The impact of load-shedding and other power outages on the productivity of the metals and engineering industries might soon cripple some local companies’ ability to fulfil export orders, according to employer federation the Steel and Engineering Industries Federation of Southern Africa (Seifsa).
Seifsa chief economist Henk Langenhoven says when companies lose their ability to produce at sustainable levels, it negatively influences export orders and the reputation of local manufacturers. “When overseas clients do not receive their orders, they will look to manufacturers in countries other than South Africa to renew contracts. International exposure for competing companies in other countries occurs in cycles of about three to five years, so local contracts will either be lost forever or for a minimum of three years,” he says, adding that some local companies export as much as 60% of their products.
Langenhoven refers to a statement made by the Department of Public Enterprises in Parliament on March 25, which states that the South African economy suffers a loss of between R20-billion and R80-billion a month as a result of load-shedding, which brings energy intensive industries to a standstill when it is implemented.
“The metals, engineering and manufacturing sectors produce about 15% of the country’s monthly production and these sectors are all energy intensive consumers of electricity, along with the mining sector,” he says.
The manufacturing and mining sectors stand to lose the most in production during an unplanned power outage, says Langenhoven. “These two sectors would typically incur a combined monthly loss of about R24-billion when load-shedding is implemented.”
Further, the mining and manufacturing sectors each contribute about 6% to the economy, but consume about 20% of the electricity available on the grid, he adds.
Langenhoven says another problem regarding electricity supply is that Eskom, owing to unplanned shutdowns and maintenance issues, often does not adhere to load-shedding schedules. “Unplanned outages have such severe consequences that a large manufacturer, such as steel manufacturer ArcelorMittal, has admitted to losing about R1.5-million an hour during unplanned outages.”
The severe consequences of unplanned outages is affecting the metals industry, such as foundries, the most, as the unexpected power outages lead to costly interruptions and forced machinery shutdown, in addition to the subsequent complex cleanup and sometimes lengthy restarting processes, says Langenhoven.
However, he notes that most companies can effectively work around a planned outage schedule and still be adequately productive by planning procedures that do not require electricity or can be accommodated using standby electrical supply such as equipment maintenance.
No Near-term Improvement
Seifsa does not envisage metals production improving in the near term to midterm.
“Even with our best predictions, Seifsa does not see any growth in the metals and engineering sectors this year. I am, however, confident that the sectors can maintain the same levels of production as those which have been achieved in 2014,” notes Langenhoven.
The metals and engineering industry grew in 2012 and started contracting in 2013, ending that year on a decline of 2%. In 2014, growth declined further, with an additional –2.8% in production at year-end. “So, the industry was already on a downward trend as from 2013, and now the decline is only being exacerbated by the electricity supply issues,” he says.
Preparing for Outages
Seifsa has found that many of its 2 000 members are installing standby power solutions, mostly diesel generators, to ensure minimal downtime during load-shedding or unexpected power outages.
But, says Langenhoven, several members install only enough standby power capacity to operate small operations, such as office work on computers, and not necessarily heavy industrial equipment such as furnaces and ovens. “For the bulk of the energy intensive members, it is completely unfeasible to install enough standby power capacity to operate an entire plant, owing to the sheer amount of electricity used by heavy industry, so they are left with no other option but to cease production during a power outage.”
Further, Seifsa also notes that of its energy intensive members, 35% of the average company’s normal investments have recently been in installing standby power solutions. This equates to a massive capital investment in a singular asset field.
“The kind of money spent on standby power solutions means that the capital cannot be spent on other areas of investment, such as new machinery or more floor space,” he says.
Moreover, all the members of the Energy Intensive User Group currently use less electricity than they were in 2007, which was the year in which the highest consumption was recorded before the 2008 electricity crisis unfolded, concludes Langenhoven.