BEIJING- China’s factory activity expanded at its slowest pace in five months in January, even as an outbreak of a new virus added to risks facing the world’s second-largest economy, a private survey showed on Monday.
The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) eased to 51.1 from 51.5 in December, missing expectations but remaining above the 50-mark that separates growth from contraction for the sixth straight month. Analysts had expected a reading of 51.3.
The findings, which focus mostly on small and export-oriented businesses, were slightly more optimistic than those in an official survey released on Friday, which showed growth had stalled.
But they likely did not reflect the early impact of the public health crisis which flared in late January, which could weigh heavily on economic growth in coming months.
More than 300 people have died from the flu-like virus in China so far and over 14,000 have been infected, with more cases being reported around the world.
The outbreak has prompted widespread transport curbs and tough public health measures in the past week that are already hitting the travel, tourism and retail sectors.
Millions of migrant workers who had returned home for the long Lunar New Year holidays last week may be unable to return to factory floors, and companies in a number of areas including some major manufacturing hubs have been told to stay closed for another week or more.
“In the near term, China’s economy will also be impacted by the new pneumonia epidemic,” and will need more government support, Zhengsheng Zhong, director of macroeconomic analysis at CEBM Group, said in comments on the survey.
Limited improvement in domestic and foreign demand meant some manufacturers did not replenish stocks, said Zhong.
New export orders slipped back into contraction after three months of expansion, while production and total new orders slowed but remained in expansionary territory.
Factories also shed jobs in January for the first time since October.
But business confidence rose to a 22-month high, boosted by a trade deal signed in January between the United States and China, Zhong said. Fears of an epidemic only began to surface late in the month.
Economic growth in China slowed markedly to 6.1 percent last year, the weakest pace in nearly three decades, amid a bruising trade war with the US and despite Beijing’s stimulus to boost sluggish investment and demand.
During the SARS outbreak in 2002-03, China’s economic growth fell 2 percentage points in a few months, but it rebounded quickly once the disease was brought under control.
However, both Chinese demand and the global economy had generally been in better shape.
Meanwhile, China’s iron ore and steel futures fell by their daily limits on fears that a rapidly-spreading virus outbreak would curb demand and deliver a sharp blow to the economy.
The death toll from the newly identified coronavirus and the number of confirmed cases has risen sharply since the country’s financial markets began an extended Lunar New Year holiday on Jan. 24.
The Dalian Commodity Exchange’s most-traded iron ore contract ended the morning session down 8 percent – the maximum amount by which the price is allowed to drop for the day – at 606.5 yuan ($87.85) a ton, the lowest since Dec. 2 last year.
On the Shanghai Futures Exchange, the most-active construction steel rebar contract shed as much as 8 percent to a near three-month trough of 3,233 yuan a ton. It was down 7.5 percent by noon break.
Shanghai hot-rolled steel coil futures were 7.5 percent lower, after earlier slumping as much as 8 percent to 3,246 yuan a ton, the lowest since Nov. 14 last year.
“We see the main impact (on commodity markets) being through the restrictions on travel impeding demand, but expect this to permeate through to manufacturing if the movement of workers is restricted following the Lunar New Year holidays,” said Daniel Hynes, senior commodity strategist at ANZ.
Public transport in Tangshan, China’s largest steelmaking city, has been suspended since Jan. 28 to prevent further spread of the virus.
However, government stimulus to support the slowing Chinese economy could provide some boost to prices of iron ore, the main steelmaking raw material.
Rohan Kendall, head of iron ore and steel at Wood Mackenzie, said the consultancy does not see any immediate need to revise its 2020 price forecast of $80 a ton due to iron ore’s vulnerability to supply side risks and potential for financial stimulus from Beijing. — Reuters
