Metals industry would be ‘crippled’ by increase in electricity price

A massive increase in the price of electricity would further cripple the already bleeding South African economy in general and the metals and engineering sector in particular, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) has warned.

In its submission to the National Energy Regulator of South Africa (Nersa) on Eskom’s request for a further 25.3% electricity price increase for the year ending in March 2016, Seifsa urged the energy regulator to decline the power utility’s request, arguing that its approval would have “a debilitating effect on the economy”.

“The metals and engineering sector has been struggling for more than five years, owing to fierce import competition from Asian economies, industrial action, increasing production costs and power outages, among other factors. Therefore, the sector cannot be asked to bear the brunt of another electricity price hike,” Seifsa chief economist, Henk Langenhoven, said.

According to him, the stability of electricity supply and its costs were almost as crucial as its availability. Langenhoven said that, given the fact that the sector exported 60% of its production, international competitiveness was vital for its competitiveness and continued survival.

“Electricity is an absolutely essential input for the metals and engineering sector. Exorbitant price increases will have a crippling effect on an already declining sector,” he commented.

Langenhoven added that the erosion of profit margins was most strikingly shown by the patterns of electricity increases relative to merchants and producer prices, as well as the price movements as measured at the factory gate. “Factory gate” prices were measured by the intermediate production price index which, in the metals and engineering sector, represents 70% of the latter.