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Author: PublicInvest   |   Latest post: Thu, 23 Jan 2020, 9:38 AM

 

October 2019 Trade - Painful Adjustments

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Exports slipped again in October due to a high base effect, especially affected by a marked slowdown in crude oil-based and E&E shipments - the former due to PETRONAS’ supply cut agreement and the latter due to escalating trade tensions. Disappointing E&E performance is consistent with our expectation of demand remaining fragile and cautious. The slip-up in natural resources and manufactured goods exports were further compounded by the drop in agriculture. Exports declined by -6.7% YoY in October as a result, similar to September.

Imports were also a letdown as it failed to maintain the previous month’s rebound (October: -8.7%; September: +2.4%), hurt by drops in all classes, led by capital goods. Trade surplus held up well nonetheless, climbing higher to reach RM17.3bn (MoM: +107.4%; YoY: +2.8%), our best for the year. Cumulative trade surplus of RM118.2b that has surged by +13.3% YoY is respectable amid the external challenges as a result of the trade tensions.

E&E exports produced another weak set of numbers (October: -3.2%; September: -12.2%; August: -7.4%) though this is likely to rebound on a conclusive breakthrough in US-China trade negotiations. Natural resources have remained an unreliable driver of trade amid the sustained slips in rubber exports. Momentum was knocked by the decrease in export volume (-6.6%) despite a rise in unit value (+2.1%). Palm oil remained a drag amid a decline in both volume (-5.5%) and unit value (-4.5%).

Malaysia’s less-than-inspiring export numbers is joined by peers (China: -0.9%; Thailand: -4.5%; Singapore: -12.3%; Indonesia: -6.1%) including Vietnam (- 0.8%) which experienced its first export contraction for the year though milder than the rest. There could be some reprieve for countries that have been hurt by the on-going trade impasse between the US and China reportedly close to reaching an interim trade deal. This is especially pertinent for Singapore and Indonesia which have been hit more severely and much earlier compared to, for instance, Malaysia and Vietnam. The global manufacturing PMI index has rebounded slightly to above the neutral level in November (50.3; October: 49.8), though sustainability remains in question. This eventually bodes well for export powerhouses like China (October PMI: 49.3) and Japan (October PMI: 48.4) which continue to see respective manufacturing sectors contracting.

October 2019 exports. Exports contracted again in October (-6.7%; September: -6.7%), pulled down by material drops in crude petroleum (-50.5%) and refined petroleum (-27.2%) amid a consistent deceleration in E&E (-3.2%). Palm oil (-9.8%) also weighed, no thanks to the declines in volume (-5.5%) and unit value (-4.5%). Natural rubber also disappointed (-4.7%) due to the decline in volume (-6.6%). Unit value (+2.1%) was steady.

Export value jumped to RM90.5bn in October, our best for the year (September: RM77.7bn) however. This could have been much higher if not for the broad-base drops in all classes of products. On a monthly and seasonally adjusted basis, export growth rebounded sharply to +13.2% compared to -3.6% in September.

Malaysia’s re-exported value shot-up to RM18.5bn in October (September: RM12.7bn), chalking a MoM jump of 45.6% though slipping -11.0% YoY. Re exported goods accounted for 20.4% of exports, a convincing rise against +16.3% in September. The drop in export value was caused by lower export volumes to Japan, Thailand, Australia and China but offset by the rise in volumes to Taiwan and Singapore.

As for YTD export destinations, Singapore and China are our top destinations with 13.9% and 13.8% share respectively. Our exports to China continue to drop due to the on-going trade tensions (October: -11.0%; September: -3.0%; August: -2.8%). The decline was contributed by two main products namely E&E (-21.5%) and refined petroleum (-48.6%).

Our exports to Singapore recorded a surprise turnaround (October: +4.1%; September: -11.7%; August: -7.2%) amid the jump in crude petroleum (+150.4%) and palm oil and palm oil-based products (+1.7%).

October 2019 imports. Recovery in September was short-lived given the surprise slip in October (-8.7%; September: 2.4%), driven by contractions in all classes of imports led by capital (-11.5%), consumption (-5.0%) and intermediate goods (-5.1%) amid weak sentiment due to the escalation of trade uncertainties. Goods that pulled down imports, among others, include fuel and lubricants, primary, processed (-RM1.6bn) and parts and accessories of capital goods – except transport equipment (-RM1.7bn).

On a monthly- and seasonally-adjusted basis, import growth rebounded to 1.2% against -0.02% in September. Imports from China declined for the month (-6.2%; September: +9.7%; August: -11.5%) hurt by the decrease in E&E exports (-9.3%). Imports from Singapore also remained weak (October: - 10.9%) amid the drop in refined petroleum (-29.0%) though this was offset by the recovery in E&E (+12.5%).

October 2019 trade surplus. Trade surplus rebounded strongly for the month, our best for the year, courtesy of a favourable trade mix (October: +RM17.3bn; +2.8% YoY). Cumulative trade surplus of RM118.2bn that jumped 13.3% YoY remained encouraging and has surpassed BNM’s target with two more months to go in 2019 (BNM: RM114.9bn; PIVB: RM151bn). China remained as Malaysia’s largest trade partner with YTD share of 16.9%, a strong lead against Singapore (12.4%), followed by the EU (9.6%), US (8.9%) and Japan (7.0%).

TRADE OUTLOOK

Global trade could recover soon on the back of the US and China coming to agreement on its “phase one” trade deal. This could drive stronger recoveries in financial and commodity markets which have been hampered by weak sentiment since the start of the trade fight. Malaysia stands to gain thanks to our competitive currency and spare capacities which could drive growth further.

 

Source: PublicInvest Research - 5 Dec 2019

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