What Will Happen to PU industry as PMI Falls below 50?
2019-01-29    [Source:PUdaily]
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Pudaily, Shanghai-

On the last day of 2018, the service industry survey center of the National Bureau of Statistics and the China Federation of Logistics & Purchasing released the China purchasing managers index. China's manufacturing PMI was 49.4 in December, down 0.6 percentage points from the previous month. The non-manufacturing business activity index was 53.8, up 0.4 percentage points from the previous month. The composite PMI output index was 52.6, down 0.2 percentage points from the previous month, and remained in the business cycle.

It is well known that the purchasing managers' index (PMI) often uses 50 as the cutoff point for economic strength and weakness. A reading above 50 indicates expansion, while a reading below reflects contraction. When the PMI is very close to 40 percent, it indicates a risk of economic depression. Typically between 40 and 50, the manufacturing sector is in recession, but the overall economy is expanding. It is a very important accessory to the leading indicator. In December 2018, China's manufacturing purchasing managers' index (PMI) fell below the line of expansion and contraction, indicating a weakening of the manufacturing business climate.

 

Some comments pointed out that there were three points to be noted in the published classification. 

First, the import and export index showed varying degrees of decline. The PMI's new export orders index edged down 0.4 points, while the import index slumped 1.2 points to 45.9 percent as domestic demand slowed. That means there is a problem with both internal and external demand, which is bound to affect production.

 

Second, the PMI for large companies fell 0.5 points to 50.1 percent, at the tipping point. The PMI for medium - and small-sized enterprises was 48.4 percent and 48.6 percent respectively. This is enough to show that small and medium-sized enterprises are much more difficult than large enterprises, and the degree of contraction is much more serious.

Third, the purchase price of raw materials plunged to 44.8% in December from 50.3% in November, and the ex-factory price index plunged to 43.3% from 46.4% in November, both hitting new low level since 2016. This shows that profits are now being squeezed so much that there is little profits to do anything and manufacturers have no incentive to produce.

 

Obviously, there are some problems in the market demand and enterprise confidence. As demand weakens and orders decrease, enterprises will lack the motivation for development, and correspondingly, their profitability will also decline. This leads to a loss of confidence and low expectations among entrepreneurs and employees. A lack of confidence in the market will further restrain consumption, people will not buy things, and the ability of the economy to circulate will certainly be limited.

In 2018, the real estate boom is in recession and the car market is in negative growth, etc., all of which can reflect that the overall economy has entered a tightening cycle. And these also already reflected in polyurethane industry actually. In 2018, the growth rate of polyurethane industry slowed down, and the consumption growth rate of several upstream products was basically in the range of 2%-4%, generally reflecting weak demand in the market. Some players in the industry are pessimistic: 2018 is bad, but 2019 could be even worse.

 

But don't be too pessimistic. Every cloud has a silver lining, because the sun is behind it.

From a macro perspective to the polyurethane industry, some of the original traditional downstream market may be shrinking, but we can try to find another cake to eat.

 

For example, I saw the news yesterday that the working meeting of China railway corporation was held on January 2. The meeting stressed that in 2019, "the national railway fixed asset investment should maintain its intensity and scale, complete the tasks and targets set by the state with high quality and efficiency, and ensure the production of 6,800 km of new lines, including 3,200 km of high-speed railways". Economic downward pressure increased, infrastructure or will again be valued to support the economy. Polyurethane material has long been used in the field of high-speed railway, now the main application is the train seat. And there are all sorts of other areas where you can try to use polyurethane. Simply put: is being nibbled, can try to bite a bit; haven't been gnawed, can you try to find a place for the next mouth.

The same goes for the whole downstream industry. Polyurethane as a new material, the development potential is still huge. There are still so many unknown fields, so many infinite possibilities. Innovating new products and exploring new application areas can bring more vitality and greater development prospects.

 

The New Year will be a year of crisis and opportunity.

 

 

 

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