FocusChina PMI falls to 7-month low in June; further slowdown seen

02 July 2012 06:32  [Source: ICIS news]

By Dolly Wu

SINGAPORE (ICIS)--China's Purchasing Managers Index (PMI) fell to a seven-month low of 50.2% in June, indicating that manufacturing activities continued to weaken, with a further slowdown expected in the next two months as external demand remains poor, analysts said on Monday.

June PMI showed a 0.2 percentage-point drop from May, continuing the decline registered in the previous month, according to the China Federation of Logistics & Purchasing, which released the official data on 1 July.

The number was barely above the threshold of 50%, which indicates expansion.

China’s new order sub-index declined to 49.2% in June, lower by 0.6 percentage points from May, while the production index showed a 52% reading, down by 0.9 percentage points from May, according to the CFLP data.

Demand recovery for most petrochemicals in the region is closely tied to how the Chinese manufacturing fares as the country is a major regional importer of raw materials.

The new orders index for the chemical industry last month had a reading below 50%, indicating a contraction, said Wei Tao, a chemical analyst from Guotai Junan Securities.

“This means the [domestic petrochemical] capacity is still in surplus and the demand is not good enough. Most market players are buying as needed because they are cautious on purchasing or ordering large volumes to avoid potential loss,” said Wei.

Most petrochemical producers in China are either cutting run rates of shutting production at their plants or as power consumption by industries are being restricted during the summer months.

Meawnwhile, exports orders for Chinese goods continued to slow down, as the country’s major markets in the West have yet to find a solid economic footing. The eurozone is still grappling with its debt crisis, while the US economy is still in a fragile state.

China’s export index in the June PMI declined 2.9 percentage points to 47.5% in June from May, while its import index also declined 1.6 percentage points to 46.5%, according to CFLP data.

Its purchasing index, meanwhile, fell by 3.6 percentage points month on month to 41.2% in June, based on the data.

Market players in China are likely to remain cautious in July and August amid the volatility in energy prices.

China’s latest poor economic data sent crude prices slumping on Monday, on concerns that energy consumption will further weaken. China ranks as the world’s second biggest energy consumer.

At noon, US crude was down 95 cents at $84.01/bbl, while Brent crude fell by $1.41 to $96.39/bbl.

The June PMI indicated that the Chinese economy is still under pressure but the slowdown may be easing soon, said Zhang Liqun, an analyst at the research and development centre of China’s State Council.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Dolly Wu
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