ECONOMIC UPDATE - External trade review - High commodity price



17th straight month of surplus

Statistics Indonesia reported a high trade surplus at USD4.37 bn in Sep-21. The surplus was higher than our estimate and consensus at USD3.96 bn and USD3.87 bn, respectively. The higher trade surplus was due to the export value surging on the back of commodity prices boom to USD20.6 bn, still high albeit decreasing by 3.84% MoM (+47.6% YoY). Commodity prices have risen to multiyear highs in recent months, particularly coal. We expect the high commodity prices condition will likely continue to be an important factor that allows Indonesia to record big export earnings for the remainder of 2021. 


Hike of commodity price

Every news talk about commodity prices hike lately. The higher prices are largely driven by the rise of energy prices, agricultural goods and industrial metals. The rally comes from a combination of demand-side factors (economic reopening), supply-side factors (reduction in inventories) and financial elements (shift of risk appetite). Thanks to vaccination and some progress in handling Covid-19 for the economic reopening. In addition, the environmental concern pushes a carbon-free economy to flourish. It boosts the electric cars and renewable energy storage industry. From there, it leads the price increase of lithium used for battery and some metals like aluminum and copper price that jump due to the environmental friendly car production.


Export soars on the back of commodity

Many Indonesia’s important commodity prices jumped as well. ICP jumped by 6.49% MoM (92.9% YoY) from USD67.8/barrel in Aug-21 to USD72.2/barrel in Sep-21. Other commodities surged as well such as coal, aluminum and kernel oil where they increased by 9.5% MoM, 8.9% MoM and 6.4% MoM respectively. Based on sector agriculture and mining increased in monthly basis by 15% MoM and 3.46% MoM. Meanwhile, OG and manufacture slipped by 12.6% MoM and 5.29% MoM. From the selected non-OG sector, the biggest contributor (15.4% of total export) came from Animal and Vegetable Fats (HS 15) where it decreased by 30.5% MoM to USD2.82 bn. From the selected top export commodities, the highest growth came from Nickel (HS 75) at 98.7% MoM to USD178.9 mn. 


Stronger domestic manufacturer

IHS Markit Indonesia Manufacturing Purchasing Managers’ Index (PMI) increased from 43.7 in Aug-21 to 52.2 in Sep-21. The index moved above the 50-threshold, signifying the expansion. The growing manufacture sector was due to the easing of level-based PPKM. Both manufacturing output and new orders increased while the foreign demand was still weak. Manufacturing sector is significant as the import of raw material/intermediary goods is 75.5% of total import. All of imported goods based on the usage decreased: consumption goods (5.28% MoM), intermediary goods (2.27% MoM) and capital goods (2.66% MoM). The biggest contributor (14.7% of total import) came from Machinery (HS 84)where it increased by 5.03% MoM (30.6% YoY) to USD1.76 bn. From the selected non-OG sector, Mineral Fuel (HS 27) recorded the highest growth at 219.5% MoM (231.3% YoY) to USD121.5 mn. 


Expecting unchanged policy rate

The surplus is still large and we expect the commodity prices will stay high for the rest of 2021. This condition brings positive sentiment and liquidity for the economy. Global trade performance also supported Indonesia trade performance reflected by the Baltic Dry index (BDI) that has been increasing consistently since Jul-21. It gives hope that the international trade will be more robust for 4Q21 data reading. However, amid the thick trade surplus, we see that Bank Indonesia (BI) will hold the BI-7DRRR at 3.5% in the next BoG Meeting in Oct, 18th – 19th 2021 in order to stay competitive yet accommodative towards the market.