April PMI shows that companies are increasing precautionary stockpiling, CMSC: pay attention to the input effects of the Middle East situation and the implementation of policies to expand domestic demand.

CMSC released a report stating that the national manufacturing PMI slightly decreased in April, mainly due to a decline in new orders, while support mainly came from raw material inventory. From a relative perspective, supply is relatively stronger than demand, external demand is relatively stronger than internal demand, raw material inventory is increasing more than finished goods inventory, and profits continue to tilt towards upstream industries. The main points of CMSC are as follows: Events In April, the manufacturing PMI recorded 50.3%, a decrease of 0.1 percentage point from March. The service PMI recorded 49.6%, a decrease of 0.6 percentage points from March; and the construction PMI recorded 48.0%, a decrease of 1.3 percentage points from March. Core viewpoints Firstly, new export orders performed better than seasonal levels. Despite the ongoing tensions in the Middle East which have caused some disruptions in global supply chains, China's comprehensive industrial system and stable supply chain provide solid support for export business. At the same time, demand for stockpiling by major foreign economies has led to a relatively strong performance in new export orders. It is important to note that while the new order index has fallen, external demand is stronger than internal demand, reflecting room for improvement in domestic demand recovery, and attention should be paid to the implementation of policies to boost domestic demand. Secondly, the raw material inventory index reached a new high since March 2023. Against the backdrop of continuously high raw material procurement prices, this may reflect some companies engaging in precautionary stockpiling. The subsequent changes in the Middle East situation and its potential impact on market prices and related industries in China still require continuous attention. Thirdly, profit distribution continues to tilt towards the upstream of the industrial chain. At the same time, the outlook for business operations continues to improve, which is consistent with current inventory and production performance. It is still necessary to continue tracking the sustainability and marginal changes of the recovery in domestic and external demand. New orders slightly decreased online, while production continued to improve From the demand side, overseas demand was good in April, with the new export order index at 50.3%, an increase of 1.2 percentage points from the previous month, clearly exceeding seasonal levels and returning to the expansion zone, leading to a slight decrease in new orders online, which also slightly exceeded seasonal levels. From the production side, the manufacturing production index in April further increased to 51.5%, an increase of 0.1 percentage points from March. In terms of sectors, equipment manufacturing and high-tech manufacturing continued to remain in the expansion zone. Both raw material and finished product prices remained high and slightly declined, while inventory increased slightly Uncertainty in the Middle East continues, with the raw material procurement price index for April at 63.7%, a slight decrease of 0.2 percentage points from the previous month but still at a high level, particularly notable for the rising prices in the basic raw material industry; the ex-factory price index was 55.1%, a decrease of 0.3 percentage points from the previous month, remaining above 55%. Business expectations remain optimistic, and raw material inventory increased. The business activity expectation index was 54.5%, an increase of 1.1 percentage points from the previous month, while the raw material inventory index was 49.3%, an increase of 1.6 percentage points from the previous month. Construction PMI turned downwards The business activity index for the construction industry in April was 48%, a decrease of 1.3 percentage points from the previous month, failing to sustain the rebound trend from the previous month. The business activities related to infrastructure construction continued to expand, with the business activity index of civil engineering construction industry slightly declining from the previous month, but still at a relatively high level of above 52%. The new order index for the construction industry remained below the breakeven line, indicating that investment demand still needs to be consolidated. The business activity expectation index for the construction industry in April was 50.5%, unchanged from the previous month. Service PMI falls below the line The business activity index for the service industry in April was 49.6%, a decrease of 0.6 percentage points from the previous month. Looking at different industries, the business activity index for industries such as railway transportation and postal services was above 55.0%, indicating a high level of economic activity; while the business activity index for industries such as wholesale, retail, and residential services was below the critical point, indicating weak market activity. However, the business activity expectation index for the service industry was 55.4% in April, an increase of 0.6 percentage points from the previous month, reaching a high level of above 55.0%. Risk warnings: The speed of domestic demand recovery is slower than expected; domestic policy changes; changes in the international trade environment.