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Orders down at home and overseas

Oil price slump leaves firms ‘working on the margin’

scottish industryScottish manufacturers are “working on the margin” as a result of the oil price slump and the strong pound, according to trade body Scottish Engineering.

Orders for components and equipment have “dropped significantly” at home and overseas amid concerns that the oil price will remain low for some time, it says.

In its quarterly review, the organisation says the slowdown in activity around the oil and gas sector is a “significant issue” for many of its members.

Bryan Buchan, chief executive, says the relatively low price of crude oil looks like being the norm for some time, with a number of global forces at play including a resurgence in US shale production, the continued slowdown of growth in China and the imminent re-entry of Iran to the world market.

“This is a significant issue for many of our member companies, who are not directly involved in extraction on the UKCS, but who over the years have developed expertise in manufacture of components and equipment for the major players who are now radically curtailing their activities,” he says.

“We are seeing the negative impact of a strong pound for our exporters, but also benefitting from strength against the euro for those companies investing in capital equipment sourced from the continent.

“The overall effect is negative, as reflected in the responses to our Quarterly Review, with many having to trade ‘on the margin’ in order to absorb fixed overheads.”

He adds that the introduction of the living wage will give many companies concerns on the inflationary effects of preserving differentials in hourly rates between skilled and unskilled staff.

He is critical of moving the investment allowance to a permanent minimum of £200,000., saying it seems “somewhat derogatory”, given that the limit is £500,000 until the year end.

“If the Government is serious about addressing productivity in our sector, then stimulation of creative destruction needs to be backed up by a supportive tax regime,” he say.

Countering the overall negativity, he says companies not directly affected by the oil situation are doing extremely well.

 

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