Qatar enjoys reflationary updraft

Economy benefiting from higher global hydrocarbon prices

TReport by QNB Group

he latest monthly indicators on trade and industrial prices show the Qatari economy benefiting from higher global hydrocarbon prices, ensuring that the already dwindling impact of the diplomatic rift on the economy recedes yet further.

In particular, the latest monthly trade statistics show the goods trade surplus surged higher in April. In level terms, the surplus topped QAR14.7bn. In percentage terms, the surplus was up a stunning 49% y/y versus April 2017.

The surpluses’ surge is a byproduct of recovering, but still muted, import growth (up 3.1%) and, most importantly, a buoyant export performance due to higher hydrocarbon prices. In level terms, April’s exports were up more than QAR5 billion versus a year ago; a gain of more than 27%.

Inevitably, the export surge is driven by the dominant hydrocarbon sector, whose exports were up QAR4.7bn versus last April so accounting for around 90% of exports’ total gain. Higher crude oil prices are helping drive the improvement, adding around QAR1bn on a year-on-year basis but, looking at the geographical split, suggests that booming LNG demand to Asia are the key driver.

Exports to Japan, the world’s largest LNG importer, were particularly strong in April; up nearly QAR 2billion versus last April. Japan’s export share accordingly jumped to 20%; up from 17% in March and 15% a year ago.

Japan has been at the forefront of LNG demand since the 1970s; making for a relatively mature market. Nonetheless, its LNG imports, up 2.3% in 2017, posted their first annual rise in three years. While the eventual restarting of some of the country’s still mostly idling nuclear reactors could cap medium-term demand, the strength of the April export numbers suggest Japan’s energy mix continues to pivot away from nuclear and coal and towards cleaner energies such as LNG.

Growth in LNG demand has more recently been dominated by China , whose imports soared by an extraordinary 49% in 2017, allowing to leapfrog South Korea as the world’s second largest LNG importer.

While China, along with India, can be expected to be the key driver of LNG demand over the medium term, its imports seemed to take a slight breather in April with its share of Qatari exports holding steady at 10%. Expect strong growth to resume soon.

Despite having been pushed in third position by China, South Korea is no slouch. Its LNG imports boomed by 10.8% in 2017 as its new environmentally-conscious prioritises LNG use. And Korea certainly sucked in more LNG from Qatar in April with imports up around QAR1.7bn year-onyear, lifting its export share to 17%.

Exports to India were surprisingly muted in April; down a touch in year-on-year terms. But, with Prime Minister Modi committing to lift LNG to 15% of the country energy mix (from under 7% currently) by 2020 and a swathe of new LNG import terminals under construction, Indian LNG demand looks set to boom over the next 1224 months.

Further underscoring the boost to the economy from higher hydrocarbon prices was the April producer price index (PPI). This reported headline growth of 24.3% y/y in industrial prices with a 31.1% y/y gain in hydrocarbon prices doing the heavy lifting. Importantly, other manufacturing prices were up a robust 12% y/y reflecting more broad-based industrial reflation in sectors such as chemicals.

In conclusion, the April trade and PPI data offer plenty of cheer for the Qatari economy. Spurred by the twin boosts of higher crude oil prices and booming Asian LNG demand, both export revenues and the trade surplus can be expected to enjoy a further uplift in the coming months.