Production decline and weak demand weigh on metals sector outlook

The South African Metals and Engineering Sector faces a difficult 2026. A downward trend in post-COVID-19 recovery has compounded legacy lags in declining production, increased underutilised production capacity, and persistently declining demand, according to the Steel and Engineering Industry Federation of South Africa (SEIFSA) State of the Metals and Engineering Sector Report 2026.

The report assesses the state of the Metals and Engineering (M&E) sector as it confronts a range of risks, including escalating electricity prices, deteriorating municipal services, and intensifying geopolitical pressures.

According to the latest full-year estimates for 2025, the sector’s production declined by 1.6% (after a 1.4% decrease in 2024), while employment decreased by 0.43%, indicating continued contraction in the sector. The sector’s contribution to GDP remains approximately 5%, underscoring its systemic importance to the domestic economy.

“We are operating in a structurally punitive environment for two principal reasons. Globally, countries are turning inward through aggressive tariff and non-tariff measures, constraining export potential. Domestically, fiscal headroom has narrowed significantly, limiting the scale of state-led infrastructure expansion,” said SEIFSA CEO, Tafadzwa Chibanguza.

He said production in 2025 declined at an aggregate rate of 1.6%, continuing a persistent downward trajectory observed since 2008, which has further deteriorated in the post-COVID-19 period. For the most part, production has moved sideways, but with a consistent negative tilt.

Over the 15-year period, production has been decreasing at an average rate of 1.7%. Most alarmingly, the report said, in the upstream segment of basic alloy steel — an indication of mounting pressure on steel mills — the production decline for 2025 is set at 12%.

Chibanguza said employment numbers have also been in continuous decline, with the 2025 decrease of 0.5% amounting to just under 3,000 jobs. He said this must be seen in the context of a 15-year compounding decline, bringing total employment down to about 215,000 jobs.

He added that employment figures have been declining since 2008 at a yearly average of about 2%, resulting in a cumulative loss over the period. In 2025, the 0.5% decline amounted to approximately 3,000 jobs.

He said capacity utilisation has been a significant concern, with the post-COVID-19 trend continuing to deteriorate alarmingly, falling from the optimal 85% level to about 74%.

“The alarming and varying capacity utilisation in the basic iron and steel upstream segment at 53% is a huge concern. The fourth-quarter capacity under-utilisation figures have implications across the entire value chain. The current capacity level is the same as during the 2008/09 crisis. We are effectively in crisis times; there is no business as usual. This trend is persistently deteriorating because of the poor operating environment,” Chibanguza said.

The report cited a number of material risks that require close monitoring in the new year, including that while electricity supply has stabilised and load-shedding has largely abated, escalating electricity tariffs have emerged as the dominant cost risk.

Others include:

• The finalisation and operationalisation of the public procurement framework, which is critical to unlocking infrastructure-led demand.

• Reform activity in energy and logistics, which is beginning to yield measurable improvements; however, this progress has not yet translated into sustained order book depth for firms in the sector.

• Deteriorating municipal service delivery, forcing companies to carry the cost of these services themselves.

• Intensifying geopolitical pressure as industrial policy becomes the global norm. Heightened industrial policy in major economies, particularly the United States and Europe, raises the risk of trade friction and contagion effects across global value chains.

• As public-private partnerships (PPPs) gain momentum, there is a risk that projects may prioritise financial efficiency without sufficiently strengthening domestic productive capacity.

One of the biggest challenges remains the lack of demand.

BUSINESS REPORT