South African factory mood stays sour as input costs jump

The mood and the math

Factory sentiment remained subdued for a fifth straight month, with Absa's PMI nudging up to 49.6 in October after September was revised to 48.7. Below-50 readings mean activity is shrinking, and the index has been under that mark since June.

Absa Group Ltd.'s PMI, compiled by the Bureau for Economic Research, underwent a routine yearly refresh of the seasonal adjustment parameters applied to the headline index and its components.

Costs are biting

Record gasoline and diesel prices, tied to energy turmoil triggered by conflicts in Ukraine and Iran, together with a rand that has weakened by almost 4% against the dollar since September, intensified cost pressures. That squeeze raised imported-input costs and helped push the purchasing-price index up to 73.7 in October from 71.1.

The gloom bled into the outlook. The measure of expected business conditions six months ahead slipped to 51.7 from 55.3. "While still marginally above the neutral mark, the decline suggests that purchasing managers remain cautious about the outlook," Absa said. "Respondents highlighted uncertainty surrounding the upcoming local-government elections, persistent logistics and infrastructure constraints, and pressure on domestic demand." The elections are scheduled for Wednesday.

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Politics, logistics and the trade worry

There is a trade overhang too. According to Jee-A van der Linde, a senior economist at Oxford Economics, manufacturers would face added strain if South Africa were to forfeit its preferential trade pact with the US, since export lines that benefit from it would battle to redirect volumes to other markets. "At the same time, the domestic market is coming under increasing pressure from cheap Chinese imports, especially in the automobile industry."

Fuel levy relief and what it means for investors

There is a modest offset. Manufacturers are set to receive some relief thanks to a temporary fuel-levy cut announced in last month's Medium-Term Budget Policy Statement. From Nov. 4 through Dec. 1, the levy is cut by 3 rand on each liter of diesel and by 1.50 rand on gasoline. The concession then runs through Jan. 5 at reduced levels, paring the cuts to 1.50 rand for diesel and 1 rand for gasoline.

Why it matters: a soft PMI and higher input costs squeeze margins for manufacturers exposed to fuel and imported components, while the levy break offers a short-lived cushion. Export-reliant names also carry headline risk tied to access to US trade preferences.

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