Inflationary pressure in Asian manufacturing may shift from energy to chips

Overview

This report interprets the implications of the June 2026 manufacturing PMI for Asia. The key backdrop is that oil prices fell back toward pre-war levels after the US–Iran MoU on June 17, easing supply disruptions at the margin, although shipping related to the Strait of Hormuz remains constrained and LNG- and fertilizer-related transportation remains close to stalled. The report believes that the main challenge for Asian manufacturing is shifting from the energy-cost shock toward price pressures arising from supply constraints in AI, semiconductors and electronic products.

Core views

First, supply-chain pressures have eased but remain far from normal; backlogs in Korea and Japan have risen to their highest levels since the pandemic, indicating that improved deliveries do not mean capacity constraints have been resolved. Second, Japan has emerged as the standout regional performer, with its PMI rising to 54.8 as AI and semiconductor demand supports manufacturing growth. Third, Taiwan and Korea remain in expansion territory and have strong chip pricing power, with export prices rising 18% and 37% year on year, respectively, in May. Fourth, export orders have weakened overall, particularly in ASEAN, although some economies can support production through domestic demand and restocking. Fifth, inflation risks are shifting from oil and gas to chips, and downstream industries globally may face cost pass-through in electronic products.

Analysis framework

The report uses manufacturing PMI and its subcomponents as a high-frequency monitoring framework, comparing production, new orders, export orders, inventories, supplier delivery times, backlogs, employment, input prices and output prices across developed markets and major Asian economies. It combines these with oil prices, shipping data, industrial production and export prices to assess the rotation in Asian manufacturing momentum and inflationary pressure.

Methodology notes

• High-frequency macro indicatorsManufacturing PMI component analysis

  Use the PMI and components such as new orders, inventories, delivery times and prices to assess manufacturing momentum, supply bottlenecks and price pressures.

  A PMI above 50 generally indicates expansion; supplier delivery times, backlogs and price components help identify supply constraints and the sources of inflationary pressure.

• Demand and inventory frameworkNew orders minus inventories indicator

  Use the difference between new orders and inventories to measure whether demand is growing faster than inventory accumulation.

  A positive difference means demand is leading inventories and may support subsequent production; Indonesia turned negative in June, indicating that inventories grew faster than new orders.

• Inflation transmission frameworkComparison of input and output prices

  Compare changes in companies' costs and selling prices to assess margin protection and inflation spillovers.

  The report notes that energy input-cost pressures are falling, while output prices in Taiwan and Korea are rising, indicating that chip companies have the ability to pass costs through to downstream industries globally.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Taiwan semiconductor and electronics export chain

  Directly benefits from AI hardware demand and tight supplies of high-end chips

  Strengths

  Rising output and export prices indicate strong pricing power and revenue support.

  Weaknesses

  Supply shortages remain a constraint on capacity expansion, while weaker external demand could weigh on some orders.

  Comparison

  Compared with the energy chain, inflationary pressure in the chip chain is more likely to become the global focus in the next phase.

  Risks

  Price momentum could ease if AI demand cools or supply is released rapidly.

• Korea semiconductor and electronics export chain

  Directly benefits from high-end chip demand and rising prices

  Strengths

  US-dollar-denominated export prices rose sharply year on year in May, allowing companies to protect margins through price increases.

  Weaknesses

  New export orders fell for a second consecutive month in June, while rising backlogs indicate that fulfillment remains constrained.

  Comparison

  Like Taiwan, Korea has chip pricing power, but export-order momentum appears weaker.

  Risks

  Slowing external demand, supply bottlenecks and downstream demand suppression caused by price pass-through.

• Japan manufacturing and AI semiconductor-related industries

  Benefits from manufacturing momentum driven by AI and semiconductor demand

  Strengths

  The PMI rose to 54.8, new orders improved, and companies were optimistic about output over the coming year.

  Weaknesses

  A yen at a 40-year low, labor shortages and elevated input prices are pressuring small and medium-sized enterprises.

  Comparison

  The most prominent PMI outperformer in Asia in June.

  Risks

  Import costs, labor shortages and capacity constraints could limit growth.

• Asian energy-importing manufacturers

  Benefits from falling oil prices and lower energy input-cost pressures

  Strengths

  Energy-related cost pressures have likely peaked, helping to ease pressure on margins.

  Weaknesses

  The recovery in physical transportation is slow, with LNG- and fertilizer-related transportation still significantly disrupted.

  Comparison

  Energy inflationary pressure is falling, but chip inflation may replace it as the main source of costs.

  Risks

  Uneven recovery in Hormuz shipping or a renewed geopolitical conflict could push energy costs higher again.

• ASEAN manufacturing export chain

  Significantly affected by weaker global export orders

  Strengths

  Orders are growing strongly in some economies, such as Thailand and Vietnam, while falling inventories may support subsequent restocking.

  Weaknesses

  Overall ASEAN export orders fell to their lowest level since September 2024, with Indonesia, Malaysia and the Philippines contracting.

  Comparison

  Compared with the AI semiconductor chains in Japan, Taiwan and Korea, ASEAN export momentum is weaker.

  Risks

  Slower external demand, raw-material prices and procurement difficulties could constrain the recovery in output.

Key data

• Japan June manufacturing PMI54.8The strongest reading since 2022, supported by AI- and semiconductor-related demand.
• Taiwan May US-dollar-denominated export prices year on year18%Reflects stronger price momentum in chips and electronic products.
• Korea May US-dollar-denominated export prices year on year37%Indicates strong pricing power among high-end chip suppliers.
• Change in Taiwan output price indexUp 12 points from December 2025The strength emerged before the Middle East conflict, indicating that it was not simply an energy shock.
• Change in Korea output price indexUp 7.9 points from December 2025Related to AI hardware demand and tight chip supplies.
• Japan input price index75Unchanged from May in June and approximately 15 points above the January–February average, indicating that cost pressures remain sticky.
• Japan manufacturing new orders minus inventoriesEnded a 42-month period of negative readingsThe manufacturing upturn has continued to improve since December 2025.

Impact & implications

For investment implications, AI hardware and high-end semiconductor supply chains remain relatively strong themes within Asian manufacturing, with Japan, Taiwan and Korea benefiting more clearly. Falling oil prices are favorable for energy-importing manufacturers and ease cost pressures on small and medium-sized enterprises, but if chip inflation replaces energy inflation, cost pressures on global electronic products, AI infrastructure and downstream hardware companies could persist for longer. Weakening ASEAN export orders suggest that the recovery in external demand is uneven; attention should turn to whether domestic demand and restocking can offset slower exports.

Risks

• Supplier shortages, shipping delays and rising backlogs could cause supply-chain normalization to lag expectations.
• Continued increases in chip and electronic-product prices could become a new global inflation driver.
• Weakening export orders in ASEAN and Korea could cause slower external demand to weigh on manufacturing production.
• Japan's small and medium-sized enterprises face considerable pressure from yen depreciation, import costs and labor shortages.
• Uneven recovery in transportation related to the Strait of Hormuz could continue to disrupt LNG- and fertilizer-related supplies and costs.
• If AI demand slows, semiconductor prices and related manufacturing momentum could decline.

What to watch

• Whether output price indexes and US-dollar-denominated export prices in Taiwan and Korea continue to rise.
• Whether Japan's manufacturing PMI, new orders, employment and input prices remain elevated.
• Whether supplier delivery times and backlogs in Asia truly normalize.
• Whether ASEAN export orders recover from their low since September 2024.
• The progress of the recovery in Hormuz shipping and LNG- and fertilizer-related transportation.
• Whether falling oil prices continue to pass through to companies' input costs.
• Whether demand for AI servers, electronic components and high-end chips continues to support regional manufacturing.