Pressure builds up as manufacturing growth slows

By Malini Hariharan

Government measures across Asia to ease inflationary pressure are finally yielding results. The latest economic indicators from China and India confirm a loss in manufacturing growth momentum which is likely to put further pressure on troubled polyolefin markets.

In China, the official Purchasing Managers Index (PMI), from the China Federation of Logistics, declined to 52.0 in May from 52.9 in April, the second consecutive month of decline.

An alternate index from HSBC and Markit fell to a 10-month low of 51.6 from 51.8.

Although a reading over 50 indicates economic expansion it is worth noting that the PMI is at a 9-month low.

The PMI’s input-prices subindex, an indicator of inflation pressures, declined to 60.3 from 66.2 but this is unlikely to push the government to relax its monetary policy.

The news from India is also not promising as GDP growth in January-March slowed to 7.8%, down from 8.3% recorded in the previous quarter.

The HSBC Markit PMI fell to 57.5 in May from 58.0 in April, weighed down by a slower expansion rate for new orders and a labour shortage.

And South Korean manufacturing growth also slowed to its slowest pace in six months, with HSBC’s PMI falling to 51.2 from 51.7.

Economists are optimistic that China will see a gradual correction rather than a hard landing. But credit policies across the region are likely to remain tight as inflation is still a concern for many countries.

This is of course bad news for polyolefin producers. Demand has been weak since the start of the year and chances of an early recovery are receding.

“The China market situation has worsened after Chinaplas; buyers in other Asian markets have also take a wait and watch position,” explained a producer from Northeast Asia. He was particularly pessimistic about the polypropylene (PP) market as buying ideas have steadily declined.

“The Middle East, Singapore and Thailand are supplying more but the critical factor is the demand slowdown in China,” he added.

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