Nomura Asia Insights: China: The Emerging Impact of Raw Materials Supply Disruptions
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Nomura highlights that China is experiencing significant raw material supply disruptions, particularly in steel, aluminum, and chemicals. This shortage has driven industrial prices higher, with Producer Price Index (PPI) inflation reaching 9.0% year-over-year, gradually spilling over into consumer prices. Nomura expects these supply disruptions to persist through the end of 2026, placing substantial pressure on corporate profitability and export competitiveness.
The primary drivers are domestic production caps and global logistics bottlenecks. Steel output fell 5.2% year-over-year, while aluminum production declined 3.8%. The ferrous metals smelting sector alone contributed 3.2 percentage points to the PPI increase. Meanwhile, CPI rose 2.1%, but core CPI only gained 1.0%, indicating weak end-demand and incomplete cost pass-through.
Downstream sectors like automobiles and home appliances face severe margin compression. Notably, automotive industry profit margins dropped to 4.8%. The export price index climbed 4.5%, but export volume growth slowed to just 3.2%, reflecting damaged competitiveness. To alleviate shortages, the government released 500,000 tons each of copper and aluminum reserves, but this covers only a one to two-month gap. Production curbs remain in place.
Consequently, Nomura downgraded its 2026 GDP growth forecast for China from 5.0% to 4.7%. If production limits persist, PPI could exceed 10%.