China’s factory activity slows slightly in May as raw materials costs surge

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© Reuters. FILE PHOTO: A worker wearing a face mask works on a production line manufacturing bicycle steel rim at a factory, as the country is hit by the novel coronavirus outbreak, in Hangzhou, Zhejiang province, China March 2, 2020. China Daily via REUTERS

BEIJING (Reuters) – China’s factory activity slowed slightly in May as high raw materials costs and supply bottlenecks continued to weigh on industrial production, particularly for small and export-oriented firms.

The official manufacturing Purchasing Manager’s Index (PMI) inched lower to 51.0 in May from 51.1 in April, data from the National Bureau of Statistics (NBS) showed on Monday, but remained above the 50-point mark that separates growth from contraction.

Analysts had expected a PMI reading of 51.1 in May.

While the Chinese economy has largely shaken off the gloom from the COVID-19 pandemic, posting a record 18.3% growth in the first quarter of this year, analysts expect the brisk expansion to moderate later this year.

Officials warn the foundations for the economic recovery are not yet secure amid problems like higher raw material costs and the epidemic situation overseas.

In April, both output and profits at China’s industrial firms grew at a slower pace.

The official PMI, which largely focuses on big and state-owned firms, showed the sub-index for new export orders stood at 48.3 in May, down from 50.4 in the previous month and slipping sharply into contraction.

Firms continued to lay off workers and at faster pace.

A sub-index for the activity of small firms stood at 48.8 in May, sharply down from April’s 50.8.

Prices for commodities such as coal, steel, iron ore and have surged this year, fuelled by post-lockdown recoveries in demand and easing liquidity globally.

China’s policymakers have repeatedly expressed concern about rising commodity prices in recent weeks and called for stricter management of supply and demand and to crack down on “malicious speculation.”

A sub-index for raw material costs in the official PMI stood at 72.8 in May, up from April’s 66.9.

In the services sector, activity expanded for the 15th straight month, and at a faster pace.

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