VINACHEM

Malaysia’s exports of chemicals and chemical products rose by 0.8% year on year to ringgit (M$) 6.31 billion in May amid signs that its overall trade weakness has bottomed out.

     Risks to trade outlook include geopolitical tensions and regional conflicts
     May export growth driven by manufactured and agriculture goods
     Demand for paper, petroleum, and palm oil drove exports to China

Overall exports rose by 7.3% year on year to M$128.2 billion in May, while imports were up by 13.8% to $118.1 billion, data from the Department of Statistics Malaysia (DOSM) showed on 20 June.

This resulted in a trade surplus of around M$10 billion, rebounding from the lowest level since May 2020 in the preceding month at M$7.7 billion, partly aided by a steeper slowdown in the growth of imports relative to exports.

Economists at UOB Global Economics & Markets Research noted in a 20 June report that the two consecutive months of export growth indicate that Malaysia’s trade performance may have reached its lowest point and is now on a path to recovery.

The latest Malaysia S&P manufacturing Purchasing Mangers’ Index (PMI) also rose in May, suggesting improvement in manufacturing conditions on account of higher new orders, UOB said.

“Exports of commodity products particularly mining goods remains subject to potential production shocks due to plant closures for maintenance while price effects are fading,” it said.

Malaysia Petrochemical/Palm Oil Products Exports

RISKS TO TRADE OUTLOOK

“Malaysia’s external trade continues to recover at a gradual and bumpy pace in the near term,” UOB said.

However, given lingering logistical challenges, ongoing geopolitical tensions and regional conflicts that cast over the global trade outlook, Malaysia will not be spared should these downside risks escalate and trigger a wider adverse impact on the global economy, it said.

The Red Sea crisis and ongoing conflict in the Middle East have already disrupted supply chains, causing delays and driving up shipping costs for certain sectors, UOB noted.

Additionally, environmental concerns, such as the historically low water levels in the Panama Canal, a critical artery for global trade, pose further threats to the smooth flow of goods, it added.

OPTIMISM FOR GROWTH DESPITE CHALLENGES

UOB remains cautiously optimistic trade outlook for Malaysia with a projected export growth of 3.5% for this year.

This forecast is slightly more conservative than Bank Negara Malaysia’s estimate of 5.0% growth. In comparison, the country experienced a contraction of 8.0% in exports in 2023.

“This is mainly supported by the ongoing improvement in E&E exports along with a global soft landing, a sustained recovery in China’s economy and expected global monetary policy loosening before year end,” UOB said.

“The Malaysian government’s bold and effective implementation of various national master plans including the Semiconductor Strategic Plan will be additional catalysts to the trade prospect in the short and medium term.”

While acknowledging potential slowdown risks in China due to “ongoing housing debacle and trade restrictions with the West,” Malaysia’s Hong Leong Bank in a note said that it anticipates sustained growth in the broader region to help mitigate these concerns.

Barring unforeseen materialization of other downside risks, and supported by a “stable world economy,” the bank remains optimistic about Malaysia’s export outlook.

Factors such as the uptick in the global tech cycle and still elevated commodity prices further bolster this positive outlook.

Hong Leong Bank expects Malaysia’s export growth to accelerate, potentially reaching double-digit figures in the second half of the year.

However, the overall contribution to GDP growth may be moderated by a concurrent, or even stronger, recovery in imports, driven by the continued expansion of domestic demand.

MAY EXPORTS GROWTH DRIVEN BY ELECTRONICS, PALM PRODUCTS

May’s export growth was largely thanks to strong improvement in shipments of manufactured and agriculture goods.

Exports of manufactured goods, which account for 86.2% of total exports, grew 8.3% year-on-year in May, following a 7.1% increase in April.

This growth was fueled by robust demand for electrical and electronic (E&E) products, which saw a 7.6% increase in May compared to a 0.6% increase in April.

Agriculture goods, comprising 7.1% of total exports, continued their upward trend with a 22.1% year on year increase in May, building on April’s 13.8% growth.

This was primarily driven by robust exports of palm oil and palm oil-based products, which rose 25.7% year on year in May thanks to increases in both volume and export prices.

REGIONAL TRENDS

Exports to the US soared for the fifth consecutive month, recording a 17.4% year-on-year increase in May, closely following April’s 17.3% growth.

This surge was primarily attributed to higher shipments of E&E products.

Exports to Singapore also experienced a significant boost, jumping 13.7% year on year in May after a 9.0% increase in April.

This rise was also fueled by greater exports of E&E products.

The robust growth in exports to Singapore, coupled with a fifth straight month of increased shipments to Vietnam, helped sustain a healthy 10.4% expansion in exports to the ASEAN region as a whole, slightly lower than April’s 11.3%.

While exports to the EU and China also grew, they recorded smaller gains of 7.2% and 1.6% respectively in May, compared to 11.3% and 2.1% in April.

Resilient demand for palm oil & palm oil-based products, optical & scientific equipment, and chemicals & chemical products supported shipments to the EU.

Meanwhile, exports to China were primarily driven by demand for paper & pulp products, refined petroleum products, and palm oil & palm oil-based agriculture goods.

– Source: ICIS –