External trade review: The blazon of commodity prices bottoming out

February’s exports accelerated above our and consensus expectations

Beating our as well as the Bloomberg survey’s estimate, February’s exports surged 7.8% MoM (-7.18% YoY due to high-base) to USD11.3 bn on the backdrop of raising aggregate prices particularly from non oil-gas segment. We note that in February, several commodity prices increased including coal, copper, lead, tins and gold. Additionally, Indonesia’s exports in February were higher to Singapore, Australia, Japan, China, Thailand and South Korea. On the sectors, February figures were mainly supported by exports for jewelry (+153.8% MoM), vehicle and its parts (+13.0% MoM), iron and steel (+74.2% MoM), and tins (+265.7% MoM). Nonetheless, February’s aggregate volume contracted 2.71% MoM due to lower demand for non oil-gas segment, reflecting continued plodding global economic recoveries. Overall, the February trade figure brought 2M16 total exports to reach USD21.8 bn (-14.3% YoY).

​Imports contraction slowed in February on maintained government support

Following prior month’s trend, February’s total imports continued to weaken to around USD10.2 bn, contracting by 2.91% MoM (-11.71% YoY) but at the slower pace compared to previous month’s growth of -13.33% MoM, which was mainly due to a prolonged weak domestic demand as shown by lower consumption import growth at -13.6% MoM. We also note that the February’s oil-gas import recorded an almost 7-year low level to USD1.1 bn. However, government’s improved capital spending disbursement in early this year has somewhat maintained import demand from a further deceleration since the imports’ aggregate volume climbed by 14.19% MoM and 5.11% YoY in February. In sum, the February’s import translated to 2M16 figure of around USD20.6 bn (-14.5% YoY). At this stage, much better than our as well as market expectations, the February’s trade balance continued to expand to USD1.14 bn (January: USD14 mn) , bringing 2M16 surplus to reach USD1.15 bn, slightly lower than 2M15 surplus position of USD1.3 bn.

Revising 2016 exports growth target to 4.1% with stronger Rupiah to 13,020/USD

The implementation of negative policy rates in the Europe and Japan might alter global portfolio strategy ahead. This is due to expectation on the next the Fed move in responding the current issue. We believe if the global economy does not significantly improve by mid-2016, the Fed may postpone its benchmark rate hike plan or even set back the rate to near zero again, restoring the world economy to the 2009 period when all central banks eased its monetary policies, providing financial markets with abundant liquidities. Given such scenario, we believe it would moderately lift commodity prices in 2H16, helping Indonesia’s exports to improve. Hence, we have revised up our 2016 exports target to USD156.5 bn (+4.1%) from USD150.5 bn, resulting in larger trade surplus at USD8.6 bn (2015: USD7.6 bn) in our view. Coupled with expected capital inflows into the domestic capital market, higher exports should pave the way to a stronger average Rupiah target to 13,020/USD compared to our previous estimate of 14,058/USD.