Is the Thai supply chain anchored to China?

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

How have Chinese port closures impacted supply chain security in Thailand?

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

The port of Shanghai is one of the busiest in the world and S&P Global Market Intelligence reports that there have been longer wait times for bulk carriers at anchor waiting to enter Chinese ports in recent months. The number of ships waiting has increased to 600-700 from 500 at the beginning of March, which is about 20 to 40% more than two months ago.

Mana Nimitvanich, Krungthai Bank’s first vice president on the Business Risk & Macro Research Team, said China’s zero-Covid policy has already had an impact on Thailand’s supply chain.

“In the first quarter, Thai imported volumes from six Chinese provinces with high confirmed cases [Shanghai, Guangdong, Fujian, Shandong, Zhejiang and Jiangsu] significantly decreased. Items that exhibited contractions include chemicals, fertilizers, glass and wood products.”

He cited data from the Global Trade Atlas that showed exports from the six provinces to Thailand fell 16.4% in February, followed by a 2.4% drop in March.

“For the rest of the year, Thai manufacturers, which are heavily dependent on China’s products, are likely to face raw material shortages,” Mr Mana said.

What is the impact on Thailand’s manufacturing sector?

In the manufacturing sector, Thai exporters are still protected from the significant impact of the Chinese port closures by Covid in the near term.

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

Mr Mana advised manufacturers in Thailand to use domestically made components rather than importing them for industrial products as supply chain pressures are likely to continue into 2022.

What does four consecutive MONTHS PMI increases mean?

The S&P Global Thailand Manufacturing PMI was 51.9 in April 2022, up slightly from 51.8 in March. According to the agency, this is the fourth straight monthly increase and the fastest expansion since February.

Jingyi Pan, deputy economic director of S&P Global Market Intelligence, said Bangkok Post It expects continued inflationary pressures and supply chain issues to keep manufacturing activity in check in the near term, with industrial production expansion downgraded to 3.2% for 2022.

“External demand was lackluster in April after eight straight months of decline. This comes amid ongoing disruptions from developments such as the war in Ukraine and higher inflationary pressures due to China’s lockdowns,” she said.

“PMI input cost and output price indicators certainly reflected the ongoing price pressures in Thailand’s manufacturing sector in April. Manufacturers in particular reported increasing their input purchases to safely build inventories and adjust to the impact of these supply chain disruptions.”

How does this affect shipping and logistics?

Regarding Thai exports to China, Chaichan Chareonsuk, president of the Thai National Shippers’ Council, said the country posted 4.18% year-on-year growth in the first quarter of this year.

“If we look closely at the figures for the first quarter, three categories have seen a significant drop in shipments to China: automotive and auto parts [-44.4%]; perishable goods such as fruits and vegetables suffered from zero Covid restrictions [-23.9%]; and chemical substances [-13.0%],” he said.

Mr. Chaichan said that in terms of logistics, there are three areas to focus on: container shortages, container circulation and freight costs. He said the shortage no longer seems to be an issue as the world has opened up and many available containers are passing through different ports.

However, there are still some problems with container circulation as China’s port closures and bubble-and-seal measures make it difficult for workers to move shipments, resulting in insufficient circulation, Mr Chaichan said.

He said freight costs have remained high over the past month, up 160% from the same period last year, despite costs being a staggering 390% higher than in April 2019.

Why watch CHINA’s PMI numbers?

Over the next six months, Mr. Chaichan recommended closely monitoring China’s PMI, which fell to 47.4 in April from 49.5 in March, according to China’s National Bureau of Statistics.

Those numbers come in line with a private survey by the Caixin/Markit Manufacturing PMI, which found China’s factory activity contracted at a steeper pace, reading 46 in April, down from 48.1 the previous month.

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

“From June 1 to later in the month, as long as the risk of a resurgence of infections is under control, we will fully implement epidemic prevention and control measures, normalize management, and fully restore normal production and life in the city ‘ said Ms. Zong.

Will port lockdown dampen Thailand’s GDP forecast?

The short answer is not entirely correct, as the National Economic and Social Development Council (NESDC) released its forecast for Southeast Asia’s second largest economy yesterday, raising its economic growth prospects for 2022 from 3.5-4.5% to 2.5-3.5% revised due to higher inflation and slower global growth related to Russia’s invasion of Ukraine.

NESDC Secretary-General Danucha Pichayanan told a news conference that the country’s first-quarter growth was 2.2%. The economy was buoyed by the easing of lockdown measures and the resumption of various economic activities.

This year, the Thai economy is expected to be supported by a surge in exports, domestic demand and a recovery in tourism, he said.

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