7 May 2004
The recovery of Singapore's manufacturing sector is poised to continue, with electronics manufacturing leading the charge.
The purchasing managers' index (PMI) compiled by the Singapore Institute of Purchasing & Materials Management hit 55.2 in April, its highest level since November 2002. The electronics PMI was 55.9, helped by the electronics new orders and new export orders sub-indices, which rose strongly to 59.4 and 60.6 respectively.
A survey conducted by the Economic Development Board (EDB) in March and April also found similar optimism. A weighted 44 percent of manufacturers polled by the EDB projected a stronger business outlook in the six months to September, while 5 per cent expected a deterioration (the survey results were weighted by companies' contribution to employment and value added). The net positive response is 39 percent, an improvement over the 20 per cent recorded in the previous quarter.
Electronics manufacturers were even more optimistic, with a net weighted balance of 67 percent of them expecting a "robust business situation" in the next six months.
"Riding on the global electronics recovery, the electronics cluster projects a higher output level in the second quarter of 2004," the EDB said. "The semiconductor segment expects to increase production to meet the rising export demand. Within the infocomms and consumer electronics sector, higher outputs of mobile phones and computers are expected."
The semiconductor industry has been particularly strong. The European Semiconductor Industry Association (ESIA) recently reported that global chip sales in March hit US$16.27 billion, up 32.3 percent year-on-year. The ESIA said semiconductor shipments should grow by 25 percent this year.
Operations by wafer fabrication companies in Singapore, such as Chartered Semiconductor Manufacturing and UMCi, the Singapore subsidiary of Taiwan giant United Microelectronics Corp (UMC), are also set to rise strongly. UMCi's president, Chris Chi, has said that the company aims to boost production at its Singapore plant this year from 2,000 wafers a month to more than 10,000.
With the strong growth in semiconductors, semiconductor equipment sales are expected to grow strongly as well. Singapore's market for semicon equipment, worth US$810 million last year, is forecasted to grow 70 per cent this year to US$1.38 billion, the second-highest in the world after South Korea.
"We expect to see Singapore's demand peak to US$1.73 billion by 2005, before settling down to US$1.62 billion in 2006," said Stanley Myers, president and chief executive of the Semiconductor Equipment and Materials International (Semi), at a semiconductor exposition this week. "Singapore's market for semicon equipment is growing just below South Korea's, which saw demand jump 88 per cent to US$3.2 billion in 2003."
The optimism on investment extends to manufacturing in general. According to the EDB survey, most manufacturers are planning to invest in plant and machinery in the next 12 months (April 2004 through March 2005). The EDB reported that "a weighted 31 per cent [of manufacturers] project higher level of capital expenditure. This is the highest level achieved since the second quarter 2003 survey, when it was at a weighted 16 per cent."
US data also supports the optimistic outlook in Singapore. The survey by the Institute for Supply Management in the US showed that its manufacturing index for April was 62.4, the twelfth consecutive month that the index was above 50, the level that signals growth.
The US Commerce Department reported on 4 May that factories saw orders rise 4.3 percent in March compared to the previous month, the biggest increase since July 2002. Non-defence manufacturing orders were up 4.6 percent, the largest increase since March 1992.
However, the stock market provides a note of caution. While the overall stock market has done well -- based on yesterday's close of 1,866.61, the Straits Times Index has risen 5.8 percent so far this year -- the manufacturing sector has not kept pace. Manufacturing stocks have collectively fallen about one percent since the beginning of the year, while electronics stocks have fallen by 5.7 percent.
Having said that, manufacturing and electronics stocks were overdue for a breather anyway, having gained almost 50 percent last year. The slight fall since the beginning of the year may not be significant.
Probably of greater concern is whether demand from the US can be sustained once the effects of monetary and fiscal stimuli applied over the past few years dissipate. With rising commodity prices, especially for oil, many expect the Federal Reserve to start raising interest rates before the end of the year. With the US economy burdened with record levels of debt, the loss of monetary lubrication could be a real threat to the ongoing economic recovery.
For the rest of this year, though, the recovery is likely to keep going, especially for Singapore's electronics manufacturers.
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