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South Korea's factory activity expands for 9th month; supply chain disruption adds strains

South Korea's factory activity extended growth into a ninth month in June thanks to improving global demand, though record input and output price rises pointed to strains on manufacturers amid supply-chain disruptions and escalating raw material costs.

South Korea's factory activity expands for 9th month; supply chain disruption adds strains

FILE PHOTO: Workers labour on a steel frame at a construction site in central Seoul, South Korea, March 25, 2016. REUTERS/Kim Hong-Ji

SEOUL: South Korea's factory activity extended growth into a ninth month in June thanks to improving global demand, though record input and output price rises pointed to strains on manufacturers amid supply-chain disruptions and escalating raw material costs.

Thursday's private IHS Markit purchasing managers' index (PMI) for June edged up to 53.9, from 53.7 in May, holding above the 50-mark, which separates growth from contraction, since October.

"The latest Manufacturing PMI reading picked up from the previous month and indicated that the health of the sector continued to improve solidly throughout the quarter," said Usamah Bhatti, economist at IHS Markit.

"Both output and new orders continued to expand, with growth in the latter accelerating from the previous month as firms saw rising client demand continue to sustain new business inflows."

The sub-index for output stood at 53.3, marking the 10th straight month of growth, and almost steady from the 53.4 a month earlier.

Total new orders and export orders both expanded for a ninth month, with the pace of growth accelerating from May.

The survey, however, showed raw material shortages and shipping delays caused a record increase in input prices, which forced firms to pass higher costs on to clients.

The sub-index for input prices jumped to a record and extended the rise to a 13th straight month, while that for output prices also surged to an all-time high.

"Manufacturers were increasingly commenting that severe supply chain disruption was starting to impact activity. Sharp rises in raw material prices amid severe shortages in supply and freight capacity contributed to the sharpest rise in input prices on record," Bhatti said.

Still, despite the cost burdens, firms increased employment for a fifth month in a row as the opening of new production lines and higher orders required additional capacity.

Looking ahead, businesses were significantly optimistic over the coming 12 months on hopes of a continued economic recovery and expectations supply chain pressures would ease in a further boost to demand.

Source: Reuters

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