Asia’s commodity upcycle beneficiaries

The global economic recovery has boosted a broad-based commodities demand, with crops and oil leading the surge. This demand is expected to remain high, underpinned not only by a pick-up in global industrial activity but also the massive Green Energy and Infrastructure spending plan by the US and Europe’s Green New Deal. At the same time, supply bottlenecks are exacerbating price pressures.

Although Asia is a net commodity importer, the higher prices will benefit some Asian countries that have large commodity sectors as well export large quantities of raw materials. Malaysia and Indonesia stand out in this respect with substantial mining sectors and palm oil plantations. Further, a good portion of government revenues for both countries comes from commodities, a positive for their fiscal positions.

Malaysia, a key exporter of crude palm oil (CPO) has benefitted from the recent price rallies fuelled by both lower inventory stockpiles and higher demand. At the same time, Lilian See, Head of Research, Eastspring Malaysia observes that the cost of production has gone up due to pandemic induced labour shortages. Further, Malaysia is one of the few net oil and gas exporters in Asia. Higher oil prices have positive implications, but fiscal deficits could be negatively impacted by higher petrol subsidies.

Over in Indonesia, Ari Pitoyo, Head of Investments, Eastspring Indonesia adds exports have been notably increasing with CPO (+49.95% year-on-year in April’21) as the main growth contributor on the back of rising prices and volume. The export base in April 2021 has also strengthened from the economic recoveries in China, the US and the European Union. The upcycle has also benefited Indonesia’s non-tax revenue.

Crops and oil lead the commodity price surge

May Chart of the Month gif

Source: Bloomberg, year to date returns in % in USD as of 24 May 2021.

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