The Malaysian manufacturing sector moderated further at the end of the first quarter of 2023, although there were indications that demand was on the path to recovery.
In a report on Monday (April 3), S&P Global Market Intelligence said order books were scaled back at the softest rate in five months as some firms signalled an increase in customer orders.
That said, production levels remained muted as client confidence was still subdued. Rates of both input cost and selling price inflation eased, with input cost coming in at its lowest in 34 months.
Concurrently, selling prices were broadly unchanged on the month, a marked turnaround from the rapid increases seen over much of the previous two years.
The seasonally adjusted S&P Global Malaysia manufacturing purchasing managers’ index (PMI) stood at 48.8 in March, up from 48.4 in February.
The latest reading pointed to the least marked slowdown in business conditions since last September.
The latest PMI reading is also consistent with sustained, solid expansions in both manufacturing production and gross domestic product, with signs that growth has picked up since the start of the year.
In line with the headline figure, there were signs that the lull in demand was easing during March, with order book volumes reducing at a slower rate.
The moderation was only mild and the softest seen since last October. While a number of firms still noted that client confidence was subdued, some commented that demand had shown signs of recovery at the end of the first quarter through an increase in customer orders.
Similarly, there was a slower reduction in new export orders, which fell at the softest pace since July 2022.
Meanwhile, production volumes were scaled back for the eighth month running in March.
Survey respondents reported that drops in output were reflective of relatively muted demand conditions.
There were more positive news on the price front, as average cost burdens rose at a mild pace that was the softest in the current 34-month sequence of input price inflation.
Survey members mentioned that raw materials and packaging rose in cost, though there were several reports of reductions in the price of oil.
Firms also reported that prices charged for goods were broadly unchanged on the month, as some panellists signalled that prices were reduced in order to stimulate demand.
Suppliers' delivery times shortened for the third month in a row in the latest survey period, signalling a further improvement in Malaysian manufacturing supply chains.
Though softer than that seen in February, the latest improvement in vendor performance was still one of the most pronounced in the past five years.
Firms often attributed shortened delivery times to less congestion at ports as well as higher employment at suppliers.
Subdued operating conditions reportedly led firms to scale back input buying at a sharper, albeit still modest rate.
As such, for the eighth consecutive month, pre-production inventory levels moderated.
The slowdown in sales also allowed firms to focus on working through outstanding business in March, thereby stretching the current sequence of backlog depletion to 10 months.
That said, the latest decrease was the softest for five months.
March data was indicative of a third consecutive rise in workforce numbers at Malaysian manufacturers, and one that was marginal overall.
Where an increase in employment levels was reported, companies commonly linked this to taking on additional staff to fulfil orders.
Malaysian manufacturers remained hopeful that demand conditions would normalise over the coming 12 months, as indicated by a 21st consecutive month of optimism regarding future output.
While the degree of confidence eased to a three-month low, it remained strong overall and above the series average.
S&P Global Market Intelligence economist Usamah Bhatti said the Malaysian manufacturing sector displayed signs of improved demand conditions according to the March PMI data.
He said while new order intakes moderated further, the reduction was the slowest recorded since last October and only mild as some firms were able to secure greater new order volumes.
“That said, production volumes continued to be scaled back, indicating that the sector still has some way to go before demand recovers fully.
"Firms will also be buoyed by a further softening in input price inflation. Inflationary pressures were well below those seen in the second half of 2022, with the latest reading of the respective seasonally adjusted index the lowest since May 2020.
“Softer cost pressures meant less upward pressure on selling prices, which were broadly unchanged over the month,” said Bhatti.
Sources: theedgemarket