Nov 2014 External Trade

Wednesday’s external trade report seems to defy the gloom that seems to pervade all things Malaysian these days (log annual and monthly changes; seasonally adjusted):

While exports didn’t increase much, that contrasts with the widespread expectation that exports would shrink. The fillip was provided by a rebound in E&E shipments (log annual and monthly changes; seasonally adjusted):

The other surprising thing was that commodity exports in November didn’t suffer much from the drag in oil prices (RM millions):

Both crude oil and LNG exports held up pretty well – much of the drag came from exports of downstream petroleum products.

The other important thing of note is that import growth went flat (RM millions):

The chart for intermediate goods imports is seriously weird, and I’ve yet to hear a good explanation for it. Note that MYR depreciation against the USD was fairly mild in November (about 2.8%), so that’s not a good explanation of these different movements in exports and imports. December data would be a different matter.

Piece of advice to anyone thinking of Malaysia as an oil producer – crude oil is simply not that important anymore (ratio to total exports):

Crude oil exports have never been more than 6% of total export receipts, and more commonly closer to 4%-5%. LNG and petroleum products are much more significant – for some months in 2014, Malaysia was a net oil importer.

Analysing the impact of oil prices on the Malaysian economy needs to take this into account, specifically the elasticity of these export revenues with respect to oil prices. Petroleum products (LPG, petrol, diesel, motor oil, fuel oil) are likely to be closely related, as refining margins are relatively small and fixed. But LNG is an entirely different animal due to long term contracts with asymmetric pricing mechanisms. Contract-based LNG prices will fluctuate with oil prices, but not to the same degree (i.e. the elasticity will be less than 1) and with a month or two lag, and not necessarily in relation to spot LNG prices either.

Case in point is that the terms of trade for Malaysia’s oil & gas trade actually went up in November from October, despite global prices crashing. That’s another wrinkle that should make analysts heads spin. I can’t quite figure out why – the spread between the local Tapis blend price and Brent crude has been pretty constant (about USD3 per barrel) – unless it has to do with the LNG pricing I mentioned above.

Technical Notes:

1. November 2014 External Trade Report from MATRADE
2. November 2014 External Trade Indices from the Department of Statistics (warning: pdf link)