China factory activity accelerates in April but cost pressures mount – Caixin PMI

Worker of Dongbei Special Steel welds a steel structure at a plant in Dalia

BEIJING (Reuters) – China’s factory activity in April expanded at the fastest pace in four months on stronger demand, but concerns over surging raw materials and input costs clouded the outlook, according to a private survey released on Friday.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 51.9 in April from an 11-month low of 50.6 in March, beating analyst expectations for a smaller uptick to 50.8. The 50-mark separates growth from contraction on a monthly basis.

That contrasted with China’s official PMI on Friday, which showed factory activity expanding at a slower-than-expected pace in April.

Both output and new orders increased at the fastest pace this year, the survey showed, while overseas demand improved. Manufacturers also increased their staffing levels for the first time in five months.

But the private survey showed factories reported a sharp increase in input costs, which surged at their fastest clip since 2017. Some pressure was passed onto customers as output prices continued to rise, although at a slower pace than the month before.

“Raw material prices kept pushing up manufacturers’ costs. The prices of industrial metals — especially steel — and chemical raw materials continued to surge,” said Wang Zhe, senior economist at Caixin Insight Group, in a statement accompanying the data release.

“Rising raw material prices and imported inflation are expected to limit policy choices and become a major obstacle to the sustained economic recovery.”

Earlier in April, Chinese Premier Li Keqiang stressed the need to strengthen market regulation of raw materials to ease the cost pressure on enterprises amid rising global commodities prices, China’s official Xinhua news agency reported.

China’s factory gate prices rose 4.4% in annual terms last month, at their fastest pace since July 2018. April data will be released on May 11.

Firms’ outlook for the year ahead edged down but remained highly optimistic due to hopes of an end to the pandemic and the release of more demand, the survey showed.

The Caixin survey focuses on small, private and export-oriented firms while the official survey, also released on Friday, typically polls large and state-owned manufacturers.

Beijing has successfully curbed the domestic transmission of the COVID-19 virus, leading to quarantine restrictions and testing requirements being scaled back as life returns to normal.

Economic growth quickened sharply in the first quarter to a record 18.3%, driven by stronger demand at home and abroad and supported by a low comparison base the previous year due to COVID-19 disruptions.

China has set an annual economic growth target at above 6% this year, which is lower than the analyst consensus but makes allowances for uncertainties. Premier Li Keqiang has warned against any sharp turn in policymaking.

(Reporting by Gabriel Crossley; Editing by Ana Nicolaci da Costa)

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