Manufacturing sector not out of the woods yet despite industrial production uptick

Oil-related headwinds will intensify in the months ahead.

The marginal uptick in Singapore’s December industrial production (IP) print is no cause for optimism, as the manufacturing sector will continue to grapple with intensifying headwinds in the coming months.

According to OCBC, Singapore's December IP data historically contains strong seasonality, on top of a series that is already quite volatile. Moreover, the underlying momentum has been weak in 2014, which has created a high base effect for the year-on-eary readings.

The report also noted that Singapore remains particularly vulnerable to weak oil prices. The petrochemical sector is forecasted to perform poorly in the months ahead, with most petrochemical products hit with price declines that in some cases surpassed crude oil in magnitude.

“The impact on the marine & offshore engineering segment is somewhat different. Oil supermajors and worldwide energy firms have publicly slashed capex budgets, while production in some high-cost offshore fields will be delayed. The impact on Singapore's offshore sector remains to be seen. Most rigs and FPSO (floating production, storage and offloading) units under construction are paid for in instalments, with high fees sustained if the orders are cancelled. The industry order book may take a hit, but we suspect that output may hold up better than expected,” stated HSBC.

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