China’s manufacturing PMI dropped to 51.0 in the month of May 2021.
Gatekeepers News reports that the official manufacturing Purchasing Managers’ Index (PMI) released on Monday for the month of May revealed that China’s factory activity growth slowed slightly as raw materials cost increased at their fastest pace in over a decade.
According to the report released by the National Bureau of Statistics (NBS), the PMI slipped slightly to 51.0 in May from 51.1 in April.
The PMI which mainly concentrates on big and state-owned firms remained above the 50-point mark that separates growth from contraction for over a year.
Chief economist for Greater China at ING bank, Iris Pang said: “After the spending spree in May, we think that consumers will start saving for the long October holidays for their next spending spree. There may still not be a revival of international travel by then, but Chinese consumers can still spend in duty-free shops within China.
“External demand will likely remain flat since even with economic recovery in the US and parts of Europe as vaccine roll-outs suppress the Covid pandemic, this is likely to be offset by increasing Covid cases in [the Association of Southeast Asian Nations], which is the biggest trade partner of China.”
A sub-index for new export orders stood at 48.3 in May, down from 50.4 in the previous month, sliding distinctly into contraction.
A sub-index for raw material costs in the official PMI stood at 72.8 in May, up from April’s 66.9 and hitting the highest level since 2010.
Gatekeeper News gathered that the prices for commodities such as coal, steel, iron ore and copper have skyrocketed this year due to the post-lockdown recoveries in demand and easing liquidity globally.
There are concerns over rising prices with commodities hitting record highs before decreasing towards the end of the month.
“We expect commodity prices to stabilize in the coming months,” said Louis Kuijs, head of Asia economics at Oxford Economics.
Tougher oversight on spot and futures markets and increased global commodity supply in the second half of 2021 should help reduce cost pressures on China’s firms, he said.
In addition to surging raw material prices, Chinese factories are grappling with high shipping costs and an appreciating Chinese currency. Some can pass on the higher costs to overseas customers, while some small firms have stopped taking orders to avoid losses.
A sub-index for the activity of small firms stood at 48.8 in May, sharply down from April’s 50.8.
The official data also disclosed that companies are laying off their employees at a faster pace.
In the services sector, activity expanded for the 15th straight month, and at a faster pace, with the non-manufacturing PMI index rising to 55.2 from 54.9 the month before.
