South Africa factory mood dips

A gauge measuring sentiment among South African manufacturers slipped back into contractionary territory in June as customers delayed purchases in anticipation of prices declining after the US and Iran agreed to reopen the Strait of Hormuz.

Absa Group Ltd.’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, dipped to 47.3 from 50.8 in May, the Johannesburg-based lender said in an emailed statement on Wednesday. The survey was conducted after the US and Iran signed an interim deal to end hostilities and reopen the strait — a key waterway for a fifth of global oil and liquid natural gas shipments.

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The return of traffic through Hormuz has seen Brent crude prices fall below $73 per barrel from a peak of $118, close to levels they were at before the war erupted on Feb. 28.

“The decline reflects softer demand conditions across the manufacturing sector, although easing geopolitical tensions helped ease input cost pressures and improve manufacturers’ expectations for the months ahead,” Absa said.

New sales orders declined for a second straight month, dropping to 40.6 from 44.6 as respondents indicated that some purchases were delayed on expectations of lower prices after the decline in oil prices and fuel costs.

Though still under pressure, business activity improved to 45.6 from 43.5, while expected business conditions six months ahead also rose to 56.6 from 52.9. Manufacturers’ inventory levels fell to 49 from 55.8.

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“Purchasing managers appear to be delaying restocking, expecting further declines in input prices following the easing of tensions in the Middle East and lower Brent crude oil prices,” Absa said.

The purchasing price index fell 13.5 points to 71.3, reflecting easing input cost pressures.

Still, sustained weakness in demand and employment suggests that the sector is likely to remain under pressure in the near term, Absa cautioned.

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