Wednesday, April 2, 2014

Singapore Manufacturing to Ease

Singapore’s manufacturing activity is expected to slow in March as new orders, inventory and production output moderate.

We expect a modest disappointment for Singapore’s March purchasing managers’ index (PMI) release Wednesday evening. The market is eyeing an uptick in the broad manufacturing PMI figure to 51.1 from 50.9. While this is consistent with the recent flattish trend in the PMIs of our key US, Eurozone and China markets, risk is on the downside.

Some of the sub-indexes within the headline composite index are already hinting of moderation in manufacturing activity. The build-up in the inventory and stocks of finished goods indexes as well as the easing in the new orders index are evidence of slowing manufacturing production. While we expect the manufacturing sector to still stay in expansion level (with a reading of above 50), the risk of a downside blip exists.

Separately, the upswing in the electronics cluster may be coming to an end. Yet, the market seems to think that there will be a rebound in the electronics cluster. Consensus is factoring in higher electronics PMI of 51.6 from 51.2 in the previous month.

New orders, production and inventory sub-indexes have all moderated, suggesting a downward adjustment in the production output level. Moreover, this corroborates with the recent easing back to parity in the SEMI book-to-bill ratio as well as the tapering in the global semiconductor sale growth.

Essentially, we believe manufacturers are attempting to unwind on their production levels, after having ramped up output over the last six to nine months. As it is, there has been a built up in inventory stock and with that, expect further dip in the electronics PMI ahead as manufacturers make adjustments to their production