ASEAN Perspectives:Commodity reconfigurations

Exactly two years ago this month we looked at ASEAN’s sensitivity to commodities(see: ASEAN Perspectives: Commodity complications, September 2015). At the time,commodity prices were in the doldrums and we thought it was high time to flesh outthe numbers and highlight where there were vulnerabilities from low commodityprices (think exports and fiscal revenues), but also opportunities (subsidy reform andpotential current account improvements). A simple yet salient takeaway was, andremains, that ASEAN is no longer a straightforward commodity play.

    Only Malaysia retains a positive oil & gas net export balance, having recentlyregained its former status as a net oil exporter (albeit only marginally). Although thedrop in coal and palm oil prices in Indonesia put significant pressure on ruralconsumption, low oil prices simultaneously enabled the government toopportunistically tackle subsidies while improving the current account, heralding thefundamental improvements that have contributed to the voracious and seeminglyinsatiable foreign investor appetite for Indonesian assets as of late.

    In the two years since the report, we have seen a recovery in the broad commodityindices, albeit an unspectacular one. Still, the impact of relatively low commodity pricescontinues to be felt; from Indonesia’s banking system to Singapore’s offshore engineeringindustry, where output continues to contract by double digits. For now, this is easilydisguised by soaring tech shipments, but it remains a concern for policymakers.

    Meanwhile, prices of “soft” commodities such as palm oil and agricultural productshave performed better, even though food price disinflation prevails, driven primarily by lowrice prices in Asia. Crude Palm Oil (CPO) prices reached multi-year highs earlier this yearthanks in part to demand from India