aggregate industry employment levels increased by 705 jobs during the third quarter of 2004 to reach a total of 32 413 jobs. During the third quarter, the number of employees at four of the industry’s major manufacturers increased and the start of the year, 1 519 new positions were created in the industry (4,9 per cent improvement).


Various manufacturers operated on a multi-shift basis in the production of vehicles and components for domestic and export markets. The balance of the industry operated on a single production shift basis. However, a number of these manufacturers operate double shifts in selected areas, such as machining, press shops, paint shop operations and body shop.


Overall, the availability and supply of imported original equipment components in the third quarter remained satisfactory. Instances of supply problems from Brazil continued due to logistics and related problems. Prices from source remained stable and landed costs of imported components continued to benefit from the rand’s strength. However, increases in international freight rates remained a source of concern for manufacturers, Vermeulen added.


During the quarter, industry capacity utilisation levels in the light commercial vehicle manufacturing sector rose sharply and utilization levels in the other sectors remained relatively stable.


The influence of the strong rand and highly-competitive global market conditions contributed to lower the momentum of vehicle exports during the first nine months of 2004. From January to September, exports declined by 11 288 vehicles (13,3 per cent) compared with the industry’s performance during the first nine months of 2003.


Vehicle exports should receive a boost in 2005 on the back of new export programmes, Naamsa added.


Including the contribution of various importers currently reporting sales through Naamsa on an aggregate basis - the industry appeared on track to achieve all time record sales during 2004. The projected total 2004 aggregate market of about 458 000 should surpass the 1981 total reported sales of 453 541 units.


“A positive macro economic environment, strong business and consumer confidence, improved overall affordability as a result of declining new vehicle prices, in real terms, and relatively low interest rates – represent factors that should continue to support new vehicle sales during the balance of 2004 and well into 2005,” Vermeulen was quoted as saying.


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