SINGAPORE -- Stagnant resource prices are eroding earnings at Southeast Asian energy giants, with the impact rippling to the financial sector here as well as housing and auto sales in Malaysia.
New York crude oil futures fell below $30 a barrel for the first time in 12 years at the start of 2016. Despite signs of a market recovery, crude remains in the 40s. Oversupply and lackluster demand are loosening the market, also pushing down prices of such other resources as coal and palm oil.
Even though many Southeast Asian countries are net importers of resources, the slumps by energy companies with significant influence over the economy are causing a negative chain reaction.
At Malaysian state oil company Petronas, net profit plunged 96% on the year in the April-June quarter. Output increased 3%, but revenue dropped roughly 20% on lower prices. Petronas had invested aggressively back when oil was high and is now paying the piper. CEO Wan Zulkiflee Wan Ariffin expresses a sense of urgency, saying the company cannot be optimistic about the future.
Chinese imports of crude oil decreased 26% on the year in dollar terms for the January-July period. As uncertainty over the global economy grows, demand is unlikely to pick up sharply.
So to restore earnings, the companies are finding themselves having to curb investment and take other restructuring steps. Petronas has decided to reduce capital and operating expenditures by 50 billion ringgit ($12.2 billion) over the four years starting in 2016. PTT has cut its planned investment for 2016 by 7 billion baht ($202 million).
Energy companies are among the largest corporations in their countries. In Malaysia, an estimated 4,000-plus companies are dependent on orders from Petronas. Offshore oil driller UMW Oil & Gas saw revenue plunge nearly 60% on the year and bled a net loss for the January-June period.
In Singapore, which has positioned the oil industry at the center of its growth strategy, some companies are struggling to keep the cash flowing. Swiber Holdings, an oil-drilling engineering company, announced Aug. 1 the suspension of interest payments on bonds issued by a group member. Oil explorer KrisEnergy hinted in mid-August at difficulty in repaying debt.
Cash flow problems at resource companies are causing an upheaval in the city-state's banking sector. Industry leader DBS Group Holdings' nonperforming lending grew 20% over the three months through the end of June. The group has added loan-loss provisions and booked a 6% drop in April-June net profit. No. 2 player Oversea-Chinese Banking's net profit declined 15% on the year that quarter.
The benchmark Straits Times Index continues to bob in a limited range, weighed down by resource and banking stocks. The equity market is being left in the dust while neighboring countries enjoy fund inflows from monetary easing in Japan and Europe.
The lackluster performance of stocks is affecting Singapore's ability to attract initial public offerings. Singapore is falling behind Hong Kong as an Asian financial hub.
Cheap oil is hampering the circulation of money across the entire economy, and the situation could worsen if petroleum prices remain stuck at low levels.
In resource-rich Malaysia, cheap oil is slamming the brakes on consumption. Housing giant UEM Sunrise called off in late June a detached-home project near Kuala Lumpur. Sales of luxury condominiums in the capital decreased around 10% by value last year, likely because of the blow dealt to employment by lower petroleum prices.
Petronas has downsized its Malaysian staff by 1,000. Smaller companies affected by this are also adjusting their payrolls. With banks screening individuals' loan applications more rigorously, major automaker Proton's first-half unit sales have dropped nearly 30% on the year.
In Indonesia, a net importer of crude oil, consumption is brisk as a whole. But the Kalimantan region, whose economy is dependent on the coal industry, faces a headwind. Matahari Department Store enjoyed 10% or so same-store sales growth for the January-March quarter, but growth in Kalimantan came to just 2.5%.
The lucky ones
Across Southeast Asia, cheap oil's impact on consumption differs by industry and location. Such sectors as foodservice and travel are getting a tailwind.
Major Philippine restaurant operator Jollibee Foods' net profit grew 17% on the year in the April-June quarter, with domestic sales rising 18%. The country depends on imports for oil and gas. Cheaper gasoline whets the appetite for spending among middle-income consumers who commute via motorcycle.
Airlines that had suffered in intense competition are also benefiting from cheap fuel. Leading budget carrier AirAsia's fuel costs dropped 20% on the year for the April-June quarter, while net profit jumped 40%. The company has ordered 100 midsize planes, encouraged by the recovery in earnings. Thai Airways International's net loss fell nearly 80% for the same period.