Brace for production cuts, shipment delay due to chip shortage: Analysts

 The suppliers' delivery time index component of the manufacturing PMI declined in eight out of nine Asian economies in August to an average of 41.3 from 42.0 in July - both below the 50 mark threshold

The semiconductor chip shortage that has put most industries, especially the auto sector in India, on a bumpy road is unlikely to resolve soon. According to the latest report by Nomura, the spread of the delta variant amid still-low vaccination rates in many ASEAN economies and China’s zero-tolerance Covid strategy has prompted governments to impose restrictions and order factory/port closures.

As a result, shortage of raw material, port congestion, and unavailability of containers have lengthened lead times – the time is taken between ordering a chip and its delivery, especially in countries that are a part of manufacturing supply chains, like Vietnam, South Korea, and China in August.

This comes at a time when (semiconductor) chip inventories are already running low across most sectors around the globe. Input shortages and low inventories, according to Nomura, will likely lead to production cuts and delayed shipments in the September 2021 quarter.

“Indeed, both the output and export orders components of the manufacturing PMIs also eased in August. Asia is home to the world’s global manufacturing powerhouses, so if these supply constraints do not start easing within the next month or two, higher downstream product prices could be in store for the Western consumer markets,” wrote Sonal Varma, Nomura's chief economist for India and Asia ex-Japan in a recent report.

The suppliers’ delivery time index component of the manufacturing PMI declined in eight out of nine Asian economies in August to an average of 41.3 from 42.0 in July – both below the 50 mark threshold, data show.