SINGAPORE (ICIS)--Southeast Asia’s manufacturing conditions improved marginally in October amid further expansions in output and new orders but supply chain delays amid reports of raw material shortages may impact future output, analysts said on Thursday.
The Nikkei ASEAN manufacturing purchasing managers’ index (PMI) rose slightly to 50.4 in October from 50.3 in September - signalling a mild improvement in the health of the sector - joint readings by Nikkei and financial information services provider IHS Markit showed.
The PMI is a barometer of an economy's manufacturing performance, with a reading of 50 and above indicating expansion.
Improved client demand lifted production across the region, with manufacturing output expanding at the fastest pace for the last six months in October.
“ASEAN manufacturers continued to enjoy steady expansion in new business during October, with total new order inflows up for a third consecutive month, supported by rising sales from abroad,” Nikkei said in a statement.
“In fact, new export orders rose at the joint-fastest pace since May 2013, reflecting strengthening global trade,” it said.
The majority of the nations covered by the Nikkei/Markit survey registered an improvement in operating conditions, with the number of countries recording an improvement rising from four in September to five in October. (please see interactive table below for comparisons)
The Philippines overtook Vietnam to lead the overall growth rankings, with its PMI picking up to a four-month high at 53.7 in October.
Vietnam slipped to second position as its rate of growth slowed to the weakest since May.
“The Vietnamese manufacturing sector paused for breath in October, with output rising only marginally during the month. New order growth also slowed, but remained solid amid a faster increase in new export orders,” said Andrew Harker, an associate director at IHS Markit.
“There was further evidence of material shortages impacting on the sector, leading to higher input costs and delivery delays,” he said.
Harker added that the manufacturing sector has been a strong performer within the Vietnamese economy this year.
“Therefore, growth will need to rebound from October’s slowdown over the rest of 2017 to help meet the GDP target of 6.7% growth,” he noted.
Meanwhile, the Singapore and Myanmar manufacturing sector returned to expansion in October, with the latter showing an improvement for the first time in five months.
Having seen growth in the previous two months, Indonesia’s manufacturing sector was broadly stagnant during October, with its PMI barely above the expansion threshold at 50.1.
Thailand slid into contraction territory, though the rate of decline was only marginal.
Malaysia came in at the bottom of the PMI rankings, with business conditions deteriorating modestly overall.
While ASEAN countries continued to suffer supply chain delays despite subdued appetite for inputs, there were reports of supply shortages for raw materials, which in turn pushed input prices higher.
“A side effect of supply chain pressures was higher prices. Input cost inflation across the region remained sharp, driven also by weaker exchange rates and rising global commodity prices,” said Bernard Aw, a principal economist at IHS Markit.
“As output charges rose at a relatively modest pace, the prices data indicated a further squeeze on margins as firms have limited pricing power,” he added.
Picture (top): Dancers perform during the grand celebration of the 50th anniversary of the founding of the Association of Southeast Asian Nations (ASEAN) (Xinhua News Agency/REX/Shutterstock)
Focus article and interactive by Nurluqman Suratman