Manufacturing still performing very strongly around the world

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Global manufacturing is still doing very well, according to the latest set of purchasing managers’ indices for March.

This would suggest that demand for raw materials, including those that are recycled, should remain at current levels for the time being.

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But manufacturers in Europe, UK and US all reported that commodity prices continued to increase.

The eurozone has been, by far, the strongest region in recent months, with exceptionally high PMI readings becoming the norm.

But the IHS Markit Eurozone Manufacturing PMI was at an eight-month low of 56.6 in March, down from 58.6 in February.

However, with anything above 50 showing growth, 56.6 is still a very good, solid reading for European manufacturing.

Although its PMI was at a 5-month low, the Netherlands was the best performer with 61.5. This was followed by Germany with an 8-month low of 58.2, Austria with a 10-month low of 58.0, then Italy (55.1) was next, Greece (55.0), Spain (54.8), Ireland (54.1) and France (53.7).

It should be remembered that this is still growth and if it continues, demand for raw materials is likely to increase too as inventories are exhausted.

European manufacturers reported though that new business slowed down, particularly from the export market.

But European manufacturers were also struggling to meet demand for their products, with the supply of raw materials a particular problem. Indeed, this requirement for raw materials led to a continued increase in the price of raw materials, although price increases appeared to be slowing to a degree.

IHS Markit chief economist Chris Williamson said: “March saw the biggest fall in the manufacturing PMI since June 2011 and the third successive slowing in the pace of expansion.

“We should not be too worried by the fall in the PMI as some moderation in the pace of growth from the surge seen at the turn of the year was inevitable, not least because short-term capacity constraints limit the economy’s ability to grow so quickly for long periods. This has been clearly evident in the recent lengthening of supply delivery times. Some of the slowdown has also been attributable to temporary factors such as bad weather.

“However, the fact that business optimism about the coming year has slipped to a 15-month low suggests there are other factors that are now hitting factory order books. Export growth has more than halved since late last year, linked in part to the appreciation of the euro, and in some cases demand is being stymied by higher prices.

“The overall pace of growth nevertheless remains robust by historical standards, with decent PMI readings seen in all countries, including Greece, to indicate a steady, broad-based expansion. Manufacturing should therefore make another substantial contribution to GDP growth in the first quarter, and the presence of sustained inflationary pressures will be welcomed by policymakers.”

UK manufacturing improved just a touch from 55.0 in February to 55.1 in March. While output improved, there were less new orders for UK manufacturers.

But UK manufacturers also reported solid inflows of new business, with export orders rising for the 23rd month in a row.

Manufacturers in the UK said that they are suffering from raw material shortages and this is leading to higher costs, particularly from commodities. But these higher costs from raw materials do seem to be moderating at present.

IHS Markit director Rob Dobson said: “Manufacturers are still reporting solid inflows of new
work from domestic and overseas markets. Business optimism is holding steady at an elevated level, with over 54% of companies expecting output to expand over the coming 12 months. With cost inflationary pressures also moderating to provide some respite for margins, the sector looks set to make further slow and steady progress as we head through the spring.”

US manufacturing was very strong last month, reaching its highest level since March 2015 at 55.6 up from 55.3 in February.

New orders for goods from US manufacturers rose sharply in March with export and domestic orders both up.

US manufacturers reported sharply rising commodity costs in March though, with the basic cost of the material increasing along with new tariffs. As a result, US manufacturers have been attempting to stockpile raw materials ahead of the incoming tariffs, as this is likely to mean the price of raw materials increases.

Chris Williamson added: ““Companies cited rising demand at home and abroad plus recent government policy announcements as helping shore up confidence in terms of their future production levels.

“However, recent tariff announcements were already reported to have added to inflationary
pressures, and also led to the stockpiling of goods expected to rise further in price in coming months. Input cost inflation consequently hit the highest since 2012. Increased costs were often passed on to customers, meaning prices charged for goods at the factory gate showed the steepest rise in over four years.”

China’s official PMI improved back to 51.2 in March, after falling to 50.3 in February – getting back to levels showing reasonable, rather than anaemic, growth.

But new orders are accelerating for Chinese manufacturers, suggesting that there is more optimism ahead, with the new orders sub-PMI reaching 53.3 in March.

Chinese manufacturers have been using up their inventories of raw materials for months now, but there are signs that these are starting to be used up. The main raw material index was at 49.6 in March, increasing by 0.3 on the month before. As it narrows towards 50.0, this suggests that if it goes above, Chinese manufacturers might be more inclined to buy more raw materials.

The Nikkei Malaysia PMI was at 49.5 in March, showing a decline in manufacturing growth. This was the first decline in eight months, with new orders falling. Malaysian manufacturers reported higher commodity costs at the sharpest rate in 2018 so far.

Growth in manufacturing in Vietnam eased in March to 51.6, according to the Nikkei Vietnam PMI from February’s 10-month high of 53.5. New orders for manufacturers here remained solid, if unspectacular. While input costs increased for raw materials, this was at the slowest rate since August 2017. Manufacturers here also reported difficulties with shipping materials into the country.

The Nikkei Indonesia PMI was at 50.7 in March, down from 51.4 in February. New orders improved in March, but cost pressures increased, mainly down to currency weakness against the US dollar. There were also reports of significant raw material shortages.

In India, the PMI was at 51.0 in March, down from 52.1 in February, according to the Nikkei India PMI. Growth was seen in new orders though from domestic and export sources, although at modest levels. There was also greater demand seen for raw materials, leading to higher prices.

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