PublicInvest Research

Author: PublicInvest   |   Latest post: Tue, 14 Jul 2020, 10:11 AM


Industrial Production Index (IPI) - IPI Reaccelerates

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IPI for April thumped expectations after producing a better-than-expected performance thanks to positive growth across all sectors. It reaccelerated to 4.0% YoY in April against 3.1% the month before, pushing YTD average higher (YTD April: 3.0%; YTD March 2019: 2.7%), though still lagging the same period last year (3.6%). The rebound in IPI was driven by manufacturing (April: +4.3%; March: +4.1%), turnaround in mining (April: +2.3%; March: -0.2%) and a surprise rise in electricity (April: +5.8%; March: +4.8%). Though YTD IPI average of 3.0% is sluggish by historical standards, it has the potential to rebound should the trade war end favorably, sooner than later. The US and China are expected to meet at the G20 meeting in Osaka, Japan (28-29th June).

The rebound in manufacturing (April: +4.3%) was led by E&E (April: 4.1%) which we cautiously anticipate to be sustained despite the yet-to-be-concluded trade negotiations. YTD manufacturing sector growth of 4.1% (YTD 2018: 5.3%) is fair given the chaos in global trade that remains until today. On specifics, manufacturing IP growth that jumped to 4.3% in April (March: 4.1%) was driven by stronger E&E output (April: 4.1%; March: 2.7%), transport equipment and other manufacturer (April: 7.2%; March: 6.1%) though offset by “others” especially F&B (April: 4.2%; March: 6.8%). The sustained E&E activity is in consonance with E&E export momentum (3.9%) and remains our best bet to push IPI higher given ample capacity on hand.

Sluggish YTD E&E performance of 3.4% (YTD 2018: 6.0%) as compared to last year is lock-step with tepid global PMI manufacturing indices (April: 50.3; March: 50.6; February: 50.6; January: 50.8), suggesting that manufacturers have been cautious due to trade uncertainties and therefore, are avoiding making large orders.

Mining sector snapped the previous few disappointing months with a strong rebound in April (+2.3%; March -0.2%) thanks to solid momentum by natural gas (6.1%), a pace consistent with strong export performance (+26.3%) that signals output may have normalized post-outage in 2018. Crude petroleum remained a letdown following its 4th contraction for the year (April: -1.9%) no thanks to production constraints and PETRONAS’s voluntary supply adjustments. Mining sector YTD average of -0.9% (YTD 2018: -1.2%) is a disappointment but may turn positive driven by the expected turnaround by natural gas.

Headline IPI was also lifted by the surprise rise in electricity output (April: 5.8%; March: 4.8%) as demand was driven by the tail-end of extreme (hot) weather conditions. Electricity output may normalize in the next few months.

Jittery conditions over trade may continue due to uncompromising stances by colliding parties (US and China). While there is seeming calm with Mexico at this juncture, conditions could still worsen with President Trump still “trigger happy” with tariffs. This will ultimately take a toll on trade, investment and consumption with negative effects on growth should it prolong. We are of the view a piece-meal solution will be reached, at the very least, with the first chance being the G20 meeting in Osaka later this month.


Manufacturing. Growth jumped to 4.3% YoY for the month, pushed especially by E&E activity (April: +4.1%; March: +2.7%). Manufacturing YTD average of 4.1% lags the similar period in 2018 however, but is likely to rebound once global trade normalizes. Other sub-sectors that showed steady performances, including transport equipment and other manufacturer and non-metallic mineral products, basic metal and fabricated metal products.

Below are the details for the month:

  • F&B and tobacco (April: 4.2%; March: 6.8%)
  • textile, wearing apparel, leather products and footwear (April: 5.7%; March: 4.9%;)
  • wood products, furniture, paper products, printing (April: 5.2%; March: 5.0%)
  • petroleum, chemical, rubber and plastics products (April: 3.6%; March: 3.7%)
  • non-metallic mineral products, basic metal, fabricated metal products (April: 4.0%; March: 3.5%)
  • E&E (April: 4.1%; March: 2.7%) and
  • transport equipment and other manufactures (April: 7.2%; March: 6.1%) Manufacturing sector growth rose 1.5% on a MoM and seasonally-adjusted basis, a notable rebound against -0.4% in March.

Mining: Mining sector recorded a strong turnaround in April driven by the rebound in natural gas that more than offset the disappointing crude petroleum output. It gained 2.3% YoY in April against -0.2% the month before that led to an improved YTD average of -0.9% (YTD March: -2.0%). Mining sector performance may normalize in the months ahead given the expected rebound by natural gas though this may be offset by the expected contraction in crude petroleum following production constraints and extension of voluntary supply adjustments by PETRONAS. Natural gas showed resilient YTD performance amid 2019 average of 0.5% signaling that production has returned to normal following persistent outages last year. This was not enough to stem the slide in mining sector growth however following crude petroleum’s disappointing YTD growth of -2.6%. The details of the month’s performance are as follows:

  • natural gas (April: 6.1%; March: 1.4%)
  • crude petroleum oils & condensates crude oil production (April: -1.9%; March: -2.0%)

On a MoM and SA basis, mining output eased to 3.1% against 6.4% in March.

Electricity: Output growth remained elevated following the tail-end of extreme weather conditions in April (+5.8%; March: +4.8%). YTD average of 5.8% may not sustain and is therefore likely to ease in the next quarter amid a more normal weather. On a MoM basis, the index ticked 1.7% higher, an improvement against 0.3% in March.


Trade uncertainties may prolong due to uncompromising stances by colliding parties (US and China), against the backdrop of a US President seemingly intent on addressing all of the country’s trade-related issues with its partners prior to his re-election campaign. These strong-arm maneuvers are essentially negative for global trade, investment and consumption. That said, we are of the belief that a solution will be found, albeit piecemeal, as a continued slide down this path bears negative ramifications for all, the US included and a condition which can be ill-afforded at this juncture.

Source: PublicInvest Research - 12 Jun 2019

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