Singapore"s firm output, weak exports may flag build-up in inventories

SINGAPORE Jan 24 (Reuters) – Singapore’s factories may be

in for a rougher ride this year if manufacturers ramped up

output in anticipation of a pick-up in global demand, and caused

stocks to swell.

That worry is underscored by the city-state’s firm

industrial output growth that contrasts with its weak exports.

If electronics and other goods have been built up in

warehouses, analysts say it raises the risk of an inventory

adjustment that may temporarily weigh on industrial production

in the trade-reliant economy.

Singapore’s manufacturing industry is anchored by

electronics and pharmaceuticals but has lagged the rest of the

region in recent years as the economy has become increasingly

reliant on trade, financial services, tourism and property

development.

The divergence between output and exports widened last year

as total manufacturing output on an annual basis expanded while

non-oil domestic exports fell.

The gap has been even more obvious in the electronics

sector, which accounts for a third of Singapore’s output.

In the electronics sector, total production in

January-November 2013 rose 1.8 percent from the same period a

year earlier, according to the Singapore Economic Development

Board.

But total domestic electronics exports in the first 11

months of 2013 slid 11.9 percent year-on-year, International

Enterprise Singapore data shows.

Industrial production data for December, due on Friday, is

expected to show a 0.4 percent annual drop in total output, a

Reuters poll found. Non-oil domestic exports

rose more than expected in December but exports of electronics

fell 3.1 percent year-on-year.

RISING STOCKS

Inventories have increased in each of the first three

quarters of 2013 within the city-state’s economy as a whole,

according to gross domestic product data.

“Starting from the latter half of 2012 until recently, I

think there has been a quite a bit of inventory build-up on a

macro basis,” said Hayato Nakamura, Singapore-based senior

economist for Bank of Tokyo-Mitsubishi UFJ.

The Singapore Institute of Purchasing Materials

Management’s purchasing managers’ index (PMI) shows that

electronics inventories expanded during much of 2013.

To be sure, economists including Nakamura say that a

build-up of inventories is just one of the possible factors

behind the divergence in output and exports.

The data is also a bit patchy.

The PMI survey shows that stocks of finished goods in the

electronics sector have contracted for months, and the GDP data

can reflect changes in inventories in the non-manufacturing

sector as well as among manufacturers.

Another reason for the gap may be a drop in the prices of

exported goods that thus caused a fall in nominal exports, which

are measured at current prices.

According to data from the Ministry of Trade and Industry,

export prices for machinery and transport equipment fell on an

annual basis in each of the first seven months of 2013.

But not all agree that weak prices explain the disparity

between the firmness of output and the weakness of exports.

“If you check semiconductor chip prices, it’s not as if they

are collapsing or anything,” said Chua Hak Bin, Singapore-based

economist for Bank of America Merrill Lynch. “To me, it’s

probably the inventory argument.”

One pocket of strength in output has been semiconductor

production, which alone accounts for 20 percent of the

city-state’s total manufacturing output.

Asked if an inventory build-up in the chip industry may have

been a factor behind the output/export gap, Russell Tham,

regional president, South East Asia for top chip gear-maker

Applied Materials Inc, said Singapore is not a place

where semiconductor firms tend to keep a lot of their inventory.

“We don’t have a large domestic market, so I don’t think the

inventory stacks around here,” Tham said.

Jagadish C.V., chief executive officer for Singapore-based

semiconductor manufacturer Systems on Silicon Manufacturing Co

Pte Ltd, said there was likely some typical year-end

accumulation of inventory among semiconductor firms in Singapore

in the fourth quarter of 2013.

“I would say 2014, maybe in general in Singapore for the

semiconductor industry, quarter one may be a little bit flat or

slower,” said Jagadish, adding that semiconductor production was

likely to turn stronger later in 2014.

If an inventory build-up has taken place, that could weigh

on output, especially if global growth disappoints. It could be

a risk factor for the general view among economists, who expect

growth in Singapore’s manufacturing sector to accelerate in

2014.

(Additional reporting by Brian Leonal and Rujun Shen; Editing

by Jacqueline Wong)

Singapore"s firm output, weak exports may flag build-up in inventories