Makers struggle in tough times

In less than a year, Theo Kasteliotis has seen sales at his rubber-making company plunge by 25 per cent.

In less than a year, Theo Kasteliotis has seen sales at his rubber-making company plunge by 25 per cent.

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.

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