Chinese factory activity slows slightly in May due to soaring raw material costs – official PMI

A worker wearing a face mask works on a production line for manufacturing steel rims for bicycles in a factory, as the country is hit by the outbreak of the novel coronavirus, in Hangzhou, Zhejiang province, China on 2 March 2020. China Daily via REUTERS

Activity at Chinese factories slowed slightly in May, as raw material costs rose at their fastest pace in more than a decade, weighing on output for small, export-oriented companies.

The official manufacturing purchasing manager index (PMI) edged down to 51.0 in May, against analysts’ expectations that it would remain unchanged from April at 51.1, according to data from the National Bureau of Statistics (NBS) Monday.

The official PMI, which focuses largely on large state-owned companies, sits above the 50 point mark separating growth from contraction for more than a year.

As China’s economy has largely shaken off the gloom of the COVID-19 pandemic, officials warn that the foundations for the recovery are not yet secure amid issues such as rising raw material costs and the pandemic situation in China. abroad.

Iris Pang, chief Greater China economist at ING, said in a note that “external demand is likely to remain stable” as economic recoveries in the United States and parts of Europe are likely “to be” offset by the increase in Covid cases in ASEAN, which is China’s largest trading partner. “

Some emerging cases of COVID-19 in China’s Guangdong Province, where most electronics factories are located, persistent shortages of semiconductor chips and high commodity prices are also among the challenges producers face. , she added. Read more

A sub-index of new export orders stood at 48.3 in May, down from 50.4 in the previous month and fell sharply.

A commodity cost sub-index in the official PMI stood at 72.8 in May, down from 66.9 in April and reaching the highest level since 2010.

The prices of commodities such as coal, steel, iron ore and copper have surged this year, fueled by the recovery in demand after the lockdown and reduced liquidity globally.

Chinese policymakers have repeatedly expressed concern over rising commodity prices in recent weeks and called for tighter supply and demand management and a crackdown on “malicious speculation.” Read more

“We expect commodity prices to stabilize in the coming months,” said Louis Kuijs, head of the Asian economy at Oxford Economics.

Tighter monitoring of the spot and futures markets and an increased global supply of commodities in the second half of 2021 should help reduce cost pressures on Chinese companies, he said.

In addition to soaring commodity prices, Chinese factories are grappling with high shipping costs and an appreciating Chinese currency. Some are able to pass the higher costs on to overseas customers, while some small businesses stop taking orders to avoid losses. Read more

A sub-index of small business activity stood at 48.8 in May, down sharply from 50.8 in April.

Companies continued to lay off workers and at a faster rate, according to official data.

In the service sector, activity grew for the 15th consecutive month, and at a faster pace, the non-manufacturing PMI index rising to 55.2 against 54.9 the previous month.

China posted record growth of 18.3% in the first quarter, but analysts expect the strong expansion to slow down later this year. Read more

Our Standards: Thomson Reuters Trust Principles.

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