ECONOMIC UPDATE - External trade review - Heightened demand of commodity

 

 

28^th straight month of surplus

Statistics Indonesia recorded a thick trade surplus at USD5.76 bn in Aug-22 which was higher than our estimate and consensus at USD3.82 bn and USD4 bn, respectively. The higher trade surplus was due to the export value surge to USD27.9 bn, the highest on our record, where it increased by 9.17% MoM (30.2% YoY). Thanks to coal for this with Russia’s coal export ban is responsible for the higher global coal price. Increased demand for energy products from other countries also helped exports to rise. However, we expect the strong export rally will likely to be softer as the commodity prices are normalizing.

 

Vivid commodity price normalization

Indonesia is still harvesting from the elevated commodity prices as a net exporter of basic commodities. However, several important commodities for Indonesia’s export have plunged like CPO (-2.9% MoM and -10.2% YoY) and other commodities such as nickel, iron ore and oil have already tumbled since 2Q22. However, coal (-5.35% MoM and 110.3% YoY) has outpaced other commodities since 2Q22. On the other hand, we still see the jump on trade performance unfortunately not really rides on the solid improvement of trade fundamentals.

 

Coal rules

Coal export volume actually decreased last month. However, Indonesia coal companies are boosting their production due to the rising price and demand from Europe ahead winter. In fact, Indonesia does not typically trade the coal to Europe but the coal export ban from Russia have taken effect in Aug-22. It triggers the European Union (EU) to find other suppliers, including Indonesia. The other upside factor also comes from the fear of energy crunch in several countries just like what happens in India. To avoid the energy crunch, these countries will likely to beef up their energy security by stockpiling coal. 

 

OG leads

Based on sector, all of sectors increased in yearly basis of which oil and gas (OG) sector led the way by growing at 25.6% MoM (64.5% YoY). From the selected non-OG sector, the biggest contributor (18.9% of total export) came from Mineral Fuel (HS 27) where it slipped by 6.68% MoM to USD5.15 bn. The biggest jump came from Animal and Vegetable Fats (HS 15) at 25.4% MoM to USD4.47 bn.

 

Expansive domestic manufacturer

All of imported goods based on the usage increased on monthly basis, led by capital goods by 18.1% MoM (46.7% YoY) or equal to 3.54% of total import. The biggest share is still raw/intermediary goods at 75.7% of total import. This was supported by the higher IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) at 51.7 in Aug-22 from 51.3 in Jul-22. It was still above the 50-threshold, signifying the expansion. New orders expanded at the quickest pace in 6 months and the upturn in sales was mainly driven by firmer domestic demand. From the selected non-OG sector, the biggest contributor (15.5% of total import) came from Machinery (HS 84) where it increased by 13.6% MoM (35.8% YoY) to USD2.98 bn.

 

Higher policy rate

The big trade surplus has eased the pressure on rupiah depreciation especially compared to Indonesia’s regional peer and also from the past experience such as during pandemic in 2020. Despite of the thick surplus, we expect Bank Indonesia (BI) continues its previous move to increase the interest rate by 25 bps to 4% on the next BoG Meeting on Aug, 21^st – 22^nd 2022 to combat the rising inflation especially after the jump on non-subsidized fuel earlier in Sep-22.