KB Securities "Global Companies to Show More Evident Cost Increases in Q2 Earnings"

[Asia Economy Reporter Hwang Yoon-joo] KB Securities analyzed that the cost burden on companies due to rising raw material prices is expected to increase further in the second quarter, in relation to the manufacturing indicators announced by the New York and Philadelphia Federal Reserve Banks.

On the 22nd, KB Securities researcher Kim Il-hyeok stated, "If the inflation trend continues more from the supply side than demand, the weakness in demand is also expected to become more pronounced."

The Philadelphia Fed index for April, announced on the 21st (local time), was 17.6, significantly down from 27.4 the previous month. It also fell short of the expert forecast of 21.9. Looking at the regional Fed manufacturing PMI indices released so far for April, the New York Fed's figure exceeded expectations and surged compared to the previous month, while the Philadelphia Fed's figure slightly missed expectations and declined compared to the previous month.

Researcher Kim pointed out the commonalities of the two indicators as ▲a sharp drop in the 6-month outlook ▲difficulty in passing on costs ▲and changes in factors causing cost increases within the supply chain.

First, the New York Fed manufacturing PMI's 'Overall Business Conditions 6-month Outlook' recorded 15.2 points, the lowest since April 2020. The Philadelphia Fed manufacturing PMI was announced at 8.2 points, the lowest since June 2011. Kim explained, "Negative future outlook responses have increased," adding, "The 6-month outlook for new orders also plummeted, marking the lowest points since April 2020 and June 2011, respectively."

Second, Kim pointed out, "Although cost burdens are increasing, the power to pass these costs onto prices is weakening."

In both New York and Philadelphia, the gap between the paid price index (the price paid to purchase raw materials) and the received price index (the price received after selling products) widened. Kim analyzed, "If demand had been strong despite rising selling prices, manufacturers could have raised prices further. However, as selling prices rise, demand weakens, and manufacturers feel burdened by additional price increases."

Third, it is expected that the rise in corporate costs will become more evident in second-quarter earnings. Kim judged, "The upward trend in raw material prices has intensified since the end of February following the Russia-Ukraine war," and added, "Cost burdens and demand concerns will continue to increase."

This content was produced with the assistance of AI translation services.