Trading conditions up, but tough times ahead: report

Hagop Tchamkertenian, national manager for policy and government affairs at Printing Industries, says the December 2011 quarter represents the 16th consecutive quarter where reported industry outcomes came in below expected outcomes for a range of economic indicators. However, two economic indicators – overtime levels and selling prices – exceeded expectations.

On the critical indicator of capacity utilisation rates, the December 2011 quarter results shows that 62.7 per cent of respondents were operating at capacity/activity levels of 70 per cent or over, and outcome that is significantly lower than the 75.2 per cent proportion reported for the same period a year earlier.

Some 78.2 per cent of survey respondents ranked lack of orders as the primary barrier to increasing production levels, an outcome that is slightly higher than the 76.2 per cent proportion reported during December quarter 2010

According to Tchamkertenian, over the outlook period industry respondents are forecasting net balance improvements to take place in a number of key economic indicators. Based on these forecasts the March 2012 quarter is expected to yield the following results:

  • Very modest net balance increases in orders, production, sales and net profits;
  • Reduced employment and overtime levels;
  • Reduced availability of finance;
  • Increased availability of labour;
  • Recovery in selling prices;
  • Reduced stock levels;
  • Further net balance increases in all production cost categories – average wages, other labour costs, and average material costs; and
  • Increased number of outstanding debtors.

The outlook for general business expectations over the next six months remains largely favourable given respondents from New South Wales, South Australia, Victoria and Queensland are forecasting improvements, while respondents from only two states – Western Australia and Tasmania – are expecting deterioration.

Most sectors are forecasting improvements or no change to take place in general business conditions during the next six months, while Labels, Folding Cartons, Books, Magazines, Periodicals and Newspapers and Trade Binding are forecasting deterioration in business conditions. Over the outlook period the most optimistic sectors are Other Packaging and Paper Converting and Digital Printing.

Relatively higher capacity utilisation/activity levels were reported by the Paper Merchants, Other Packaging and Paper Converting, Digital Printing, and Graphic Reproduction sectors. Considerable levels of excess capacity were reported in General Promotional and Commercial, Cheques and Securities, Business Forms and Continuous Stationery, Trade Binding, Folding Cartons, Graphic Arts Machinery and Supplies, Screen Printing and Labels sectors.

Tchamkertenian says that industry forecasts for a range of key indicators are barely positive and hence remain extremely vulnerable to changing economic circumstances.

He says, “The latest Printing Industry Trends Report indicates that cost pressures are once again resurfacing within the industry especially in the area of material costs which will necessitate appropriate managerial response.

“With the industry having a poor record in recent years of fulfilling its expectations, last week’s decision by the Reserve Bank of Australia not to provide some monetary stimulus may now undermine those very modest industry forecasts going into the March 2012 quarter.”

According to Tchamkertenian given that the December quarter is normally associated with robust industry activity, the low capacity utilisation rates reported during the quarter confirm that underlying economic conditions continue to remain soft.

He adds, “I think increasingly what we are witnessing is the operation of a three-speed economy. You have fragmented growth along broad industry lines comprising of resources, manufacturing and services. And unfortunately there is not much being done to manage this uneven growth profile.”

Printing Industries notes that it is fully aware about the economic challenges facing the printing and associated industries and is working on a number of key initiatives such as the “industry transformation model”, the transition to cleaner printing technology workshops, and the group buying arrangements that all aim to foster a more sustainable and commercially viable industry.

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