Credit crunch slams local industry trends

The ongoing turmoil in the financial markets is impacting heavily on the local printing and associated industries.

The September 2008 quarter Printing Industry Trends Report shows the credit crunch has severely impacted on the industry with respondents reporting the worst outcome for finance availability since the June 1989 quarter.  This has led to a reported net balance decrease in investment in plant and machinery during the past six months.

At a time when cost pressure are steadily increasing selling prices have fallen again. The September quarter shows reported material cost pressures were not only significantly more intense than for the same period 12 months earlier, but they have now reached their highest level since December quarter 2000.

According to Hagop Tchamkertenian, manager for policy and government affairs, Printing Industries, the difficult trading conditions experienced by the printing and associated industries are expected to continue for the remainder of the year and quite possibly for the first half of calendar year 2009. Actual outcomes for a range of key economic indicators such as orders, production, sales, selling prices, net profits, employment and overtime levels were below expected outcomes.

Important September 2008 quarter developments reported by the survey respondents included:
* Reduced orders and production;
* Reduced sales and net profits;
* Reduced employment and overtime levels;
* Modest net balance reductions in investment in plant and machinery during the past six months;
* Finance reported harder to obtain for the 3rd consecutive quarter;
* Labour availability was reported to have deteriorated for the 17th  consecutive quarter;
* Increases reported across all production cost categories;
* Selling prices reported to have fallen for the 31st consecutive quarter;
* Reduced levels of raw material stocks; and
* Increased numbers of outstanding debtors.

When it came to capacity utilisation rates, the September 2008 quarter results show that 61.7 per cent of respondents were operating at capacity levels of 70.0 per cent or over, up from the 56.4 per cent proportion reported last quarter but down from the 64.0 per cent proportion reported this time last year.

86.0 per cent of survey respondents ranked lack of orders as the primary barrier to increasing production levels, an outcome that is marginally lower than the 86.4 per cent proportion reported during the June 2008 quarter but higher than the 79.8 per cent proportion reported during September 2007 quarter.

Hagop said that over the outlook period industry respondents are forecasting modest net balance improvements to take place in a number of key economic indicators. Based on these forecasts the December 2008 quarter is expected to yield the following results:
* Net balance increases in orders, production, sales and net profits;
* Further falls in selling prices;
* Reduced availability of finance and labour;
* Reduced employment and overtime levels;
* Further increases in all production cost categories - average wages, other labour costs, and average material costs;
* Reduced stock levels; and
* Increased number of outstanding debtors.

Over the next six months (December 2008 and March 2009 quarters) the survey respondents expect:
* Reduced investment activity in plant and machinery; and
* Reduced investment activity in buildings.

The outlook for general business expectations over the next six months remains mixed with respondents from only three states: Victoria, South Australia and Tasmania expecting improvements.
 
The most optimistic state is Tasmania with a net balance of 14.3 per cent followed by Victoria with a net balance of 10.7 per cent.

Respondents from Queensland reported the highest utilisation rates with 86.7 per cent of respondents operating at capacity utilisation levels of 70 per cent or more, followed by respondents from South Australia (76.9 per cent), Tasmania (57.2 per cent) Victoria (57.1 per cent), New South Wales (53.1 per cent), and Western Australia (50.0 per cent).

The September 2008 quarter report shows capacity utilisation/activity rates were reported as being higher in the Books, Magazines, Periodicals and Newspapers, Quick Printing and General Promotional and Commercial sectors.

Considerable levels of excess capacity seem to exist in the Other Packaging and Paper Converting, Screen Printing, Trade Binding, Labels and Graphic Reproduction sectors.

Most product sectors are expecting either no change or for improvements to take place in general business conditions during December 2008 and March 2009 quarters, while four sectors comprising of Screen Printing, General Promotional and Commercial, Folding Cartons and Books, Magazines, Periodicals and Newspapers are forecasting deterioration.

The product sectors are either forecasting reduced investment or no change in plant and machinery over the next six months, while the Labels sector is the sole sector forecasting increased investments.

"Given the deteriorating consumer and business sentiment, the industry will be battling to fulfil some of the forecasts for the outlook period," he said.

Hagop believes that despite the persistence of inflationary pressures the next monetary policy move by the Reserve Bank is likely to be a downward one.

"Hopefully further reductions in official and non-official interest rates combined with the Federal Government's recently announced fiscal stimulus package will start to have a positive impact on consumer sentiment," he finished. 

Any one interested in obtaining a copy of the full survey report can contact Printing Industries. Hard copies of the report cost $20 for Printing Industries members and $40 for non-members. Electronic copies of the report are also available on request and cost $20 for members and $40 for non-members. Annual subscription to Printing Industry Trends Report is $60 for members and $120 for non-members.