DBS Economy

August trade and September inflation data are the focus this week

August trade and September inflation data are the focus this week (Friday). CPI inflation is likely to ease to 5.8% YoY from 6.4% in August and 6.2% in July, as the high base effects emerge (the Ramadan fasting month fell in September last year). This may not represent a stabilizing trend in inflation. We forecast that inflation numbers will bounce back to 6-6.5% in 4Q10, in accordance with the macro picture of strong consumption demand, lingering supply constraints and elevated inflation expectations. That said, we also notice that the core inflation numbers for August have been revised down to 4.2% from 4.5%. The demand-side price pressures are building up more gradually than the original data showed, which provides scope for the central bank to maintain interest rate policy unchanged for another few months. In our interest rate forecast, we currently look for only one rate hike of 25bps in the remainder of this year.

On the trade front, August data should also be distorted by festival effects. The YoY growth in exports is likely to fall to the 10-20% range in August from 29.0% in the previous month, while imports may slow even more sharply to 20-30% from 45.3%. Merchandise trade balance could return to surpluses after posting a small deficit of USD 0.1bn in July, helping explain the USD 2.5bn increases in foreign reserves during the month of August. From the fundamental perspective, we believe that growth in domestic import demand is still holding up better than growth in exports, and the risks to the trade balance are tilted towards the downside. One positive note is that commodities demand from China has bounced back recently. China's custom data shows that its imports from Indonesia increased a strong 9.3% MoM in August after falling for four consecutive months in April-July (China is among Indonesia's top five export markets and accounts for 10% of Indonesia's overall exports).

GlobalCoal Asia Coal-Prices rise to 3 ½ mth high on oil, economy

JAKARTA, June 4 (Reuters) - Prices of power-station coal from Australia, a benchmark for Asia, rose to a three-and-a-half-month high of over $72 a tonne on higher oil prices and expectations that a recovery in global economy would spur demand.

Thermal coal prices in the globalCOAL Newcastle index rose $6.48 from the previous week to $72.79 a tonne, the highest since Feb. 24 when it stood at $73.38 a tonne. 'There is some direction now with the gain in oil prices. Also, there is positive sentiment about the global economy that pulling up prices,' a regional trader said.

Crude oil steadied at $66 a barrel on Thursday after hitting nearly seven-month high of $69.05 a tonne on Tuesday on expectations of an economic recovery.

Strong demand from China and India is also expected to spur recovery in global coal in the second half of this year, industry participants said at a recent industry gathering.

There were no physical trades registered on globalCOAL.

INDONESIA COAL

Chinese buyers were still scouting for Indonesia coal. One handimax of 6,300 kcal/kg air-dried basis (ADB), FOB mother vessel, has been sold to a Chinese buyer at $55 a tonne for delivery in July.

'The price was still a bit low because it was settled in April. We still see a lot of inquiries from China. Now, everybody suddenly wants to trade with China,' said an Indonesian trader.

Indonesian coal prices are likely to go up to around $60 in coming weeks in line with a recovery in global coal prices, the trader said.

About 11,000 tonnes of Indonesian sub-bituminous coal of 5,600 kcal/kg ADB were traded at $39.5 a tonne, FOB barge from East Kalimantan, but there were no details of buyers.

'Inquiries are now starting to come in, because of a rise in prices,' said another Indonesian trader.

In the domestic market, demand remained slow as power plants still have abundant supplies, of more than a month, traders said, adding power plants may be back to the market in the third quarter to secure stockpiles ahead of the rainy season.