Bank Negara: More moderate commodity price growth in 2018

  • Business
  • Wednesday, 28 Mar 2018

Malaysian palm oil futures fell 1 percent on Friday, ending four straight days of gains on forecasts for rising production in March.

KUALA LUMPUR: Bank Negara Malaysia expects export prices of major commodities such as crude oil and liquefied natural gas (LNG) versus crude palm oil (CPO) to diverge in 2018, after the synchronous and strong rebound in 2017.

In its annual report released on Wednesday it said mineral prices will continue to increase, but at a smaller magnitude compared to 2017.

“The relatively smaller price increase will contribute to slower crude oil export growth. Similarly, slower increase in LNG price will also result in a more moderate expansion in LNG exports.

“In contrast, major agriculture export prices, particularly CPO is likely to decline reflecting elevated inventory levels as the recovery in CPO output continues post-El Niño,” it said.

The slower growth in commodity prices will also be reflected in the lower exports of resource-based manufactured exports (petrochemicals and oleochemicals) and intermediate imports (fuel and lubricants) which use these raw commodities as feedstock.

Overall, Malaysia’s export outlook will remain firm, supported by continued strength in export volumes amid a moderation in export price growth.

While the pace of overall export and import expansion is expected to moderate, it continues to exceed the recent five-year average performance.

“Consequently, the goods surplus in the Balance of Payments is forecast to rise to RM120.5bil.

“The services account is projected to record a marginally higher deficit of RM23.2bil, owing to higher net transport payments, as local fi rms continue to rely on foreign freight providers to transport goods,” it said.

Payments for professional and technical services are also expected to rise as firms hire foreign expertise to facilitate construction of high-end commercial projects and civil engineering projects which use complex technologies.

The travel account, which is the largest services account in surplus, will increase on expectations of higher tourist arrivals and rising per capita spending.

To recap, Tourism Malaysia targets tourist arrivals to edge up to 33.1 million in 2018, from 25.9 million in 2017.

The income accounts are also projected to record a wider deficit. The primary income deficit will increase to RM39.1bil as locally-incorporated multinational corporations continue to earn sizeable profits, especially in the manufacturing sector, in tandem with improved global demand.

This will more than offset the increase in income accrued to Malaysian firms investing abroad, particularly in the mining sector which accounts for more than one-third of investment income receipts.

The country’s secondary income account is expected to register a larger deficit of RM19.3bil due to higher outward remittances by foreign workers.
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