Natural gas to fuel exports this month
21 Apr 2022
A continued spike in natural gas prices is likely to fuel stronger exports for Malaysia this month, after the country’s exports hit an all-time high last month.
While natural gas contributes only 4% of Malaysia’s exports, the global search for alternative fuels due to the Russian-Ukraine conflict is expected to push the demand for natural gas higher.
The conflict in Europe has sparked concerns over crude oil supply as major economies are imposing sanctions on Russia, which is the world’s third largest oil exporter.
It is noteworthy that the United States has banned purchases of Russian oil and natural gas, while the United Kingdom said it would phase out Russian oil imports by end-2022.
The European Union, on the other hand, said it would make Europe independent from Russian energy “well before 2030.” The continent gets a quarter of its oil and 40% of its gas from Russia.
In a note issued yesterday, CGS-CIMB Research said the natural gas price index jumped 316.3% year-on-year (y-o-y) in March.
“We see an upside surprise to April’s exports and trade balance if the rate of increase in natural gas prices continues into the second half of the month, eclipsing the softer price growth in crude and palm oil,” it said.
CGS-CIMB Research added that while natural gas prices may spike further, crude and palm oil prices are likely to moderate.
“Daily data from April 1 to April 14 pointed to a likelihood of softer prices for both crude oil and palm oil which will likely see lower contribution to nominal export growth this month,” it said.
In March, higher commodity prices had led Malaysia’s exports to expand for the second straight month, surpassing market expectations.
Exports grew by 25.4% y-o-y to a record level of RM131.64bil. The market had predicted a growth of 10.4%.
Meanwhile, Malaysia’s imports also grew by 29.9% y-o-y to an all-time high of RM104.93bil.
Following the higher exports value than imports, Malaysia’s trade surplus widened to RM26.7bil, 10.3% higher than a year ago.
TA Research described Malaysia’s trade performance in March as impressive.
Looking ahead, the research house said Malaysia’s trade sector would continue to grow this year.
However, the pace of growth will normalise after the country’s strong exports growth of 26% in 2021.
“While the moderation in the external trade has been in line with our expectations, the pace of growth for both exports and imports has been stronger than our projections.
“As a result, we have revised our growth projection higher for both exports and imports to 9.2% y-o-y and 9.9% y-o-y, respectively,” it said.
TA Research had previously forecast an exports growth of 5.2% y-o-y and an imports growth of 4.5% y-o-y in 2022.
“Overall, we expect growing foreign demand for electrical and electronics and commodities to support expansion in exports in the coming months,” it said in a note.
Meanwhile, Hong Leong Investment Bank (HLIB) Research said Malaysia would continue to benefit from the current environment of high commodity prices.
This is considering the country’s status as a net exporter of commodities.
“Nevertheless, the prolonged supply chain disruptions as a result of lockdowns in China and the ongoing military conflict in Ukraine pose downside risks to the production and trade activity, which could have adverse impacts on the global and domestic economy.
“Hence, we maintain our expectation for Bank Negara to be patient and increase the overnight policy rate by 25 basis points in the fourth quarter of 2022,” it said.
CGS-CIMB Research also said China’s lockdowns as a result of its zero-Covid policy might prolong the global supply chain problems.
“Various reports point to an increase in the number of shipment delays following the Hong Kong lockdown which is likely to spread into other major ports near Shanghai.
“So far, Malaysian trade data had shown some impact following the lockdowns, as imports from Hong Kong fell in February by 22.7% y-o-y (the lockdowns began in late January) before rebounding to 19.7% in March,” it said.
It is noteworthy that China accounts for 14% of Malaysia’s export share.
Amid the challenges, the country’s overall outlook for trade balance will remain positive in the near term, according to CGS-CIMB Research.
Nevertheless, the brokerage also noted that sharply rising export prices could weaken demand and affect export volume if demand for such goods is elastic to changes in prices.
This would in turn weaken the country’s current account.
“However, export volume up to February has continued to increase, negating this assumption,” stated CGS-CIMB Research.
Source: The Star