The Aussie dollar makes its mark on local manufacturers

The Aussie dollar is soaring and many industries, including metal manufacturers, are feeling the pinch.

Manufacturing seems to be the hardest hit, however, with overall activity declining in March for the sixth time in seven months due to increasing costs of key raw materials. Overall demand waned substantially as a result, and the trend looks set to continue for some time. Manufacturing activity was also slow in April.

Automotive, footwear, food and beverages

Across many areas of the Manufacturing division during March, the rise in costs was greater than the increase in final prices received for goods. This translated to pressure on profit margins and some industries are slashing jobs as a result.

Ford Australia is set to shed 240 factory workers’ jobs from July, cutting production from 260 to 209 vehicles per day. The company has been caught between model launches.

During this delicate phase of the production cycle, competitive pressure from the high Australian dollar has given rival imported vehicles a significant price advantage.

Car manufacturers are just one example of the division’s trouble over a high dollar.

Manufacturers of footwear, food and beverages, textiles and fabricated metals are all experiencing equally weak conditions, as new orders fall. Another example is the light and lamp manufacturing industry. Ongoing strength of the Australian dollar reduces the cost of imported electrical lights.

Competition and import

The industry’s revenue will be affected by pricing pressures in some segments, mainly because of import competition from countries where labour costs are low.

Coupled with these trends, continued strength of the Australian dollar will affect the competitiveness of some firms, particularly those manufacturing commodity products and targeting export markets.

Imports for the milk and cream processing industry are forecast to increase over the next five years, largely driven by the strong dollar. In the magazine publishing industry, if a strong Australian dollar is sustained, downward pressure will be placed on local paper.

This would partially or fully offset the effect of higher US dollar paper prices. However, in the event that the Australian dollar price of paper falls, some advertisers may be attracted to alternative advertising media like direct mail and catalogues.

For spirit manufacturers, the strong Australian dollar could harm local producers by making it cheaper for wholesalers and retailers to import bottled spirits.

Rising dollar

Over the next five years, the rising dollar should make imported bottled spirits cheaper, while packaging, marketing and labour costs are all expected to rise.

Mining industries continue to expand to meet booming demand from China. However, as the dollar continues upward, export competitiveness is intensifying.

Despite all the talk of an escalating dollar and falling manufacturing activity, some say that the manufacturing division’s resilience should not be underestimated.

These industries may be struggling under the rise, but if the past is any indication that they will pull through, then all should eventually be well.

After a range of negative factors occurring in the second half of 2010, manufacturing conditions did recover, if only for a short time.

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