The Australian Industry Group-PricewaterhouseCoopers Performance of Manufacturing Index (PMI) contracted 1.0 point to 42.3 in September, its 11th fall in the past 13 months.

A reading below 50 indicates a contraction in activity while anything above 50 suggests expansion.

Exports dropped 3.9 percent in the month, with production, employment, selling prices and average wages also lower, as inventories piled up and input prices edged higher, squeezing profit margins.

Manufacturing unions said the sector was facing a "crisis" due to the strong Australian dollar, soft domestic demand and steep competition from cheaper offshore products -- especially from Asia.

Canberra has appointed a special envoy to help the troubled industry sector secure more contracts from major companies such as BHP Billiton, Rio Tinto and Woodside Petroleum, who all reportedly favour Chinese products.

Paul Howes, head of the Australian Workers' Union, said the government must redouble its efforts to support manufacturers, including "a diplomatic effort calling on China to float their currency" amid the mining boom.

"The mining sector can never hope to replace jobs lost in manufacturing over the course of the boom," said Howes, calling for "every effort to stem international currency manipulation".

"We can't just bury our heads in the sand, we've got to face the reality of the manufacturing crisis that is before us," he added.

Trade Minister Craig Emerson said Canberra would continue to press Beijing on greater currency flexibility but he ultimately believed greater trade liberalisation was most important.

"(Free trade) does possess a certain magic; that is out of specialisation you can get more jobs and more prosperity," Emerson told ABC Radio.

"Whereas out of currency wars and competition you are really arguing over the division of a fixed number of jobs."

Australia's commodities boom helped it stave off recession during the global downturn but it has also led to lopsided growth, with industries such as tourism, manufacturing and education suffering as the local dollar surged.

BlueScope Steel, Australia's largest steelmaker by output, closed a blast furnace, abandoned its export business and sacked 1,000 staff in August due to the Aussie's long run above parity with the greenback.