UPDATE 5-South African engineering strike latest blow to sickly economy

Tue Jul 1, 2014 1:31pm EDT

* Strike costs economy 300 mln rand a day

* Employer body: pressure on car firm to leave S.Africa

* Union reverts to 15 pct demand, more than double inflation

* Former ANC ally has fallen out with ruling party

* Strike follows 5-month platinum stoppage (Adds employers' group saying risk U.S. firm may move out)

By Tiisetso Motsoeneng and Stella Mapenzauswa

JOHANNESBURG, July 1 (Reuters) - A U.S. car manufacturer was putting pressure on its South African unit to close due to labour troubles, an employers' body said on Tuesday as more than 220,000 engineering and metal workers launched a wage strike.

The boycott by NUMSA union, hot on the heels of a crippling five-month platinum stoppage, will cost the economy more than 300 million rand ($28 million) a day, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said.

As members of the National Union of Metalworkers of South Africa (NUMSA), the country's largest union, marched in major cities, its leaders withdrew a compromise 12 percent demand, upping it to an original 15 percent.

"Since the negotiations have collapsed we must revert back to our initial demand," spokesman Castro Ngobese said. Employers had 48 hours to respond and resume talks or face a prolonged boycott, he added.

South Africa is still catching its breath after the platinum strike that ended last week, but not before dragging the economy into a first quarter contraction.

Steel and metals manufacturing directly accounts for a fifth of the factory sector, and the economic impact of NUMSA's action will be heavier than the platinum strike, Barclays Africa said.

Each day that NUMSA members were away from work would cost South Africa the equivalent of 0.014 percent of its daily gross domestic product, SEIFSA chief executive Kaizer Nyatsumba said in a statement.

The chief of a major car maker based in South Africa had told Nyatsumba he was under "considerable pressure" from the firm's U.S. head office to move operations to a country with a more stable labour environment, SEIFSA said.

The latest strike is likely to hit the likes of construction and engineering firms Murray & Roberts and Aveng Ltd , both involved in building two crucial power stations for state-owned utility Eskom.

Murray & Roberts, which is helping build steam generators for both power stations, said no work was taking place at parts of the Kusile plant and only minimal work was being done at parts of the Medupi station.

South Africa's Labour Court had issued an order barring NUMSA from striking at Eskom's plants, spokesman Andrew Etzinger said.

AUTO PARTS MAKERS IN FIRING LINE

The utility expects to get the first unit of Medupi operating early next year but the strike could delay that.

Auto parts makers such as Dorbyl are also in the firing line, raising fears that a prolonged stoppage could affect production in the automotive sector.

As many as 20 companies supplying Toyota Motor Corp , Ford Motor, and General Motors are affected, said Ken Manners, vice president of the South African national automobile components industry body NAACAM.

"We have taken contingency plans, looking at stocking up on parts and there has been greater inter-company cooperation to try and create a buffer from the strike. The impact will really be felt if the strike is prolonged," he told Reuters.

A four-week strike in 2013 by more than 30,000 NUMSA members at major auto makers cost the industry around $2 billion.

NUMSA will also picket Eskom headquarters on Wednesday to press for wage increases. Eskom supplies almost all the electricity for Africa's most developed economy and is deemed an essential service, making strikes illegal.

But NUMSA General Secretary Irvin Jim hinted at the weekend that workers might defy the ban, saying the union might have "no option but to allow our members to liberate themselves".

Other companies that could be affected include Africa's biggest packaging firm, Nampak, electrical cables maker Reunert and unlisted steel maker Scaw Metals.

Scaw, one of South Africa's biggest steel makers, said no production was taking place at its plants.

"We are talking about probably 80 percent of employees not reporting for work," said head of human resources Bheka Khumalo.

The strike could result in revenue losses of about 33 million rand ($3.1 million) a week and 20,000 tonnes of output losses, Khumalo added.

The rand was slightly weaker while the share prices of companies affected had moved little in afternoon trade.

NUMSA, once a political ally of the ruling African National Congress, fell out with President Jacob Zuma's government over policy last year, limiting its ability to mediate. ($1 = 10.6645 South African Rand) (Additional reporting by Wendell Roelf in Cape Town; Editing by Ruth Pitchford)

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