S.Korea's factory activity extends growth despite supply, virus worries

Employees work at a bio plant factory of Hanmi Pharm in Pyeongtaek, South Korea, July 1, 2021. REUTERS/Heo Ran

SEOUL, Aug 2 (Reuters) - South Korea's factory activity grew for a 10th straight month in July, driven by a solid expansion in production and new orders, though supply-chain disruptions continued to add strains on manufacturers, with both input and output prices rising.

The IHS Markit purchasing managers' index (PMI) for July stood at 53.0, slipping from 53.9 in June but holding above the 50-mark, which indicates an expansion in activity.

"South Korean manufacturers continued to report a sustained improvement in operating conditions at the start of the second half of the year as production levels continued to expand," said Usamah Bhatti, economist at IHS Markit.

The sub-index for output stood at 53.5, marking the 11th consecutive month of expansion, and up from 53.3 a month earlier.

To meet the increased production, firms continued to raise staffing levels for another month, though the rate was the softest in five months.

Total new orders and export orders both expanded for a 10th month but the pace of growth slightly eased from June as highly contagious Delta variant and related curbs weakened global demand.

"Anecdotal evidence suggested a resurgence in COVID-19 cases across Asia and ongoing supply chain disruption had led to demand easing in domestic and external markets," Bhatti said.

Monday's survey showed that raw material shortages and delivery delays continued, leading to a further increase in input prices. That also put firms under pressure to pass higher costs on to their clients.

The sub-index for input prices stood at the second-highest on record, extending the rise to a 13th straight month, while the pace for output prices hit an all-time high.

Looking ahead, firms remained positive over the coming 12 months on expectations that output and demand would rise and the launches of new products would further boost the sector, but the gauge of optimism eased to a seven-month low.

"Ongoing supply chain disruption and the resurgence of the virus also contributed to a softening in business sentiment. The degree of optimism was the lowest since December 2020, yet was strong overall," Bhatti added.

Reporting by Joori Roh; Editing by Sam Holmes

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