Although November’s Industrial Production Index (IPI) contracted 2.2% y/y dragged by mining and electricity, which decreased by 15.4% y/y and 2.5% y/y respectively, the manufacturing sector rose 2%y/y. It was supported by the ongoing China’s recovery. Going forward, downside pressure on the manufacturing sector remains. Heightened Covid-19 restrictions in major trade partners will disrupt supply chains of imported materials and dampened our external demand. This should see production and volumes of new orders coming under stress. Meanwhile, costs will continue to rise because of the increased prices of raw materials.

And with the rising Covid-19 cases in Malaysia, the imposition of restrictive measures in several key states including the Klang Valley will have some dampening impact in 1Q2021.

• Although November’s Industrial Production Index (IPI) contracted 2.2% y/y dragged by mining and electricity, which decreased by 15.4% y/y and 2.5% y/y respectively, the manufacturing sector rose 2%y/y. It was supported by the ongoing China’s recovery.

• Going forward, downside pressure on the manufacturing sector remains. Heightened Covid-19 restrictions in major trade partners will disrupt supply chains of imported materials and dampened our external demand. This should see production and volumes of new orders coming under stress. Meanwhile, costs will continue to rise because of the increased prices of raw materials.

• And with the riding Covid-19 cases in Malaysia, the imposition of restrictive measures in several key states including the Klang Valley will have some dampening impact in 1Q2021.

• November’s Industrial Production Index (IPI) contracted 2.2% y/y dragged by mining and electricity, which decreased by 15.4% y/y and 2.5% y/y respectively, The sharp fall in crude oil output at 15.8% y/y as well as natural gas production that fell for the ninth month at 15.1% y/y weighed on mining sector.

• But importantly, the manufacturing sector grew 2% y/y. This is the first contraction since May 2020.

• The sector is seen to be benefiting from China’s recovery. The major sub-sectors contributing to the growth in the manufacturing sector in November 2020 were electrical and electronics products; transport equipment and other manufactures; and petroleum, chemical, rubber and plastic products

• The E&E sector expanded for the sixth month at 8.3% y/y, followed by transport equipment and other manufactures (6.5% y/y), wood, paper product and printing (2.3% y/y) as well as petroleum, chemical and plastic (2.0% y/y).

• Meanwhile, upside growth to the manufacturing activities were impacted from the contraction in areas like F&B and tobacco (-8.7% y/y), non-metallic mineral products (-3.0% y/y) as well as textile and footwear (-4.0% y/y).

• Going forward, downside pressure on the manufacturing sector remains. Heightened Covid-19 restrictions in major trade partners will disrupt supply chains of imported materials and dampened our external demand. This should see production and volumes of new orders coming under stress. Meanwhile, costs will continue to rise because of the increased prices of raw materials.

Source: AmInvest Research - 12 Jan 2021