● Industrial Production Index (IPI) fell 0.5% YoY in October (Sep: 1.0%), marking the first negative growth in four months (KIBB: -1.2%; consensus: 0.2%)

− Attributable to the impact of renewed Conditional Movement Control Order (CMCO) and surging COVID19 cases globally. It was also partly due to a high base effect.

− MoM (1.7%; Sep: 0.5%): rose to a 4-month high.

● Manufacturing index registered a smaller expansion (2.3%; Sep: 4.3%), in line with a moderation in manufacturing sales growth (2.2%; Sep: 3.7%)

− Attributable to weaker growth in most subsectors, with food, beverages & tobacco (-3.4%; Sep: 4.9%) falling into contraction for the first time in five months. To add, electrical & electronic products saw moderated growth (8.1%; Sep: 9.8%), while the contraction in textiles, wearing apparel, leather & footwear softened (-2.6%; Sep: -4.1%).

− MoM (0.1%; Sep: 2.1%): expansion moderated to a 2-month low (0.1%; Sep: 2.1%)

● Mining index contraction persisted for eight consecutive months, worsening to -10.6% YoY (Sep: -9.6%) largely due to a high base effect

− Broad-based slowdown among all subsectors; led by the declining extraction of crude oil & natural gas (-10.6%; Sep: -9.6%) and crude petroleum (-12.6%; Sep: -9.7%), and a softer decline in natural gas -9.0% (Sep: -9.5%).

− The contraction in mining output may ease in the coming months due to a recovery in oil prices, with Brent crude oil price rising to USD42.7/barrel in November (Oct: USD40.2/barrel).

− MoM: soared to a one year high after a sharp contraction last month (7.6%; Sep: -4.1%)

● Electricity index recovered (1.0%; Sep: -2.1%), reaching its highest level in eight months

− MoM (4.1%; Sep: -3.7%): rebounded to a three-month high after previous month’s contraction.

● The pace of industrial production recovery is likely to taper off in the near term following the renewed measures to stem the spread of COVID-19 infection

− The reinstatement of anti-COVID-19 measures around the world due to the ongoing resurgence of COVID-19 infections could hinder production activities and reduced external demand. Nevertheless, rapid improvement in the global energy demand, due to the COVID-19 vaccine optimism, may provide some support to the industrial sector.

− Against this backdrop, we retain our manufacturing IPI projection of -2.9% in 2020 (2019: 3.6%), in line with this year's projected -5.1% decline in GDP growth (2019: 4.3%).

Source: Kenanga Research - 14 Dec 2020