China industries face strong headwinds after March recovery

Nurluqman Suratman

02-Apr-2020

SINGAPORE (ICIS)–China’s manufacturing sector is facing strong headwinds despite pulling a sharp recovery in March as the global economy has plunged into a recession.

More factories re-opened in March following widespread shutdowns in the previous month as most Chinese cities emerged from lockdowns imposed to contain the deadly coronavirus pandemic.

But weak demand will prevent them from running at optimal capacity.

China’s official manufacturing purchasing managers’ index (PMI) for March rose to 52.0 – the highest reading since September 2017 – from a record low of 35.7 in February 2020.

A PMI figure above 50 indicates an expansion in the manufacturing sector.

The new export orders index rose in March to 46.4 but still well below the expansion threshold, indicating slumping external demand.

China’s official non-manufacturing PMI also rebounded to 52.3 in March from 29.6 in February.

“We view the jump in both the manufacturing and non-manufacturing PMIs in March as a one-off gain from the very low comparison base in February. We see two main headwinds – a second wave of infections and slumping external demand,” Japan’s Nomura Global Markets Research said.

Caixin’s general manufacturing PMI published on Wednesday rose from a record low of 40.3 in February to 50.1 in March.

The Chinese media group’s PMI reading is based on a survey of about 500 private and state-owned enterprises in China.

Most domestic factories did not resume production until the second half of February after an extended Lunar New Year holiday (24 January-2 February). Upon resumption of operations, they ran at reduced rates in view of the rapid spread of the deadly coronavirus.

Most of China’s end-products are meant for exports, demand for which could continue to dissipate now that the global economy is sure to fall into a recession.

“The initial euphoria from the return to a semblance of normality in China is likely to ease as other major economies take a bigger hit from the pandemic due to factors including lockdowns of cities,” Singapore-based UOB Global Economics & Market Research said.

“This could cause China’s PMIs to moderate lower in the months ahead until the pandemic tops out globally,” it said.

As of 1 April, the total novel coronavirus infections stood at more than 820,000 globally, with around 82,000 confirmed cases in China.

Production in the world’s second-biggest economy rose slightly in March but the pandemic continued to weigh on demand and disrupt supply chains, with total new work falling for the second month running and delivery times lengthening sharply, Caixin said.

Furthermore, new export work fell during the month as nations around the world grapple with containing the spread of the virus, it said.

“The worsening situation overseas is another blow to manufacturing demand,” said Zhengsheng Zhong, chairman and chief economist at Chinese research firm CEBM.

“The sub-index for total new orders stayed in contractionary territory for the second straight month in March, while the gauge for new export orders was still way below levels seen before the epidemic,” Zhong added.

Focus and interactive by Nurluqman Suratman

Photo: A medical worker wearing a full protective outfit tests a man for coronavirus disease (Covid-19) symptoms in a street in Wuhan, China on 1 April 2020. Wuhan, the epicenter of the coronavirus outbreak, partly lifted the lockdown allowing people to enter the city after more than two months.
(By ROMAN PILIPEY/EPA-EFE/Shutterstock)

Visit the ICIS Coronavirus topic page for analysis of the impact on chemical markets and links to latest news.

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?