Is the Thai supply chain anchored to China?


China’s Covid containment measures, particularly in the world’s largest port city, Shanghai, have influenced Thailand’s supply chain security and could cast a shadow over local manufacturers’ decisions in the medium term. .

How have Chinese port lockdowns affected Thailand’s supply chain security?

Nomura Securities said 40 cities in China are under full or partial lockdown, or have district-based controls in place. This means mobility restrictions for businesses as well as local residents.

The port of Shanghai is one of the busiest in the world, according to S&P Global Market Intelligence, there has been an increase in waiting times in recent months for bulk carriers at anchor waiting to enter Chinese ports. The number of ships on hold rose from 500 to 600-700 at the start of March, about 20-40% more than two months ago.

Mana Nimitvanich, Krungthai Bank’s senior vice president in the business and macroeconomic risk research team, said China’s zero-Covid policy has already affected Thailand’s supply chain.

“In the first quarter, Thailand imported quantities from six Chinese provinces with a high number of confirmed cases. [Shanghai, Guangdong, Fujian, Shandong, Zhejiang and Jiangsu] significantly decreased. Items that have shown contractions include chemicals, fertilizers, glass and wood products.”

He referred to data from the “Global Trade Atlas” which showed a 16.4 percent drop in February in exports from the six provinces to Thailand, followed by a 2.4 percent decline in March.

“For the rest of the year, Thai manufacturers who rely heavily on Chinese products are likely to face a shortage of raw materials,” Mana said.

What are the effects on the Thai manufacturing sector?

For manufacturing, Thai exporters are still shielded from any significant impact from China’s Covid port closures in the near term.

“Thai factories have already stocked up on industrial items and it could last around 3-6 months. This can be confirmed by Thailand’s manufacturing PMI data, which continues to grow,” he said.

Mana advised Thai manufacturers to use domestically produced components instead of importing them for industrial products as supply chain pressure is likely to persist throughout 2022.

What does four consecutive MONTHS of PMI increases mean?

The S&P Global Thailand Manufacturing PMI measured 51.9 in April 2022, up slightly from 51.8 in March. It was the fourth consecutive monthly increase and the fastest expansion since February, according to the agency.

Jingyi Pan, the associate economic director of S&P Global Market Intelligence, told the Bangkok Post it expects sustained inflationary pressures and supply chain issues to limit manufacturing output activity in the short term, with the expansion of industrial production being reduced to 3.2% for 2022.

“Foreign demand remained lackluster in April after eight consecutive months of declines. This was against the backdrop of continued disruptions from developments such as the war in Ukraine and higher inflationary pressures following China’s lockdowns” , she said.

“The PMI indicators for input costs and producer prices certainly reflected sustained price pressures in Thailand’s manufacturing sector in April. In particular, manufacturers reported increasing purchases of inputs to build up safe inventories. , adapting to the effects of these supply chain disruptions.”

How does this affect shipping and logistics?

Regarding Thailand’s exports to China, Chaichan Chareonsuk, chairman of the National Shippers Council of Thailand, said the country recorded 4.18 percent year-on-year growth in the first quarter of this year.

“If we look closely at the first quarter figures, three categories saw a significant decline in shipments to China: automotive and automotive parts. [-44.4%]; perishables such as fruit and vegetables, which have suffered from zero-Covid restrictions [-23.9%]; and chemicals [-13.0%],” he said.

Chaichan said that in terms of logistics, there were three areas to focus on: container shortage, container movement and freight costs. He said the shortage no longer seems to be a problem as the world has opened up and many available containers are moving through different ports.

However, there are still problems with container traffic because China’s port closures and “bubble and seal” measures make it difficult for workers to move shipments, resulting in insufficient traffic, Ms. Chaichan.

He said the cost of freight remained high last month, 160% above the same period last year, although the cost was 390% higher than in April 2019.

Why look at CHINA’s PMI figures?

Over the next six months, Chaichan recommended keeping a close eye on China’s PMI, which fell to 47.4 in April from 49.5 in March, according to China’s National Bureau of Statistics.

The numbers are consistent with a private Caixin/Markit manufacturing PMI survey that found Chinese factory activity contracted at a faster pace, posting 46 in April, down from 48.1 the previous month. .

On Monday, Shanghai Deputy Mayor Zong Ming announced that the city plans to end the sharp slowdown in Chinese economic activity and return to more normal life from June 1.

“From June 1 to later this month, as long as the risks of a rebound in infections are contained, we will fully implement epidemic prevention and control measures, standardize management, and fully restore production and normal life in the city,” Zong said. .

Does port lockdown dampen Thailand’s GDP forecast?

The short answer is not quite, as the National Economic and Social Development Council (NESDC) released its forecast for Southeast Asia’s second largest economy yesterday, revising its outlook for economic growth for 2022 by 3 .5-4.5% to 2.5-3.5% due to higher growth. inflation and slowing global growth, linked to Russia’s invasion of Ukraine.

NESDC Secretary General Danucha Pichayanan told a press conference that the country’s growth in the first quarter was 2.2%. The economy was supported by the easing of containment measures and the resumption of various economic activities.

This year, Thailand’s economy is expected to be supported by an increase in exports, domestic demand and a recovery in tourism, he said.


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