Demand from manufacturers looks set to be weak

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Packaging manufacturing
Packaging manufacturing

Demand for recycled materials from the manufacturing sector appears like it will remain poor for the time being.

The latest set of Purchasing Managers’ Indices shows that UK and European manufacturing production is falling.

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The IHS Markit/CIPS UK Manufacturing PMI for July showed that the index, at 48.0, was unchanged from June. It also meant it was below 50 for the third straight month. Anything below 50 suggests decline, anything above suggests growth.

It is now six-and-a-half years ago that the UK PMI was so weak.

Manufacturing production actually fell in the UK to its lowest level in seven years, with new orders in particular falling.

They warned that Brexit was having an impact with supply chains being routed away from the UK in preparation. But slower world economic growth was also having an impact.

Employment rates in manufacturing also fell, as they looked to reduce costs.

However, some manufacturers were also increasing inventories ahead of a Brexit deadline of 31 October.

They also reported that input costs and selling prices had reduced to the lowest level in three years.

Confidence in eurozone manufacturing fell to its lowest level since December 2012, as the IHS Markit Eurozone PMI fell to 46.5 in July from 47.6 in June.

This means it has now been below 50 for six months.

  • Greece 54.6 3-month high
  • Netherlands 50.7 no-change
  • France 49.7 4-month low
  • Ireland 48.7 75-month low
  • Italy 48.5 2-month high
  • Spain 48.2 2-month high
  • Austria 47.0 57-month low
  • Germany 43.2 84-month low

As shown above, German manufacturing is the main source of weakness, with it recording the sharpest deterioration in seven years.

The weakness across the eurozone was driven by a sharp fall in new orders. Export trade declined to the greatest degree since November 2011.

European manufacturers were therefore not too keen to buy new raw materials for production, preferring to use inventories instead. Indeed, they even reported that there was excess of supply of raw materials when they needed them, meaning that input costs were falling.

US manufacturing continues to grow, but only at an anaemic rate.

The IHS Markit US Manufacturing PMI was at 50.4 in July, down from 50.6 in June.

This was driven by weak demand from export markets, plus the impact of tariffs imposed by the Trump Government on China and elsewhere.

US manufacturers reported that raw material costs were still increasing, but at a very low rate. They were also able to increase the cost of sales prices for their goods.

China’s official PMI for manufacturing was also showing decline at 49.7. However, this was an improvement on June’s 49.4.

Large-sized enterprises in particular are seeing an increase in orders, while production appears to be accelerating. This might give some optimism that Chinese manufacturing is set to recover.

However, this has not translated to raw material purchases, with this sub-index 0.2 lower in July than June recording 48.0.

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