Wednesday, August 12, 2015

Export-commodity prices and the Ringgit

1.    If we look at the big picture, the Ringgit has been badly affected by confirmed as well as expected macroeconomic decisions in two of our major trading partners.

2.    The possible increase in US interest rates around September will strengthen the dollar further – theoretically investors will pull money out of other countries and invest in US securities with higher returns now.

3.    And yesterday when China devalued yuan against the dollar, Ringgit went down further.

4.    But our Ringgit to Dollar exchange rate has been declining since the good days in 2010/11.

5.    Commodities prices do contribute to the strength of our currency, especially when a significant percentage of our industries are either directly or indirectly linked to oil, palm oil and rubber.

6.    Since 2010/11, the prices of the most important commodities that we produce and export crashed. These commodities are crude oil, palm oil and rubber.

7.    Price of crude palm oil fell 47% since 2011. Palm oil peaked and was traded at RM3,811 per tonne in February 2011. In August this year, it is traded at RM2,034 per tonne.

8.    Price of SMR20 rubber fell 69% since 2011. At its peak, SMR20 rubber was traded at RM16.89 per kilo in February 2011. In August this year, it is at RM5.16 per kilo.

9.    As we all know by now, price of crude oil (Tapis Blend) crashed as well. For the period 2011-2014, crude oil was traded at above USD 100 per barrel, peaked at USD 119 per barrel in 2012. In July this year, it was USD 59 per barrel, which represents a 50% drop in crude oil prices.

10.    Notice how the change in prices of our commodities relate to the exchange rate.

11.    In 2011 when crude palm oil price was trading at a high of RM3,811 per tonne and rubber was RM16.89 per kilo, the value of exports from these two commodities alone were RM74 billion.

12.    Again, today, the prices of both commodities - palm oil and rubber - are 47% and 69% lower.

13.    When crude oil was above USD100 per barrel in years 2008, 2011, 2012, 2013 and 2014, the value of our crude oil and condensates export were between RM32 bil - RM 44bil.

14.    Again, the price of crude oil per barrel in July has halved from the previous years, and should come in a few percentage lower in August.

15.    The above does not include export value of derivatives and value added products as well as supporting and related industries that supply goods and services to other commodities-producing countries also.

16.    Prices of commodities are not the sole factor for the fall in Ringgit value against USD but it is a contributing factor.

17.    You may continue to read and believe emotional posts on social media and the politicians that by removing Najib or Barisan Nasional, things will be better. That is your democratic right.

18.    But the next time you see such posts online, why not ask yourself, your Facebook friend or the politicians a few questions?

19.    If you are sworn in as Prime Minister tomorrow, will the Ringgit strengthen by itself, will commodities prices swing upwards or what exactly are your plans to strengthen the Ringgit?

20.    Discuss or have a good laugh.


Anonymous said...

Don't try to save your stupidity. Its a lost cause.

I dare you to publish said...

Wow, if every Tom, Dick, Harry can read FX movement like you do George Soros will not be the special man today.

Applauding you for sharing your expert opinions by first, comparing Malaysia to countries where central bank policies (BOJ, ECB) prints money to DEPRECIATE intentionally and other markets struggling to produce quality data vs the US, then now, comparing again on a single factor - commodity prices.

While you are at it, why not show the readers how capital flight from our financial markets affect the FX rates?

For most of the investors, we prefer stability, which sometimes means its better to have a crook at the top then the alternative of uncertainty in leadership. But Najib's debacle has gone too long with basically zero accountability and answers.

You deserve a pat at your back for your efforts in being an intelligent and sophisticated citizen of Malaysia. What fools are the community in blaming the government? Fuck them.

Sleep well knowing that you have contributed to the enlightenment of the society. Well done.

Anonymous said...

if someone sworn to be prime minister tomorrow, of course ringgit will not automatically bounce back overnight. however, the question is if we do not change the government stand on corruption and their politician corruptions, it will bring down Malaysia into bigger downward spirals. at least by changing to better government, the worst scenario will be avoided.

Anonymous said...

Eh if next time you say Malaysians cannot comment on currency because we not currency expert, if you fucking got fever, don't eat Panadol, coz you not doctor ma.

Your car knock don't conclude accident, coz you not mechanic kan?
Someone slap you, you don't retaliate.You not MMA fighter right?

Common sense la cibai. It's called common sense.

Don't need a qualification to comment on something if it affects you.You don't have a biology degree majoring in reproductive science but you know how to fuck, correct not?