China PMI falls amid global slowdown

China's manufacturing sector recorded a renewed contraction of activity in December, as the continued downturn in emerging markets saw global manufacturing growth decline to a three-month low, weighing on metals demand.

In China, the Caixin purchasing managers index (PMI) figure for December fell to 48.2 from 48.6 in November, with a number below 50 indicating a contraction in activity. The figure has been below 50 since March 2015.

Weaker domestic and international demand led to lower overall new work in December, as new export business fell for the first time in three months.

Lower output requirements saw a further fall in purchasing activity in China in December. Deflationary pressures persisted, as highlighted by further marked declines in input costs and selling prices, Caixin said. Weaker input costs were largely attributed to lower raw material prices.

Most non-ferrous metals prices continued to decline in December, as reduced output from consumer industries translated into weak demand for metals for production. Stocks of inputs declined over the month, while fewer sales led to a slight accumulation of stocks of finished goods.

The Chinese government's official PMI figure was 49.7, compared with 49.6 in November and still below the key level of 50, as the sector remained under downward pressure according to the National Bureau of Statistics.

The data pointed to continued weakness in the Chinese economy, with exports unable to pick up the slack of falling domestic consumption, which contributed to a sharp sell-off on the Chinese stock markets that triggered a suspension of trading today. The Shanghai Composite Index dropped by 6.9pc to a three-month low. The yuan-US dollar exchange rate stood at Yn6.50:$1, its weakest level since May 2011.

The JP Morgan global manufacturing PMI fell to a three-month low of 50.9 in December, down from 51.2 in November. In addition to China, PMIs were below 50 in India, Brazil, Russia, Indonesia and Malaysia. The expansion in developed countries continued, but growth slowed, on average, to an eight-month low.

The US recorded its lowest growth in manufacturing activity since October 2012, with the Markit PMI falling to 51.2 in December from 52.8 in November. New order levels expanded at the weakest pace since September 2009. The strong dollar continued to weigh on demand, with export sales virtually stagnant and cheaper imports competing for domestic business.

The slower growth in new business resulted in more cautious input buying to streamline stocks. As a result, pre-production inventories decreased for the first time in 18 months during December. The rate of decline in input prices accelerated, with manufacturers citing in particular the falling cost of raw materials such as steel. And lower oil prices continued to weigh on demand for goods and machinery from the energy sector.

The Markit/CIPS PMI in the UK fell to 51.9 in December from 52.5 in November. New export orders rose for the fourth consecutive month, although the rate of increase slowed to its weakest since September. Growth was driven by increased demand from continental Europe, the US, China, Scandinavia, Turkey, Singapore and the UAE.

But Japan saw a marked increase in output and new orders in December, with exports expanding for a third straight month. The growth in demand was attributed by some firms to greater trade volumes with Taiwan and southeast Asian countries. The Nikkei manufacturing PMI was unchanged from 52.6 in November, a 20-month high. Goods producers cited difficulties with production capacity keeping up with stronger demand, although the rate of increase was only slight. Input prices increased at a lower rate, as a result of falling oil and metal costs.

The eurozone manufacturing sector expanded in December, with production rates, new orders and new export business increasing. The Markit PMI figure rose to 53.2 in December from 52.8 in November, and with the PMI in Greece above 50, all of the eurozone states recorded expansion for the first time since April 2014. New export orders increased in Germany, France, Italy, Spain, the Netherlands and Ireland, with growth at a seven-month high.

But Markit noted that the eurozone's expansion remained modest. "With eurozone manufacturing still some 9pc off its pre-crisis peak, it looks as if the sector still has some distance to travel before the climb back to full recovery is completed," senior economist Rob Dobson said.