ECONOMIC UPDATE - External trade review - Commodity prices fizzle out

 

 

29^th straight month of surplus

Statistics Indonesia recorded a trade surplus at USD4.99 bn in Sep-22, higher than our estimate and consensus at USD4.81 bn and USD4.85 bn, respectively. It is indeed thick enough as it still jumped by 58.8% YoY of trade surplus in Jan-Sep 2022. However, both export and import showed a weaker performance. The moderation stemmed on the normalization of commodity prices such as palm oil and nickel. On the other hand, the high price of coal in Sep-22 saved the export performance. Ahead, we expect the lower trade surplus as the rally of commodity prices normalization lingers.

 

Fizzles out

This year windfall from commodity price hikes start to fizzle out due to the normalization of global economy after the pandemic. However, despite of the softer commodity prices, Indonesia still reaps the advantage of the still-high commodity price. In Sep-22, CPO has plunged by 11.4% MoM (23% YoY) while iron ore slipped by 8.31% MoM (19.8% YoY). Nickel, oil and gas exhibited lower price on monthly basis since 2Q22 but actually still higher than last year level of price. In contrast, coal price  still elevated in Sep-22, but it has tumbled by 11.6% MoM as of Oct, 17^th 2022. Despite of the lower price, we expect coal will serve as the buffer for Oct-22 trade performance since there are higher coal shipments for European countries lately regarding the approaching winter. Coal exports to China also rose significantly by 41.2% MoM due to the preparation of Communist Party Congress.

 

Weaker export

The export plunged by 10.9% MoM (+20.3% YoY) in Sep-22 due to price normalization on several commodities and also the weakening global economy. Based on sector, all of sectors increased in monthly basis but mining sector led the export by growing at 2.61% MoM (61.8% YoY). From the selected non-OG sector, the biggest contributor (19.3% of total export) came from Mineral Fuel (HS 27) where it slipped by 31.9% MoM to USD5.06 bn. The biggest jump came from Animal and Vegetable Fats (HS 15) by 85.2% MoM to USD5.06 bn.

 

Weaker import but stronger performance of manufacturer

The import also plunged by 10.6% MoM (+22% YoY) in Sep-22 due to the same reason. All of imported goods based on the usage plunged as well on monthly basis. The biggest share of import is still raw/intermediary goods at 77.1% of total import. Despite of the below expectations, IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) still showed healthy track record by recording higher level at 53.7 in Sep-22 (vs 51.7 in Aug-22). It was above the 50-threshold, signifying the expansion. Strongest rise in new orders within this year occurred, linked to the firmer underlying demand conditions as well as recent client wins. From the selected non-OG sector, the biggest contributor (15.6% of total import) came from Machinery (HS 84) where it also slipped by 6.65% MoM (+20.7% YoY) to USD2.78 bn.

 

Stay hawkish

The thick trade surplus has eased the pressure on rupiah depreciation for the most part of this year global volatility. However, it alone is not enough since the pressure on exchange rate also comes from the sustained foreign sell on Indonesia government bonds. Thus, the substantial thick trade surplus is not enough. To keep up with the dynamics in the exchange rate, we expect Bank Indonesia (BI) continues its previous move to increase the interest rate by 25 bps to 4.5% on the next BoG Meeting on Oct, 19^th – 20^th 2022 to combat the rising inflation and to stabilize the exchange rate.