Metals & Engineering Outlook PRESENTED BY: Henk Langenhoven & Taffie Chibanguza EC Department henk@seifsa.co.za Metals & Engineering Outlook March 2016

DISCLAIMER The views expressed in this presentation do not necessarily represent those of SEIFSA Associations and/or their member-companies

CONTENT Where are we; Metals & Engineering 2016? Profitability, higher production, capacity utilization & investment = growth INTERNATIONAL ECONOMIC ENVIRONMENT (50%) World Economic growth Commodities, instability and poor outlook (5 to 10 years) WILL THE ECONOMY BE STRONGER OR WEAKER? Estimates of potential and actual growth Outlook by National Treasury, SARB, Reuters DOMESTIC ECONOMIC SITUATION (50%) Dependence on Mining, Construction, Auto’s Costs, electricity Outlook 5 years SHORT-TERM OUTLOOK: 3 Years Production, Investment, Employment

DEMAND GROWTH OR DECLINE – THE DYNAMICS PROFITABILITY PRODUCTION UNDER- CAPACITY UTILISATION PROFITABILITY DEMAND PRODUCTION INVESTMENT GROWTH EMPLOYMENT +/- 50% +/- 50% MINING AUTO SECTOR CONSTRUCTION EXPORTS

Metals & Engineering Production

Below optimum CAPACITY Utilisation

Metals & Engineering Net Surplus Trends

Net Surpluses & Fixed Investment within the Sector

Production & Employment: Summary

Structural Adjustments taking place

DEMAND GROWTH OR DECLINE – THE DYNAMICS PROFITABILITY PRODUCTION UNDER- CAPACITY UTILISATION PROFITABILITY DEMAND PRODUCTION INVESTMENT GROWTH EMPLOYMENT +/- 50% +/- 50% MINING AUTO SECTOR CONSTRUCTION EXPORTS

Metals & Engineering Sector: Economy Dynamics

World Economic Growth: IMF

Commodity Prices: Economist Indices

Oversupply in International Steel Market

Commodity Prices: World Bank Forecast

HOW LONG ERE RECOVERY: COMMODITY CYCLES

Weaker Rand & Export Response

Growth Forecasts: Economy & Investment

Potential & Actual Economic Growth

Confidence & Political Constraints

The Fiscal Dilemma

GOVERNMENT BUDGET 2016/17 There is a need for a fundamental shift in the economy and economic policy. It is important therefore, to assess whether this budget supports (or gives enough support to) such a shift in direction. It is argued that the criteria for such an evaluation are threefold; did it go far enough to re-establish general confidence in government and the country again, are the fiscal measures credible in terms of domestic economic players AND, crucially international credit rating agencies, and are there indications of policy shifts in progress or to be expected that clarifies the way out of the malaise described above?

Metals & Engineering Sector: Economy Dynamics

Domestic Economic Sector Interdependence R620 bill VA = 17% of GDP Total Impact X 1,5 to 4 times to GDP 80% of Foreign Exchange Employ 1,7 million

Mining Production since 2000 (2010 = 100)

Auto Sector Performance

GFCF & Metals & Engineering Outlook

Metals & Engineering Future Growth Estimates

Confidence and Metals & Engineering Production

DEMAND FIVE YEAR OUTLOOK:THE MOST LIKELY OUTCOME PROFITABILITY PRODUCTION 2016 2018 2020 EXPORTS 50% MINING AUTO SECTOR CONSTRUCTION

Factory Gate Prices vs Basket of Input Costs

Electricity Costs Scenario: SARB

Remuneration/Value Add Ratio

Labour Costs & Strikes

Production Trends & Strikes

THANK YOU Henk Langenhoven PRESENTED BY: Henk Langenhoven & Taffie Chibanguza EC Department henk@seifsa.co.za Web: www.seifsa.co.za Tel: 0861 SEIFSA THANK YOU Henk Langenhoven