The COVID-19 is on the rise again in China, with repeated stoppage and production at designated locations across the country, strongly affecting all industries. At present, we can pay attention to the impact of the COVID-19 on the service industry, such as the closure of catering, retail and entertainment industries, which is also the most obvious impact in the short term, but in the medium term, the risk of manufacturing is greater.
The carrier of the service industry is people, which can be recovered once the COVID-19 is over. The carrier of the manufacturing industry is goods, which can be maintained by inventory for a short period of time. However, the shutdown caused by COVID-19 will lead to a shortage of goods for a period of time, which will lead to the migration of customers and suppliers. The medium-term impact is greater than that of the service industry. In view of the recent large-scale resurgence of the COVID-19 in East China, South China, northeast and other parts of the country, what kind of impact has been caused by the manufacturing industry in various regions, what challenges will be faced by the upstream, middle and downstream, and whether the medium and long-term impact will be amplified. Next, we will analyze it one by one through Mysteel’s recent research on the manufacturing industry.
Ⅰ Macro Brief
The manufacturing PMI in February 2022 was 50.2%, up 0.1 percentage points from the previous month. The non-manufacturing business activity index was 51.6 percent, up 0.5 percentage points from the previous month. The composite PMI was 51.2 percent, up 0.2 percentage points from the previous month. There are three main reasons for the PMI’s rebound. First, China has recently introduced a series of policies and measures to promote steady growth of the industrial and service sectors, which has improved demand and increased orders and business activity expectations. Second, increased investment in new infrastructure and accelerated issuance of special bonds led to a marked recovery in the construction industry. Third, due to the impact of the Russia-Ukraine conflict, the price of crude oil and some industrial raw materials soared recently, resulting in the rise of the price index. Three PMI indexes rose, indicating that momentum is returning after the Spring Festival.
The return of the new orders index above the expansion line indicates improved demand and a recovery in domestic demand. The index for new export orders rose for the second month in a row, but remained below the line separating expansion from contraction.
The expectation index of manufacturing production and business activities rose for four consecutive months and hit a new high in nearly a year. However, the expected operating activities have not yet been translated into substantive production and operation activities, and the production index has fallen seasonally. Enterprises still face difficulties such as rising raw material prices and tight cash flow.
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the federal benchmark interest rate by 25 basis points to a range of 0.25%-0.50% from 0% to 0.25%, the first increase since December 2018.
Ⅱ Downstream terminal industry
1. Overall strong operation of steel structure industry
According to Mysteel research, as of March 16, the steel structure industry as a whole raw material inventory increased by 78.20%, raw material available days decreased by 10.09%, raw material daily consumption increased by 98.20%. In early March, the overall terminal industry demand recovery in February was not as good as expected, and the market was slow to warm up. Although shipment was slightly affected by the epidemic in some areas recently, the process of processing and start-up was greatly accelerated, and orders also showed a significant rebound. It is expected that the market will continue to improve in the later period.
2. Machinery industry orders gradually warm up
According to Mysteel research, as of March 16, the inventory of raw materials in the machinery industry increased by 78.95% month-on-month, the number of available raw materials increased slightly by 4.13%, and the average daily consumption of raw materials increased by 71.85%. According to Mysteel’s investigation on machinery enterprises, orders in the industry are good at present, but affected by closed nucleic acid tests in some factories , factories have been closed in Guangdong, Shanghai, Jilin and other severely affected regions, but the actual production has not been affected, and most of the finished products have been put into storage to be released after the sealing. Therefore, the demand of the machinery industry is not affected for the time being, and orders are expected to increase significantly after the sealing is released.
3. The household appliance industry as a whole runs smoothly
According to Mysteel research, as of March 16, the inventory of raw materials in the home appliance industry increased by 4.8%, the number of available raw materials decreased by 17.49%, and the average daily consumption of raw materials increased by 27.01%. According to the research on the home appliance industry, compared with the beginning of March, the current home appliance orders have begun to warm, the market is affected by the season, weather, sales and inventory are in the stage of gradual recovery. At the same time, the household appliance industry focuses on continuous research and development to create more reliable and high-performance products, and it is expected that more efficient and intelligent products will appear in the later period.
Ⅲ Impact and expectation of downstream enterprises on COVID-19
According to Mysteel’s research, there are several problems facing downstream:
1. Policy impact; 2. Insufficient personnel; 3. Reduced efficiency; 4. Financial pressure; 5. Transportation problems
In terms of time, compared with last year, it takes 12-15 days for downstream impacts to resume work, and it takes longer for efficiency to recover. Even more worrying is the impact on manufacturing, with the exception of infrastructure-related sectors, it will be difficult to see any meaningful improvement in the short term.
Ⅳ Summary
Overall, the impact of the current outbreak is modest compared to 2020. From the production situation of steel structure, household appliances, machinery and other terminal industries, the current inventory has gradually returned to normal from the low level at the beginning of the month, the average daily consumption of raw materials has also increased significantly compared with the beginning of the month, and the order situation has picked up greatly. On the whole, although the terminal industry has been affected by COVID-19 recently, the overall impact is not significant, and the recovery speed after unsealing may exceed expectations.