July 2011 -Forecast

The Star –commodities should again lead Malaysia’s exports
Friday September 2, 2011
Commodities should again lead Malaysia’s exports
By FINTAN NG
fintan@thestar.com.my

PETALING JAYA: Demand for commodities from China and India will remain the main pillar of support for Malaysia's exports in July as in the previous month with the export-reliant manufacturing sector continuing to feel the impact from a drop in sales of consumer electric and electronic (E&E) goods from the United States and Europe.
Commodity exports account for roughly 40% of the country's exports.
According to Singapore-based economists, the exports front would remain volatile with July's data to mirror June's to a certain extent although exports could weaken further in August based on commodity futures prices, which have trended downward in recent months.
Oversea-Chinese Banking Corp Ltd economist Gundy Cahyadi told StarBiz that exports would be held up by commodities but the pace of growth could be slower compared with June.
“This is quite clear cut for exporters in Asean and this will likely be the case for Malaysia too,” he said, adding that the high proportion of commodities in Malaysia and Indonesia's exports had provided a buffer for exports.
Gundy said the rise in commodity exports must also be put into perspective as prior to the recent decline in prices, commodity prices were rising year-on-year, which in turn had lent support to exporters such as Malaysia.
For June, exports climbed 8.6% year-on-year compared with May's 5.4%, higher than a Bloomberg survey for a 5.8% rise. The growth in exports was largely due to intra-regional trade in commodities.
Gundy said although commodity prices were less price-sensitive compared with manufactured goods, this did not mean that prices would not come down should global growth slowed further.
United Overseas Bank Ltd economist Ho Woei Chen said consumer demand and infrastructure development in China would still be the best bet for Asean's export-reliant economies. “This is because China should not have a problem sustaining growth at between 8% and 9%,” she added.
However, Ho believes that Malaysia's exports could face even more challenges ahead as commodity futures have trended downwards in recent months. “This will impact August's export numbers as forward manufacturing indicators such as the industrial production index (measuring factory output) will still be low,” she said.
Meanwhile, Forecast Pte Ltd economist Radhika Rao said E&E exports would likely underperform in the second half of the year in lockstep with the regional trends as structural changes would see need for higher value-added E&E products.
“Our estimates for July are 7.4% year-on-year rise in exports, 5.6% growth in imports which should see the trade surplus widen to RM8.4bil. Trends for the third quarter should also hold up well as Japan steps up demand after the disasters earlier in the year,” she said.
Radhika said fortunately for Malaysian exporters, nearly 60% of total shipments went to intra-Asian trade with China and India making up nearly 17% of total purchases.
“This should again lend some support for the headline exports, though that is not to mean it will be completely shielded from pullback in demand from the West,” she said.
The commodity-exports angle was still in favour of the economy, given the products' relative price-inelasticity, she added.
“Overall while Malaysia is partly shielded, marked weakness in key Western markets, especially the United States and Japan, will hurt local exporters. A firmer ringgit is also an additional burden,” he said.