No longer a shortage of parts, the industry is haunted by weak demand and high prices

The situation in Czech industry is changing. The main problem of the last two years – broken production chains – is slowly receding into the background. But this does not mean that with better availability of semiconductors, better times will automatically flash.

The new major problem is high input prices (especially energy) and weakening demand, which apparently cannot well digest rapid price increases in many areas.

The August PMI showed that new orders fell in the industry for the sixth month in a row and at the fastest pace since May 2020 due to high prices (CZSO figures sound more optimistic, but are delayed by two months).


GRAPH: Development of the PMI index
From September 2021 to August 2022, in points

Source: tradingeconomics.com


According to the PMI survey, clients are more hesitant to make purchases across sectors, and some of them are even canceling fragmented projects. This is slowly starting to be reflected in the production, which continued to decline during the summer.


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What will the production data show?

To a certain extent, this was already visible in the “hard” data from the Czech Statistical Office for June, and we will see what other results for July will indicate this week.

According to the June figures, the situation is particularly bad for more energy-intensive sectors such as the chemical industry (-5.2 percent month-on-month and -2.3 percent year-on-year) or metal processors (-8.3 percent month-on-month and -10.5 percent year-on-year).

And sectors dependent on larger investment projects, such as engineering, are also doing poorly (-7.9 percent month-on-month and -7.4 percent year-on-year).

On the other hand, vehicle manufacturers are slowly starting to benefit from the fact that tensions in subcontracting chains are easing and they are able to complete fragmented production (+2.3 percent month-on-month and 18.2 percent year-on-year).


GRAPH: Development of production in selected branches of industry
From January 2018 to June 2022 (2019 = 100), in percent

Source: Patria/CZSO


However, this does not mean that the entire automotive industry is fine. While the increase in production can be seen in the growth of cars in progress and new demand, overall registrations of new passenger cars remain relatively low across Europe (we are not far from the bottom in Western Europe).


GRAPH: Development of new car registrations in selected countries
From January 2017 to June 2022, in million cars

Source: Patria/ACEA


We also assume that new orders will also be weaker in this sector in the coming months. In addition, a number of more energy-intensive subcontractors of the automotive sector have difficulty coping well with the sharp increase in energy prices.

This is evidenced, for example, by the difficulties of some plastics manufacturers connected to the automotive industry, for whom sudden increases in energy prices are often liquidating, as evidenced, for example, by the fate of the plastic company PP&T.


The article is in Czech

Tags: longer shortage parts industry haunted weak demand high prices

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