Asia manufacturing improves in Nov but rising costs set to weigh

SINGAPORE (ICIS)–Asia’s manufacturing conditions broadly improved in November as COVID-19 restrictions eased but higher costs burdens and a slowdown in China’s factory activity are expected to weigh on the region’s recovery.

Price pressures in Asia continued to escalate in November, with the average price index rising at a faster pace compared with input prices, which suggests firms are passing on these higher costs to consumers amid pressure on their profit margins, Japan’s Nomura Global Markets Research said in a note.

“Overall, the PMI data suggest a lacklustre month for new orders and output, due to elevated prices and supply bottlenecks,” it said.

“The ongoing factory reopenings in Southeast Asia should help ease these bottlenecks and could help lift output in coming months; but, if elevated prices dampen future new orders, demand could become the bigger challenge over time, instead of supply,” Nomura added.

The Caixin China general manufacturing purchasing managers’ index (PMI) slipped into contractionary territory last month at 49.9, down from 50.6 in October.

Three of the five PMI components weighed on the headline index in November, namely new orders, employment and suppliers’ delivery times.

However, Chinese manufacturing output rose for the first time since July last month, supported partly by relative improvement in energy supply.

“The government’s measures to stabilise commodity supplies and prices began to bear fruit, which significantly eased cost pressures on manufacturing enterprises,” said Wang Zhe, senior economist at Caixin Insight Group.

“But the gauges of input costs and output prices remained in expansionary territory, showing inflationary pressure still remained,” Zhe said.

The drop in Caixin’s manufacturing PMI in November contrasted with China’s official PMI which rose from 49.2 in October to 50.1 in November.

China’s series of measures to ensure energy supply and steady prices eased power shortages in November and drove down prices of raw materials, sending PMI back to the expansion territory, the National Bureau of Statistics (NBS) said.

The official PMI tracks large, state-owned enterprises whereas Caixin’s PMI tracks smaller, privately-owned firms.

Beyond China, manufacturing activity across the region continued to recover with Novembers PMIs for Japan, South Korea, India and most of southeast Asia registering improvement from the previous month.

The au Jibun Bank Japan manufacturing PMI rose from 54.5 in October to 54.5 in October, signalling the strongest improvement in the health of the sector since January 2018 while the IHS Markit India manufacturing PMI surged to 57.9 last month from 55.9 in October.

Strengthening demand, improving market conditions and successful marketing boosted sales at Indian manufacturers in November, with factory orders rising for the fifth successive month and at a sharp pace that was the fastest since February this year.

Following a return to growth in October, the ASEAN factory sector remained in expansion territory during November, with Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam registering improvement in their manufacturing PMIs, according to IHS Markit data.

Both output and new orders rose further in southeast Asia, with the rates of growth remaining close to recent peaks despite easing slightly, while firms cut jobs at the weakest rate for five months.

Focus article by Nurluqman Suratman