JAKARTA: Japanese companies operating in Indonesia are expecting declining profit this year as the rupiah value swung worse than anticipated while the Middle East conflict introduced more adverse effects that spiked costs in logistics and raw material imports.
A survey conducted by Japan External Trade Organisation (Jetro) in April and May found that almost half of 205 Japanese manufacturing firms involved in the survey expected a declining profit this year.
Yamada Kenji, Jetro Jakarta senior director said that “import costs are rising” due to “weak currency” given that the contracts were mainly in US dollars.
The rupiah against the greenback dropped by about 7.5% from 16,675 per dollar at the turn of the year to 17,940 rupiah last Sunday. The plunge made it Asia’s weakest performing currency this year.
The latest reading had already marked an improvement from a nadir of over 18,200 per dollar recorded in June when the currency breached the historic low of 17,300 per dollar that lasted for decades, recorded during the Asian Financial Crisis in the late 1990s.
The currency started weakening when the Iran war began in late February.
The depreciation played out gradually at first until it turned rapid in late May and early June, which was only contained after Bank Indonesia hiked the interest rate outside the scheduled monthly rate decision.
“Exchange rate fluctuations have been greater than anticipated, and combined with soaring transportation costs, purchase prices exceed projected levels, putting pressures on profits,” read an excerpt from the survey.
Over a quarter of the respondents projected a 1% to 10% profit decline this year as 13.7% of them projected a 10% to 30% decline.
More than 6% expected a decline of more than 30%. Only 12.2% forecast no change in profits while less than 20% expected the profit to increase.
Over a fifth said that profit projection was currently uncertain.
A Jetro survey conducted in August and September last year found that over a third of Japanese companies in Indonesia projected an increase in profits this year and everything shifted after the war began.
An overwhelming majority of the firms admitted that procurement costs for raw materials had arisen combined with material shortages, particularly for plastics and precursors.
Plastics prices had been pushed up on account of supply strains of naphtha, a petroleum byproduct used to produce ethylene and propylene, the main building blocks of plastic resins.
Almost three quarters of global naphtha supplies came from Middle Eastern oil producer countries and the war has naturally limited its flows out of the region.
As a response, the government in April decided to waive import tariffs of liquified petroleum gas, an alternative plastic feedstock, to help manufacturers.
The Japanese companies considered the policy “a positive step”.
They also commended the government effort to keep energy subsidies “as a short-term measure to alleviate the burden” but have concerns over its medium to long-term impact given the fiscal strain it might bring.
They anticipated “clearer and earlier” information disclosure regarding future policy directions. — The Jakarta Post/ANN
