Short-term difficulties facing industrial production recovery

The escalation of the epidemic happened before the Spring Festival, which made employee rework a prominent problem. Taken together, the current recovery of industrial production activities generally faces the following short-term difficulties:

First, industrial production activities may be passively delayed due to issues such as the time limit for resumption of work, the actual rework of employees, protection standards and material conditions during resumption.

In order to effectively prevent and control the spread of the epidemic, the provinces and cities have issued notices on the resumption of business hours. In general, the resumption of work in various places must not be earlier than 24:00 on February 9, among which Hubei Province requires that the resumption of work of various enterprises should not be earlier than 24:00 on February 13. Therefore, the main industrial activities are at least 9 days later than the original Spring Festival holiday. Although "no earlier than" arrangements have been given everywhere, the actual start-up situation in some areas still depends on the progress of epidemic prevention and control, and there is a certain degree of uncertainty.

As the epidemic is still spreading, and prevention and control is in progress, employees are not willing to actually rework. Judging from the national railway passenger transportation on the fifth day of the 29th and the sixth day of the 30th, the passenger traffic decreased by 74.7% and 73.8% year-on-year respectively. Repatriation of field workers will also be delayed, plus the necessary two weeks of quarantine. Therefore, the actual rework time of foreign workers may be delayed by 2-3 weeks, and in some areas it may be even longer. In addition, even if foreign employees return to their posts, how can they make isolation arrangements for foreign employees? Is it possible to provide sufficient protective materials such as masks for resuming employees? What prevention and control standards and event handling procedures should companies follow in the early stages of production restart? These are the real problems faced by resumption enterprises. Especially for large labor-oriented enterprises, the above problems are more prominent.

Second, current transportation and logistics channels are facing blockages.

In order to control the epidemic, it is necessary to carry out access control and temperature detection on the expressway, but there are also some places to close, block roads and even dig roads. The county government of a certain place also ordered the inter-county import and export of closed national, provincial, county and township roads. On the other hand, affected by the extended holiday leave of the transportation company (when the resumption of work is undecided), the logistics capacity is also affected.
According to Mysteel statistics, as of January 30, 22 construction steel companies in a southern province had a total inventory of 1.375 million tons, an increase of 379,000 tons compared to the first week after the Spring Festival in 2019. The main reason is that the logistics is blocked, the goods cannot be transported normally, the inventory is rapidly accumulated, and some raw materials in transit are currently backlog at the port to be unloaded.
Third, the delivery of manufacturing orders will be delayed after this year, and production enterprises will face losses.

In February after the Spring Festival, seasonal products such as clothing will usher in peak production and shipments. However, due to the aforementioned factors, the production recovery process is delayed, and the delivery time is currently difficult to determine, and more orders will face delays. As a consequence, production companies will face deductions or be forced to take expedited or air freight to deliver orders as quickly as possible, but this will also result in higher delivery costs. In particular, the delay in order delivery in the export industry may face greater losses.

At the same time, before the Spring Festival, manufacturing companies have just accumulated a high number of orders in hand, which will make them face greater pressure on delivery. From November 2019 to January 2020, PMI's new orders and new export orders index both rose. Due to the time limit of the PMI investigation, the PMI data in January basically reflected the situation before the epidemic escalated. In January 2020, the PMI new orders index reached 51.4, a new high in 20 months. At the same time, although new export orders fell to 48.7 in January, they were also significantly higher than the same period in early 2019 and the full-year level in 2019. At the same time, from December and January, the performance of new export orders was also relatively strong. It is precisely these orders in hand that may cause greater pressure on delivery and even bring some losses.