China's factory activity seen growing at a slower pace in June: Poll

[June 28, 2021]  BEIJING (Reuters) - Chinese factory activity likely expanded at a slower pace in June, hit by a resurgence of COVID-19 cases in the major export province of Guangdong, a Reuters poll showed on Monday, though quick containment indicates economic disruption is easing.

Employees work on a production line manufacturing metal parts for furniture at a factory in Hangzhou, Zhejiang province, China April 30, 2020. China Daily via REUTERS/Files

The official manufacturing Purchasing Manager's Index (PMI) is likely to ease to 50.8 in June from 51 in May, showed the median forecast of 32 economists polled by Reuters. A reading above 50 indicates expansion in activity on a monthly basis.

"The key drag would be COVID disruption on Shenzhen ports, accounting for about 7% of national exports, which has led to slower container throughput growth," said analysts at Morgan Stanley in a note to clients.

"This could weigh down national exports by 3-4 percentage points, and thus drag the pace of production in mid- to downstream sectors. Meanwhile, construction activity likely slowed amid higher raw material prices."

More than 150 novel coronavirus cases have been reported in Guangdong province, a manufacturing and exporting hub in southern China, since the latest wave of cases struck in late May, prompting local governments to step up prevention and control efforts that have curbed port processing capacity.

But port congestion is easing, with Shenzhen's Yantian Port, which had been hit by a COVID-19 outbreak, resuming full capacity on Saturday, state media reported. Guangdong has not reported any COVID-19 cases in six days.

Chinese exporters, which have defied expectations of a slowdown since the beginning of the pandemic, are grappling with a global shortage of semiconductors, high raw material costs and sky-rocketing shipping fees as a surge in global demand for Chinese goods stretches global shipping capacity.

Chinese officials have said they would curb any unreasonable increases in commodity prices. The state planner has launched investigations into the coal, iron ore and fertiliser markets.

Meanwhile, at China's industrial firms, profit growth slowed again in May, official data showed on Sunday, as surging raw material prices squeezed margins and weighed on factory activity.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Wednesday.

The private Caixin manufacturing PMI will be published on Thursday. Analysts expect the headline reading will slip slightly to 51.8 from May's 52.

(Reporting by Stella Qiu and Ryan Woo; Editing by Christopher Cushing)

[© 2021 Thomson Reuters. All rights reserved.]

Copyright 2021 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.  Thompson Reuters is solely responsible for this content.