Malaysia: Consumer sector to gain from easing inflationary pressures

• Jan 17, 2023

PETALING JAYA: The easing inflationary pressures will be positive on the consumer sector and lead to better margins ahead, supported by lower raw material costs and the stronger ringgit, says MIDF Research.

The research outfit said raw material costs for food manufacturers dipped substantially from the peak in the second quarter of 2022 (2Q22) owing to the decline in commodity prices.

It attributed the declines in commodity prices to the improved production and weaker demand as a result of economic uncertainty.

“Furthermore, aggressive interest-rate hikes by developed countries weakened the surge in commodity prices, as historically commodity prices fall when interest rates rise,” MIDF Research added.

Moving forward, it anticipates a decline in wheat and raw sugar prices due to increased production while forecasting crude palm oil (CPO) prices to average at about RM3,500 per tonne in 2023 owing to the price disparity with soyoil price.

In comparison, the Malaysia Palm Oil Board forecast CPO prices to settle in the range of RM4,000 to RM4,200 per tonne in 2023, compared with RM5,087.50 in 2022.

For beverage producers, the research house said prices of raw material prices such as arabica, robusta and skimmed milk have been declining since the beginning of 4Q22.

It said the average price of polyethylene terephthalate resin, the main cost for plastic packaging, dropped by 13.2% year-on-year (y-o-y) to US$1,026 (RM4428) per tonne in December 2022.

MIDF Research said the decline in commodity prices as well as other raw material prices bodes well for food and beverage producers, with better margins expectations.

Touching on the poultry players, it said the cost of chicken feed remained elevated in December.

The primary raw materials for chicken feed, corn, had dropped significantly since its peak in April 2022, while soymeal has been rising, leading MIDF Research to expect feedstock price for poultry players to remain steady in the near term.

The research house said the stronger ringgit against the greenback will benefit food and beverage companies and poultry producers as most commodities are purchased in US dollars.

“On the flip side, the stronger ringgit is a negative for export-oriented companies that sell their products in US dollars, which will see lower sales as the ringgit strengthens,” it said.

As for retail sales, MIDF Research expects the upward momentum to continue this year, aided by the stable job market and easing inflationary pressures.

“We believe that higher tourist arrivals, particularly from China, will increase retail trade,” it said.

Source: https://www.thestar.com.my/business/business-news/2023/01/17/consumer-sector-to-gain-from-easing-inflationary-pressures