Executive Summary:
1. In mid-May 2023, the price of 82% of important means of production fell month-on-month;
2. This is not a purely seasonal decline, and insufficient demand amplifies the depth and breadth of the decline in means of production;
3. The decline in the prices of agricultural products and agricultural means means that basic household consumption is also contracting;
4. The price of building materials has fallen sharply, which means that construction projects, real estate starts, and fixed asset investment continue to fall;
5. The price of means of production has continued to fall sharply, and will continue to compress the profits of industrial enterprises.
1. In mid-May 2023, the prices of 82% of important means of production fell month-on-month
On May 24, the National Bureau of Statistics released monitoring data on the market prices of 50 important means of production in nine categories in the national circulation field. Compared with early May, 41 of the 50 important means of production listed in the follow-up survey catalogue by the National Bureau of Statistics decreased month-on-month, accounting for 82%. The largest decline was sulphuric acid, which fell by 9.8%. There were 4 types that fell by more than 5% month-on-month, 19 types that fell by 2-5%, and 18 types that fell by less than 2%. The price of 1 type (peanut) was flat, and the price of only 8 products increased month-on-month, of which 7 products increased by less than 2%, and only 1 natural rubber increased by 2-5%.
These 50 means of production are divided into nine categories. Among the nine categories, only the price of forest products increased by 1.2% month-on-month, while the price of the remaining 8 categories decreased month-on-month. The top three decliners were oil and gas (-3.5%), chemical products (-3.4%) and coal (2.7%).
Supply exceeds demand, prices rise, oversupply and prices fall. The prices of 82% of the means of production fell month-on-month, and the prices of 46% of the means of production fell by more than 2% month-on-month, which means that the pent-up consumer demand and production demand during the mask period continued the downward trend in April after a brief release in the first quarter.
It should be noted that the National Bureau of Statistics does not provide the price fluctuation range of classified means of production, and all the price increases and decreases of all classifications in this article are calculated by the national securities big data according to the simple arithmetic average method.
Second, this is not a purely seasonal decline, and the lack of demand amplifies the breadth of the decline in means of production
Some people will think that there will be a seasonal month-on-month decline in agricultural prices due to the large number of agricultural products on the market in May? Could it be that the seasonal decline in procurement demand for infrastructure and industrial means of production in May led to a seasonal month-on-month decline in industrial means of production?
The answer is clearly no. In mid-May 2021, the prices of 33 or 66% of the 50 means of production varieties increased month-on-month, in mid-May 2022, the prices of 23 varieties or 46% increased month-on-month, and by mid-May 2023, the number of varieties with higher prices decreased to 13, accounting for only 26%, less than one-third of the same period in 2021. However, the number of varieties that fell expanded from 13 in the same period of 2021 and 27 in the same period of 2022 to 41, and the number of varieties with falling prices month-on-month increased by 2 times compared with the same period in 2021.
Third, the falling prices of agricultural products and agricultural inputs mean that basic household consumption is also shrinking
The means of production in the circulation link are basically highly positively correlated with the prices of consumer goods. For example, if the price of rice entering the production link rises, the price of rice in the retail link will definitely rise. The price of pigs entering the production link will rise, and the price of pork in the retail link will definitely rise.
In mid-May, agricultural prices fell 0.9% month-on-month from early May and 6.3% from mid-May 2022. Among them, hog prices fell 0.2% month-on-month and 8.4% year-on-year.
Food consumption is a rigid demand with little elasticity, accounting for about 30% of mainland residents' consumption. From the perspective of consumption law, the decrease in household income will first reduce the category with greater demand elasticity, and finally reduce food consumption. If food prices are falling year-on-year and month-on-month, it means that the supply of food is greater than the demand, and the demand for food by residents is shrinking, which means that residents' income is difficult to maintain normal consumption, and the demand for commodities with greater consumption elasticity is not enough to maintain a balance of payments, and finally have to cut back on food and clothing.
The prices of agricultural inputs that are highly correlated with agricultural production also reflect the reduced demand for agricultural inputs by agricultural producers following the decline in agricultural prices. In mid-May, the price of agricultural inputs fell by 3.4% month-on-month and 34.6% year-on-year.
Fourth, the price of building materials has fallen sharply, which means that construction projects, real estate starts, and fixed asset investment continue to fall
From January to April 2023, the national fixed asset investment 147482 billion yuan. It decreased by 3.9% year-on-year. Among them, it rose by 5.5% in January-February, decreased by 0.7% in March and decreased by 17.4% in April.
From the perspective of real estate, real estate development investment fell by 5.7% year-on-year from January to February, fell by 7.2% in March, and expanded to 16.2% in April. Home sales area also widened from a 3.5% year-on-year decline in the first quarter to an 11.8% decline in April.
The prices of production materials for building materials continued to fall in May, indicating that infrastructure, real estate development, and fixed asset investment continued the downward trend of contraction from March to April.
In mid-May, rebar prices fell 0.6% month-on-month and 23.2% year-on-year; Wire prices decreased by 0.8% month-on-month and 22.8% year-on-year; Cement (bulk) prices decreased 8.1% month-on-month and 17.7% year-on-year. Among building materials, float glass prices rose 0.9% month-on-month and 13.9% year-on-year.
According to data from Shanghai E-House, from May 1 to 22, the transaction area of new commercial housing in 50 key cities across the country was 11.99 million square meters, down -13% from April 1 to 22. Among them, 18 cities increased month-on-month, while the remaining 32 cities decreased month-on-month. The supply and demand relationship reflected in the month-on-month and year-on-year decline in the prices of building materials commodities in mid-May by the National Bureau of Statistics is also mutually confirmed and more consistent.
Fifth, the price of means of production has continued to fall sharply, and it will continue to compress the profits of industrial enterprises
According to data released by the National Bureau of Statistics, in the first quarter of 2023, the total profit of industrial enterprises above designated size decreased by 21.4% year-on-year on the basis of a 4% decline in 2022. The proportion of loss-making enterprises in all industrial enterprises above designated size increased from 27.8% in the same period last year to 34.5%.
Since February this year, the purchase price index of industrial means of production has been falling year-on-year, and has been falling for five months. In May, the prices of 50 means of production fell by an average of 2% month-on-month and 19.4% year-on-year.
As the prices of major means of production continue to decline month-on-month and year-on-year, the sales revenue of industrial enterprises will decrease due to the decline in sales prices, but debt interest (industrial enterprise liabilities increased by 8.3% year-on-year in March 2023), labor costs, and taxes still increased, which will further compress the profits of industrial enterprises and increase the loss surface and loss amount of industrial enterprises.
【Author:Xu Saburō】