• The Industrial Production Index (IPI) rose sharply to 6.2% YoY in November (Oct: 4.2%), in line with market expectations. On a MoM basis, IPI fell by 2.9% after rising 4.0% during the previous month.
• By category, manufacturing production rose sharply to 6.5% YoY from 4.2% in October. Mining production strengthened to 4.7% YoY as natural gas production extended growth trend in November even as petroleum production declined.
• As expected, solid growth of intermediate goods imports and strong overall exports in November translated into an upward bias on November’s industrial production. Export growth momentum from the weaker ringgit and higher average crude oil prices may retain the upward bias moving into December.
• Despite uptick in November’s IPI, we maintain our 4Q16 GDP forecast of 4.3% and reaffirm our 4.2% full year forecast for 2016.

IPI grew by 6.2% YoY in November. November’s IPI growth hit a 16-month high at 6.2% from 4.2% in October. IPI growth was in line with market expectation but lower than the house estimate of 9.3% YoY. On a month-on-month basis, the IPI declined by 2.9%, largely from seasonal factors; seasonally adjusted IPI rose by a modest 0.8% MoM, similar to that of October. Year-to-date, the IPI edged up at 3.8% YoY compared to 3.5% during the previous month but lower than the 4.9% YoY growth registered during the corresponding period of the 2015. Mining and manufacturing sector continues to display moderating output growth on a year-to-date basis.

Manufacturing IPI growth likewise spiked 6.5%. Manufacturing output, which accounts for about two thirds of IPI, expanded 6.5% YoY in November from 4.2% in October. This is largely attributable to strong growth in manufacture of electronic components and boards, refined petroleum products, vegetable and animal oils and fats and basic chemicals, fertiliser and nitrogen compounds, plastic and synthetic rubber in primary form. On a monthly basis, manufacturing IPI saw a seasonal decline, falling by 4.0% in November.

Broad-based growth in manufacturing production. Growth in manufacturing production were broad-based with all manufacturing production at the division level accelerating, with the exception of the “transport equipment and other manufactures” category (comprising 3.6% of total IPI) which declined by 6.1% YoY. Standouts at the division level include manufacture of petroleum, chemical, rubber and plastic product (25.4% of total IPI) which grew 6.1% YoY and manufacture of food, beverage of tobacco (5.7% of total IPI) which grew 10.4% YoY from 3.7% and 2.5% respectively in October. Growth in the electrical and electronic category remains strong at 8.9% from 8.0% in October.

Robust manufacturing sales. In a separate report, manufacturing sales value increased for the second month to RM60.1b, representing a sharp acceleration in growth to 8.2% YoY in November (Oct : 1.9%). The sales value increased by a more modest 0.6% MoM in November or a seasonally adjusted 3.8% MoM. Stronger manufacturing sales may have served as a catalyst for the spike in manufacturing production – this, along with stronger exports, may help sustain manufacturing production for the remaining portion of 2016.

Strong natural gas production supporting the mining production index. Mining production (28.9% of IPI) strengthened further to 4.7% YoY in November, continuing from its 3.5% YoY expansion in October. However, at a sub-index level, crude petroleum production declined 1.9% YoY after rising 2.7% in October. However, sharp acceleration in natural gas production at 13.2% (4.4% in October) more than compensated for the decline in petroleum production. On a monthly basis, mining output growth rose 0.8% overall.

Electricity output up 9.7% YoY. Electricity output (5.2% of IPI) rose 9.7% YoY (6.9% in October). Year-to-date electricity expanded to 8.7% YoY from 2.1% posted in the corresponding period of last year.

Global manufacturing PMI upbeat. Positive momentum in the global PMI continued to build up into December with more upbeat sentiments anticipated towards the end of the year. The PMI reading for US, Eurozone, China and Japan rose to its highest level for 2016. This was similarly reflected in the December’s global PMI which rose to 52.7 from 52.1 in November.

Source: Kenanga Research - 12 Jan 2017