Expect lower car prices amid higher COE premiums: analyst

And lower transport costs.

Transport cost posted further but smaller decline in April at 2.1% YoY compared to a 4.0% YoY slide last month, as private road transport contracted less.

According to a report by UOB, private road transport costs fell as there was a smaller correction in COE premiums compared to the same month last year. Moreover, on a year-on-year basis, oil prices remained lower.

It can be recalled that the Government hiked petrol duty rates in Feb 2015 as announced in the Budget 2015, with the premium grade petrol raised by SGD0.20 to SGD0.64/liter, while intermediate grade petrol raised by SGD0.15 to SGD0.56/liter.

Meanwhile, Maybank Kim Eng adds that higher COEs for May-Jul 2015 may keep car prices down. The Land Transport Authority (LTA) on 16 Apr 2015 released the COE quota for MayJul 2015 period with 15,744 COEs for cars (which is +39.4% higher than the previous quarter quota).

Category A COEs (for cars up to 1,600cc and 97kW) remain as the biggest beneficiaries as the supply will be +44.6% higher followed by Category B COEs (for cars above 1,600cc or 97kW) which increase by +28.5% from previous period quota. Total COE quota for May –Jul 2015 quota is 19,912, which is +41.4% more than the Feb 2015-Apr 2015 quota with replacement COEs account most of the COE supply i.e. COEs from deregistration of vehicles.

The new quota is the second with a reduced 0.25% cap (from 5.0%) based on vehicle population as at 31 Dec 2014. Recall that the LTA lowered the annual vehicle growth rate for Feb 2015-Jan 2018 period, which is to be reviewed again in 2017. Expect stable-to-lower trend in COE prices. Recent results from COE bidding showed prices dropped to SGD66,590 for Category A COEs (previously at SGD68,589). This is supported with the sustained higher number of vehicles de-registered at 8,207 in Apr 2015 (Mar 2015: 9,448). In the next few years, the number of vehicles reaching the 10th year of their COE life is expected to increase and this will add more supply of COEs from the deregistration exercise.

Transport inflation contracted 1.4%, slower than the 2.7% decline in March, as COE premiums fell at a slightly slower pace.

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