Commodity prices were again working against trade numbers in May with exports down 6.7% YoY and 4.7% year-to-date. The main culprit was sharply lower export prices for liquefied natural gas (LNG) for the second month running. LNG unit prices ex-Malaysia fell off a cliff in April at a five-month lag to crude oil export prices and have continued to fall in May. That and persistently low prices for other main export commodities have resulted in poor trade numbers for May. Total trade fell 6.9% YoY (Apr: 8.0%). Exports dropped 6.7% YoY (Apr: -8.8%), less than consensus expectations for an 8.7% decline. Imports also fell, by 7.2% YoY, also less than estimates calling for an 8.4% decline. Worryingly, imports of intermediate goods are down -0.6% year-to-date, which is a sign of slowing manufacturing activity. For the same Jan-May period last year imports of intermediate goods were up 3.7%. The poor trade numbers can be mostly put down to weak demand in the domestic and export markets and thus we do not see the trade balance, which in May was a healthy RM5.5b, falling into deficit in the near-term. Our forecast for export growth remains at 2.2% with a downside bias even after last month’s 1.0 percentage point (ppt) cut.

Source: Kenanga Research - 6 Jul 2015