Malaysia: December 2017 trade

HIGHLIGHTS

December 2017 trade

• Malaysia’s trade surplus narrowed to RM7.3bn in Dec as export growth (+4.7% yoy) eased by a larger margin than import growth (+7.9% yoy).
• The export slowdown was broad-based in the manufacturing sector while higher-than expected imports were driven by lumpy deliveries of aircraft.
• We reiterate our export growth of 9.8% in 2018 (+18.9% in 2017) due to a slowing global electronics cycle, slowing commodity tailwinds and a stronger ringgit.

Near-term weakness in trade expansion
Total trade growth eased to 6.2% yoy in Dec (+14.8% yoy in Nov). Gross export growth moderated to 4.7% yoy in Dec, dipping under our forecast and well below market expectations (CIMB: +5.7% yoy, Bloomberg consensus: +12.7% yoy; Nov: +14.5% yoy). Gross import growth was higher than we had anticipated but significantly lower than market forecasts (+7.9% yoy vs. CIMB: +6.9% yoy, Bloomberg consensus: +13.6% yoy, Nov: +15.2% yoy). The trade surplus slipped from RM10.0bn in Nov to RM7.3bn in Dec.

O&G exports rebound on higher oil prices and LNG volumes
Oil and gas (O&G) exports rebounded in Dec (+5.9% yoy vs. +2.2% yoy in Nov) as higher oil prices boosted crude oil exports while liquefied natural gas (LNG) shipments were buoyed by improved volumes.

Broad-based weakness in manufacturing sector exports
Across the board moderation in Dec dragged export growth of manufactured goods to the lowest since Oct 2016 (+5.5% yoy vs. +18.2% yoy in Nov). The expansion of electrical and electronics (E&E) exports eased sharply (+6.2% yoy in Dec vs. 21.1% yoy in Nov) despite robust global semiconductor sales (+22.5% yoy in Dec vs. +21.5% yoy in Nov).

EU ban on palm oil imports for transport after 2020
On 17 Jan 2018, the EU Parliament passed a resolution to ban the use of nonsustainable palm oil in biodiesel for transport after 2020. Malaysia sends 2m tons or 12% of its total palm oil exports to the EU. Palm oil’s share of total EU biodiesel feedstock is around 27% or 3.5m tons. While this development may hurt future demand beyond 2020, it is unlikely to significantly impact Malaysia’s palm oil exports in 2018.

Weaker price and volume growth weigh on export expansion
Both price and volume effects were at play in Dec’s export growth let up. The expansion in export volumes relented (+3.0% yoy vs. +9.7% yoy in Nov) across industries, while the increase in export unit value index moderated further to 2.0% yoy (+4.5% yoy in Nov), largely due to rubber and palm oil prices.

Capital goods imports skewed by lumpy aircraft deliveries
Import growth in Dec exceeded our forecast largely due to higher-than-expected capital goods imports (+35.2% yoy vs. +12.1% yoy in Nov). Imports of other transport equipment jumped 312.0% yoy due to deliveries of aircraft to AirAsia and Malaysia Airlines. Imports of intermediate goods decelerated 0.7% yoy in Dec (+13.8% yoy in Nov), suggesting weaker manufacturing activity heading into the year-end break. Imports of consumer goods declined 2.6% yoy (+6.7% yoy in Nov) on softer demand for F&B and cars.

Exports to increase 9.8% in 2018 but watch for short-term weakness
Exports grew 18.9% yoy – a 13-year high – and imports increased 19.9% yoy in 2017, resulting in a full-year trade surplus of RM97.2bn in 2017 (+10.3% yoy from RM88.1bn in 2016). We maintain our 2018 export growth forecast of 9.8% due to 1) a slowing expansion in the electronics cycle, 2) a shallower commodity price rebound, 3) more muted gains in plantation crop production after the post El-Nino normalisation in 2017, and 4) the translation effects of a stronger ringgit.