CN Gold Review May PMI: Demand returns to contraction zone, industry differentiation expands.

The Zhongjin released a research report stating that the manufacturing PMI in May fell by 0.3 percentage points to 50.0% compared to the previous month, in line with market expectations; the non-manufacturing business activity index rose by 0.7 percentage points to 50.1% month-on-month; the comprehensive PMI rose by 0.4 percentage points to 50.5% month-on-month. Demand returned to the contraction zone, and industry differentiation expanded. Behind this are multiple factors driving the trend: the continuous impact of energy supply; factors such as external demand and the trend of AI industries continue to drive emerging industries; and weak domestic demand continues. The main points of the Zhongjin report are as follows: Demand returned to the contraction zone, and industry differentiation expanded. In May, the new order sub-index fell by 0.7 percentage points to 49.9% month-on-month, returning to the contraction zone. The production sub-index fell by 0.3 percentage points to 51.2% month-on-month, maintaining some resilience. The demand-supply gap is widening. The degree of industry differentiation is also expanding. High-tech manufacturing and equipment manufacturing PMIs increased by 0.7 and 0.3 percentage points to 52.9% and 52.1% respectively, maintaining their absolute levels in the expansion zone; consumer goods and high-energy-consuming industries decreased by 1.0 and 0.8 percentage points to 49.7% and 47.1% respectively, with absolute levels also in the contraction zone. This differentiation is also reflected in specific industries, with the National Bureau of Statistics stating: "The production and new order indices of industries such as pharmaceuticals, railway ships, aerospace equipment, computers, communications, and electronic equipment are all higher than 53.0%, with production and demand being relatively active; while the indices of industries such as petroleum, coal and other fuel processing, chemical fibers, rubber and plastic products, and non-metallic mineral products remain below the critical point, with both supply and demand sides still showing deficiencies." Multiple factors are driving industry differentiation: First, the continuous impact of energy supply. The ongoing Middle East conflict in May continues to have a sustained impact on energy supply. Looking at the sub-index for raw material purchasing prices, although there has been a slight decline in month-on-month growth rates, it still remains at a high level. In May, raw material purchasing prices and factory prices both fell by 3.2 percentage points to 60.5% and 51.9% month-on-month, respectively, with factory prices remaining weaker than purchasing prices. The negative impact of energy supply on the profits of downstream industries is ongoing. The negative impact of energy supply will also be magnified through the global industrial chain, with the supplier delivery time falling by 0.3 percentage points to 49.2% in May, indicating a further extension of delivery times by suppliers. Of course, compared to the supplier delivery times for manufacturing PMIs in the United States, the Eurozone, and Japan in May, China's impact is relatively smaller due to its industrial chain advantage. The negative impact of energy supply has led to certain negative effects on the supply side of high-energy-consuming industries such as petroleum, coal and other fuel processing, chemical fibers, rubber and plastic products, and non-metallic mineral products. Second, factors such as external demand and the trend of AI industries continue to drive emerging industries. In May, new export orders fell by 1.7 percentage points to 48.6% month-on-month. We believe that on the one hand, this is due to the high base effect caused by overseas short-term stocking effects in April, and in May, the marginal slowdown in stocking may have occurred, as the sub-index for raw material inventories fell by 0.7 percentage points to 48.6% in May. On the other hand, current external demand is also showing structural effects among industries, with high optimism in categories such as AI and new energy supporting high-tech and equipment manufacturing industries, especially the computer, communication, and electronic equipment manufacturing industry, while traditional categories are weakened by high oil prices. Third, weak domestic demand continues. In May, the business activity index for the service industry rose by 0.7 percentage points to 50.3% month-on-month, but the absolute level remains low, and the seasonal push from the May Day holiday is significant. Actual consumer demand may still be weak, suppressing the PMI of consumer goods manufacturing in May. In addition to the continued adjustment of the real estate cycle, high oil prices may also have suppressed demand. In May, the sub-index for input prices in the service industry rose by 0.8 percentage points to 52.0%. The National Bureau of Statistics stated: "Business activity indices in industries such as aviation transportation and real estate are below the critical point, with the business sentiment in related industries being relatively low." In May, the business activity index for the construction industry rose by 0.8 percentage points to 48.8% month-on-month, but the absolute level remains at historically low levels, showing marginal improvements on a low absolute level, which also partly suppressed the PMI of high-energy-consuming industries in May.