Factory activity across most of Asia expanded in May as companies rushed to build inventory buffers against potential supply disruptions from the ongoing war in the Middle East, private surveys showed on Monday, June 1. The purchasing managers’ index data, released across multiple Asian economies, pointed to a region-wide defensive response to conflict-driven trade and energy uncertainty. The findings were reported by Reuters.
South Korea’s PMI rose to 54.8 in May, its highest reading since March 2021, up from 53.6 in April, while China’s RatingDog General Manufacturing PMI, compiled by S&P Global, came in at 51.8, down from 52.2 in April but marginally above analysts’ forecast of 51.6 and above the 50.0 threshold that separates expansion from contraction. Both readings pointed to growth, but the forces driving that growth were rooted less in rising end demand and more in manufacturers locking down supplies before shortages materialise.
Annabel Fiddes, Economics Associate Director at S&P Global Market Intelligence, said: “The current period of expansion is being partly driven by stock building among manufacturers and their clients, as companies looked to safeguard against product shortages and mitigate price risks driven by the war in the Middle East.”
Her assessment captured a pattern visible across the region. Vietnam’s factory PMI rose to 52.8 from 50.5 in April, Taiwan’s climbed to 56.1 from 55.3, and the Philippines moved back into expansion territory at 50.8, up from 48.3 in April. The breadth of the gains, from Southeast Asia to Northeast Asia, pointed to a coordinated defensive posture rather than organic demand growth.
Japan added to the picture. Japan’s factory PMI reached 54.5 in May, slowing from April’s more than four-year high of 55.1, though firms there reported the sharpest rise in input costs since September 2022, driven by higher raw material prices tied to the Middle East conflict. The cost pressures Japan is absorbing reflect the broader energy shock rippling through import-dependent economies across the region.
China’s private sector gauge also recorded its sixth consecutive month of growth, though the reading diverged from official government data. An official survey showed factory activity in the world’s second-largest economy stalled last month, with new orders contracting and input costs continuing to rise. The gap between the two readings reflects the different samples each survey draws on, with the private Caixin/S&P gauge weighted more heavily toward export-oriented manufacturers.
The conflict at the root of it
The U.S.-Israeli war on Iran, which began in late February, has upended trade, rattled financial markets, and raised concerns over global energy supplies, particularly through the Strait of Hormuz, a key shipping route for oil and gas. The Strait carries a substantial share of the world’s seaborne energy trade, and any sustained disruption there would directly affect the fuel and raw material costs of Asian manufacturers who rely on Middle Eastern exports.
Brent crude briefly pushed above $110 per barrel in March as the war on Iran created the potential for extended disruptions to oil, gas, and naphtha supplies. Naphtha, a petrochemical feedstock, is sourced significantly from Gulf producers and feeds directly into plastic and chemical manufacturing across Asia.
The surveys followed a joint warning from the heads of the International Energy Agency, the International Monetary Fund, the World Bank, and the World Trade Organization that the war in the Middle East was straining global energy supplies and hitting vulnerable economies hardest. That four-institution statement marked an unusual degree of coordination among the world’s leading economic governance bodies on a single conflict’s economic fallout.
Regional and global impact
The stockpiling behaviour visible in May’s PMI readings carries a dual effect. In the short term, it boosts factory output figures and keeps production lines running. Over time, however, front-loaded inventory accumulation can mask underlying demand weakness and leave manufacturers exposed if conflict eases and prices fall.
Morningstar Research noted that China, while the main buyer of Iranian crude and the main market for energy output shipped through the Strait of Hormuz, held relatively contained near-term risk, partly because Beijing was already looking at alternative supply sources including West Africa and continued access to piped gas from Russia.
South Korea and Japan face a sharper exposure. Both are heavily import-dependent for energy and lack the alternative supply corridors available to China. Japanese, Korean, and Taiwanese equities were among the hardest hit when Asian markets reacted to the rising risks of higher energy costs in March. May’s PMI data suggests manufacturers in those countries have since shifted from absorbing the shock to actively hedging against its escalation.
Background
The U.S.-Israeli military campaign against Iran began in late February 2026 and has since created sustained pressure on shipping through the Strait of Hormuz, through which a significant portion of the world’s crude oil and liquefied natural gas transits daily. Asian economies are among the most exposed to any prolonged disruption, given the region’s dependence on Middle Eastern energy imports. Input price inflation in China’s manufacturing sector surged to its highest level since March 2022 in recent months, driven by rising energy costs tied to Middle East tensions. The PMI surveys are compiled monthly by S&P Global from responses by purchasing managers at hundreds of manufacturing firms across each economy, with any reading above 50.0 indicating overall expansion.
What happens next
Markets are watching closely for any diplomatic movement between the United States and Iran. Related headlines on June 1 indicated that U.S. President Donald Trump said Iran was seeking a deal, a statement that, if it leads to formal talks, could reduce the conflict premium embedded in oil prices and ease the supply anxiety driving Asia’s current stockpiling wave. Further monthly PMI releases in early July will reveal whether the inventory-building phase continues or whether manufacturers begin to draw down buffers. Shipping route data through the Strait of Hormuz in the coming weeks will provide the earliest signal of whether energy supply constraints are tightening further or stabilising.
