By Clyde Russell
LAUNCESTON, Australia- There’s no way to sugar-coat the worst-ever reading of China’s manufacturing indexes, which were pummeled as the economy was largely shut down in February as Beijing battled to contain the coronavirus epidemic.
The Caixin/Markit manufacturing Purchasing Managers’ Index (PMI) slumped to 40.3 last month, the lowest since the survey began in 2004 and down sharply from a 51.1 reading in January as well as the 50-mark that separates growth from contraction.
The Caixin/Markit PMI focuses more on small and export-orientated businesses and while it was weak, it wasn’t as bad as the official PMI, released on Saturday, which surveys larger and state-controlled corporations.
The official PMI showed factory activity contracted at the fastest pace ever last month, dropping to 35.7, down from 50.0, as sub-indexes that measure manufacturing output and new orders plummeted.
The incredibly weak PMIs raise the possibility that China’s economy may contract in the first quarter, but even if this is avoided, it’s certain that growth will have taken a severe hit.
The coronavirus epidemic, which started in late December in the city of Wuhan, has so far killed almost 3,000 people in China and infected more than 80,000.
The coronavirus has also spread to every continent except Antarctica and is starting to cause economic disruptions to supply chains and industries such as tourism.
This has caused equity and commodity markets across the world to slump, with benchmark Brent crude futures dropping as low as $48.40 a barrel on Monday, the weakest since July 2017, before recovering later in the Asian day to trade around $50.32.
Such is the extent of the fear sweeping global markets, it’s likely that any positive developments may be lost in the flood of negative news.
One mildly positive indicator has been the relative resilience of China’s imports of major commodities in February, despite the curtailing of much of the manufacturing and construction activity in the world’s second-biggest economy.
While official figures are yet to be released, vessel-tracking and port data compiled by Refinitiv show some softness in imports of crude oil, iron ore, coal and liquefied natural gas (LNG), but nowhere near as much as the slump seen in the PMIs.
China’s crude imports were assessed at 10.53 million barrels per day (bpd) in February, down from January’s 10.69 million bpd, but slightly above last February’s official figure of 10.2 million bpd.
Seaborne coal imports were 19.4 million tons in February, Refinitiv data showed, down from 25.6 million in January, although that number was boosted by the slowing of customs clearances in December as China’s traders and utilities attempted to limit full-year imports in 2019 to 2018 levels.
Seaborne coal imports in February 2019 were 20.8 million tons, meaning that despite the coronavirus disruptions, China imported only 1.4 million tons less than the same month a year earlier.
Iron ore imports by ship were around 74.3 million tons in February, down sharply from January’s 91.1 million, according to Refinitiv.
But the weakness in the steel-making ingredient is more likely a reflection of weather disruptions in both top exporters, Australia and Brazil, rather than a demand-led drop because of the epidemic.
The commodity that looked the weakest in February was LNG, with imports dropping to 3.79 million tons, down 42 percent from January’s 6.05 million. – Reuters
