By Emeka Anaeto, Economy Editor

The latest report for manufacturing Purchasing Managers’ Index, PMI, compiled by FBNQuest Research, an arm of FBN Merchant Bank Limited, has indicated a recovery from 50.6 in February to 54.4 for the month of March 2016.

President Muhammadu Buhari and Vice President Yemi Osinbajo at the opening of a 2-day National Economic Council Retreat at the Statehouse Conference Centre on 21st March 2016.

Manufacturing PMI tracks operating environment of factories within a given period, usually one month, with information based on the responses of manufacturers to set questions on core variables in their businesses.

The five variables measured include output, employment, new orders, suppliers’ delivery times and stocks of purchases.

According to the research report only employment, one of the five sub-indices, was negative in March. The strongest reading was 61 for output, up from 53 recorded in February.

“We link the marked recovery in the output sub-index from 53 in February in part to a smaller improvement for stocks of purchases”.
Even at that it appeared that large sized manufacturers are still in difficulties as the favourable index was recorded among small and medium scale organisations.

“It was limited to small and medium-sized companies. For the large and more import dependent firms, there was actually a decrease in March”, the report stated.
Moreover, the analysts at FBNQuest said that access to foreign exchange   did not improve in the month under survey, a situation which had been prevalent in the past six PMI reports.

“In these circumstances, we would expect companies to turn to local inputs, where available. Small firms would normally take the lead in this process, given their greater flexibility in production”, the report stated.

According to FBNQuest analysts “the fact that the employment sub-index was below water for the fourth successive month tells us that respondents do not see a bright near term.
“They have pushed up production because other factors allowed it but are not rushing to increase their payrolls”.

National accounts for fourth quarter 2015 showed that manufacturing expanded marginally by 0.4 per cent year-on-year, compared with the contraction of -1.8 per cent year-on-year in third quarter.

“We caution that the first quarter tends to be the weakest for growth in the year, not least because of delays in the release of funds from the budget for capital spending.

“The agenda of the current administration is driven by its expansionary budget for 2016, which the Senate last week approved”.

FBNQuest PMI is the first of such index in Nigeria, but the National Bureau of Statistics, NBS, has also taken up research on manufacturers PMI.

The index is a familiar data release at the start of the calendar month in developed markets such as the United States of America with the Institute of Supply Management, ISM, issuing its lead PMI, world’s oldest and most popular PMI.

FBNQuest PMI is modelled after the ISM. The respondents are asked whether output, employment, new orders, suppliers’ delivery times and stocks of purchases have improved on the previous month, are unchanged or have declined.

They are asked to make allowances for seasonal factors. A reading of 50 is considered neutral.

Since it was launched in April 2013, FBNQuest PMI have posted just three negative readings, specifically in July 2013, May 2015 and January 2016).

The sample is a representative blend of large, medium-sized and small companies.

The index is viewed as a forward-looking sentiment indicator, with the proven ability to move markets. It has become a core forward indicator for analysts, policymakers and financial market players.

However, FBNQuest warns that “any broad conclusions about the economy on the basis of our reports need to be tentative because we are operating in a near void; there are few data series on sectoral trends”.

Mixed developments in price movements

Meanwhile, if price movements in the international commodities market is anything to go by inflation rate may have remained up-tick in the month of March.

More often price directions in the international markets influences Nigeria’s Composite Consumer Price Index, CCPI, the headliner of the inflation rate.

Cocoa prices went up 0.13 per cent to USD2,974 per metric tonne on concerns that dry weather will threaten to shrink crop yield in top growing countries.

Sugar futures was also up 0.06 per cent at USD0.1587/pound, because major Asian crop growers expect production to falter this year on El-Nino induced droughts.

Brent crude was up 0.31 per cent at market’s month average of USD39.26 per barrel, West Texas Intermediary, WTI, futures went down significantly by 2.44 per cent to month’s market average price of USD38.32 per barrel.

The price dynamics was influenced by the lower than anticipated increase in U.S crude inventories.

On the heels of the mixed crude price movements LNG price went up by 4.74 per cent due to colder weather in the North East and Midwest of the United States.

But the U.S Dollar weakened on the dovish stance of the Federal Reserve Bank and the inverse relationship between the dollar and commodity prices will continue.

However, there were also significant price declines in some of the key commodities, signalling a moderating impact.

Wheat futures went down 2.67 per cent to USD4.64/bushel as a robust world inventories weigh on wheat prices, despite weather concerns.

Similarly corn prices went down by 1.61 per cent to USD3.67/bushel as China set to end huge corn stockpiling scheme, a decision slowed imports.

On the outlook of international commodity prices a negative sentiment for oil is anticipated until April 17 meeting of members of the Organisation of Petroleum Exporting Countries, OPEC.

In the summer, lower demand for heating oil but higher demand for gasoline are expected while Middle East tension is low and prices expected to stay tepid.

Grain futures will be mainly US dollar dependent in the next few days as traders will focus attention to US data release of spring planting for next cues.

World sugar production is estimated to drop to 171.1 million tonnes in 2015/16 season on weather abnormalities as the Brazil political impeachment drama may have a marginal impact on sugar and ethanol.

In Nigeria, domestic prices are expected to remain high, according to a market research by Financial Derivatives Company, FDC, released last week.

The research report stated, “prices of domestic commodities will remain stubbornly high as diesel is trading at N130.00.

“Chronic fuel shortage amid low electricity supply hit hard on food prices while exchange rate stability at N320 will lead to some easing on the pace of price increases in April”.