Makers struggle in tough times
The manager at Melbourne-based Ormiston Rubber said the strong Australian dollar meant clients were placing larger orders with cheaper overseas manufacturers, while a fall in activity in sectors such as mining was reducing sales.
"A lot of people are just surviving ... and doing the bare minimum. They're not holding stock or doing anything extra," Mr Kasteliotis said. "It flows on, the next person does that and their customer does that. It's very negative out there."
Mr Kasteliotis' experience could be seen as a reflection of the industry-wide struggles Australian manufacturers are facing as they battle the high dollar, competition from imports, soaring energy costs and weak domestic confidence.
The Australian Industry Group's Australian Performance of Manufacturing Index fell to four-year lows in April, dropping 7.7 points to 36.7, its lowest since May 2009. Readings below 50 represent a contraction in the sector.
All manufacturing sub-sectors except wood and paper production shrank, with the food, beverage and tobacco products, printing and recorded media, non-metallic mineral products, metal products, and machinery and equipment sectors hardest hit. Ai Group's chief executive Innes Willox said the steep drop was "deeply concerning".
"The strength of the Australian dollar is a major burden on domestic producers and our rising unit labour costs and high energy prices are adding to pressures," he said on Wednesday.
"Together they are undermining competitiveness in both the local market and in export markets and they are proving a major barrier to inbound investment in domestic manufacturing facilities, with Australia now ranking among the highest-cost manufacturing centres internationally."
Westpac senior economist Andrew Hanlan said although a reading below 50 was expected, the 37 points result was a surprise, and followed falls in other March business surveys such as the Westpac-ACCI actual composite index and the NAB survey of business conditions.
"Each survey suggests that current economic conditions are sub-trend," Mr Hanlan said.
The Ai Group survey of 200 businesses also found that capacity utilisation fell 2.4 points to 68.6, while exports contracted for the ninth straight month to their lowest level since the index started in 2004.
New orders and employment sub-indexes slipped to levels not seen since May 2009, while deliveries continued their year-long contraction. Inventories fell significantly in the food, beverage and tobacco products, textiles, clothing, printed and recorded media and metal products sectors.
In a rare spot of positivity in the data, average wages continued to grow, but more moderately, with the sub-index sliding to a seasonally adjusted 57 points.
Mr Willox called on the federal government to provide support to manufacturers by helping to lift investment and innovation in the sector, as well as building management and workforce capabilities.
Frequently Asked Questions about this Article…
Australian manufacturing is contracting: the Australian Industry Group's Performance of Manufacturing Index fell to 36.7 in April (down 7.7 points), a four‑year low and well below the 50 mark that separates expansion from contraction. For investors, that signals weaker sales, tighter margins and greater sector risk — factors that can affect listed manufacturers, suppliers and related industrial stocks.
Ormiston Rubber, a Melbourne rubber maker, reported sales have plunged about 25% in less than a year. The company cited a strong Australian dollar prompting clients to order more from cheaper overseas manufacturers, and a fall in activity in sectors like mining that reduced domestic demand.
The Australian Performance of Manufacturing Index (APOMI) uses 50 as the break point: readings below 50 indicate sector contraction. April's reading of 36.7 shows a clear downturn in manufacturing activity, which can translate into lower revenues, fewer new orders and possible pressure on share prices of manufacturing companies.
All manufacturing sub-sectors except wood and paper production shrank in the survey. The hardest hit were food, beverage and tobacco products; printing and recorded media; non‑metallic mineral products; metal products; and machinery and equipment — areas investors should watch for weak earnings or operational stress.
The Ai Group survey showed exports contracted for the ninth straight month to their lowest level since the index began, and capacity utilisation dropped 2.4 points to 68.6. That combination points to weaker global demand, underused factory capacity and potential margin pressure for manufacturers with export exposure.
Survey commentary flagged the strong Australian dollar as a major burden because it makes imports cheaper and local goods less competitive. Rising unit labour costs and high energy prices are also squeezing margins and eroding competitiveness, which the Ai Group says is deterring inbound investment in domestic manufacturing facilities.
Yes — average wages continued to grow, albeit more moderately, with the wages sub‑index at a seasonally adjusted 57 points. Also, wood and paper production did not shrink in the survey. These limited positives suggest pockets of resilience even amid broader weakness.
Ai Group chief executive Innes Willox called on the federal government to help lift investment and innovation in the sector and to build management and workforce capabilities. The report suggests targeted policy support could help address competitiveness challenges facing domestic manufacturers.
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