Will slowing manufacturing growth slow demand for recycled materials?

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Manufacturing growth appears to be slowing across most of the major economies, according to the latest set of purchasing managers’ indices.

For those supplying recycled materials into manufacturers, this could be the signal that demand will begin to ease. However, it is only one month, and growth continues to be strong, so it will probably be a case of waiting and seeing.

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Looking at the UK first of all, the IHS Markit/CIPS UK Manufacturing PMI slowed to a 17-month low of 53.9 in April. This was down from 54.9 in March, but still signals decent manufacturing growth for April, even if it is slowing.

UK manufacturing has now expanded for the past 21 months, with anything above 50 signalling growth.

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Growth of output and new orders eased, while business confidence was at a 5-month low.

Of particular concern was rising stocks of finished products, which suggests UK manufacturing will remain subdued over the coming months. Indeed, growth of new export business slowed to a 10-month low.

UK manufacturers also reported higher commodity costs in April, due to demand exceeding supply of raw materials. While manufacturing growth has slowed here, this could help to provide some support for suppliers of recycled materials to UK manufacturers over the coming months.

Although still performing really well, growth in European manufacturing has lost momentum since it reached a record high in December 2017. This continued in April as the overall IHS Markit Eurozone PMI registered a score of 56.2 in April, down from 56.6 in March.

As can be seen below, only Ireland and France registered growth, although it shouldn’t be forgotten that Netherlands, Germany and Austria remain in the spectacular manufacturing growth category.

Netherlands 60.7 6-month low
Germany 58.1 (flash: 58.1) 9-month low
Austria 58.0 Unchanged
Ireland 55.3 2-month high
Spain 54.4 7-month low
France 53.8 (flash: 53.4) 2-month high
Italy 53.5 15-month low
Greece 52.9 5-month low

Falling new orders were the reason behind the slowdown, and if repeated in future months could suggest a general weakening of manufacturing growth.

Intakes of new work expanded at the slowest rate since November 2016, reflecting a slowdown in export orders.

Like in the UK, European manufacturers also reported long waits for raw materials, and the resulting high prices for commodities.

One bright spot in global manufacturing was the performance of the United States. The IHS Markit US Manufacturing PMI rose to 56.5 in April, from 55.6 in March. This was the highest reading since September 2014.

US recyclers may therefore find there is more domestic demand for their materials, which may start to push up prices there.

This is particularly the case as growth was driven by fast new order growth for US manufacturers, with this coming from domestic rather than export sources.

The price of raw materials increased at the fastest rate in seven years, driven by rises in the price of global commodities plus the tariffs imposed on certain metals and other goods by the US Government.

China’s official manufacturing PMI decreased slightly to 51.4 in April, from 51.5 in March. This means the Chinese manufacturing sector has grown now for 21 months in a row.

In particular concern will be the slowdown in growth of new export orders than tends to drive Chinese manufacturing, and could suggest an overall slowdown in demand for the recyclable materials still allowed into the country.

Other Asian destinations are also hovering closer to the 50 mark that separates growth and contraction than counterparts in UK, Europe and US.

Malaysian manufacturing continued to contract in April for the third month in a row, according to the Nikkei Malaysia PMI. Its score of 48.6 in April accelerated the weakening of manufacturing from 49.5 in March.

Central to this decline was a weakening in new orders in April, slowing at the fastest rate since July 2017. With Malaysia now a key destination for UK recycled plastics, this could indicate a slowdown in demand is on the way.

Malaysian manufacturers also reported that the price they paid for raw materials increased in April, the 39th month in a row they have reported increased costs.

Another key destination for UK material, Vietnam actually saw manufacturing growth in April. The Nikkei Vietnam Manufacturing PMI was at a decent 52.7 in April from 51.6 in March. This means manufacturing has grown for 29 months in a row in Vietnam.

New orders improved, with the export market in particular wanting to buy goods from Vietnam. Indeed, manufacturers in Vietnam expect growth to continue for the rest of the year, suggesting its demand for UK materials is likely to continue. Although it could be a case of feast or famine, buying on demand when it needs material rather than storing it as recent purchasing patterns have shown.

But like elsewhere, Vietnamese manufacturers reported higher raw material costs on global markets.

The Nikkei Indonesia Manufacturing PMI rose to a 22-month high of 51.6 in April, from 50.7 in March. While not stellar growth, it does mark progress and puts it in a more comfortable manufacturing growth scenario compared to the just growing seen in March.

Indeed, this was the strongest growth seen since June 2016, despite being modest.

However, with the growth coming from domestic sources rather than new orders from the export market, it looks like it could be difficult for this growth to be maintained. With export orders falling at a faster rate compared to March, and for five months in a row now, there doesn’t seem to be too much support behind Indonesian manufacturing growth.

Foreign exchange strength of the US dollar against the Indonesian rupiah kept imported raw material costs high, even though costs softened slightly on March’s 29-month high.

Modest growth was also seen in the Nikkei India Manufacturing PMI with it reaching 51.6 in April, compared to 51.0 in March.

New business rose at the fastest rate since March, but only at a modest rate. Both domestic and export new orders grew slightly too.

For two and a half years now, Indian manufacturers have reported the cost of materials increasing each month. However, the growth in April was less pronounced than previous months and suggests a plateau might have been reached in what Indian manufacturers need to pay.

 

 

 

 

 

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