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ECONOMIC UPDATE - External trade review - Thin trade surplus on moderating commodity prices



Narrowed trade surplus

According to Statistics Indonesia (BPS), Indonesia's trade surplus shrank significantly by -88.9% MoM to USD0.44 bn in May, marking the worst trade surplus since May-20.  Besides, this figure was lower than our estimate and the consensus of USD2.55 bn and USD3.06 bn, respectively. On an annual basis, the trade surplus exhibited a weaker performance, declining by -84.9% YoY from USD2.90 bn in the same month of the previous year. Although the trade surplus is small, Indonesia has maintained a positive trend in international trade since May 2020, resulting in 37 consecutive months of trade surplus.


Anticipate the normalization of global coal prices 

The softness in coal prices continues to persist. In May-23, the coal price plunged by -67% YoY and -25% MoM to USD137/ton. We anticipate a deeper normalization of global coal prices, following an oversupply in 2022. Several factors may contribute to coal prices contraction in the global market ahead. Firstly, there is the normalization of global energy commodity prices, driven by high stocks in European countries, China, and India. Secondly, the expectations of reduced coal imports by India and China, as they focus on increasing domestic production through their respective policies. Thirdly, we anticipate an improvement in coal supply from global producers, particularly Indonesia and Australia. 


Potential factors affecting a deeper contraction in the CPO price

CPO prices also continue to decline. In May-23, the CPO price shrank by -48% YoY and -13% MoM to USD3416/MT. We see several factors that may contribute to the CPO price contraction ahead. These factors include the normalization of vegetable oil production, the gradual recovery of sunflower oil exports from Ukraine, the expectations of a global economic slowdown, and weak demand from India due to the availability of cheaper vegetable oils in the market.


Exports sligthly increase

Total exports inched up by 0.96% YoY to USD21.72 bn in May-23, better than the previous month of -29.40%. Besides, this figure surpassed our and consensus estimates of -9.30% YoY and -7.72% YoY, respectively. On a monthly basis, exports elevated by 12.61% MoM, with oil and gas, and non-oil and gas imports grew by 4.48% MoM and 13.18% MoM to USD1.31 bn and USD20.41 bn, respectively. The main country destinations of non-oil and gas exports in May-23 were China at USD4.77 bn (23.4% of total exports), followed by the United States at USD2.05 bn (10.1% of total exports), and Japan at USD1.76 bn (8.7% of total exports). Based on the commodities group from 2-digit HS, the contributors toward stronger exports came from vehicles and accessories thereof at 60.20% MoM (USD993.2 mn); machinery and mechanical appliances and parts thereof at 53.77% MoM (USD576.4 mn); footwear at 35.66 MoM (USD600.8 mn); and electrical machinery equipment and parts thereof at 19.11% MoM (USD1,231 mn) . The upward trend in exports a month after the Eid al-Fitr holiday is a cyclical phenomenon due to more working days.


Imports is higher than expectations

The total imports rose by 14,35% YoY and 38,65% MoM to USD21.28 bn, beating our forecast and consensus of -9.03% YoY and -9.00 YoY, respectively. In detail, oil and gas, and non-oil and gas imports grew by 6.09% MoM and 46.42% MoM to USD3.13 bn and USD18.15 bn, respectively. Raw/intermediary goods continued to dominate the import sector, accounting for 74% of the total import. From the selected non-OG sector, the biggest contributor (16% of total import) came from machinery/mechanical appliances and part thereof (HS 84), which also increased by 52.49% MoM to USD3.09 bn. We believe the increase in monthly import performance is likely due to more working days in May compared to the previous month (Eid-al-Fitr holiday).


The challenges of international trade in 2Q23

We think the export performance will continue to be depressed due to the weakening of main commodity prices, such as coal and CPO. Besides, the global economic slowdown due to inflationary pressures would reduce demand from export destination countries. As a result, the trade surplus is expected to shrink, especially in the second half of 2023. However, the China's reopening would support the trade balance.