Market Watch 2011 The Plastic Sector in Malaysia

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1 Market Watch 2011 The Plastic Sector in Malaysia General information about Malaysia Malaysia is centrally located within the ASEAN and consists of the Malaysian Peninsula and the States of Sabah and Sarawak on the island of Borneo. The former British colony gained its independence in 1957 and is a Parliamentary democracy with constitutional monarch since. Malaysia has a tropical climate and is with a total area of km 2 slightly smaller than Germany. Due to its bio-diverse range of flora and fauna, Malaysia is one of the 17 megadiverse countries. Malaysia is a multi-ethnic, multicultural and multilingual society with million inhabitants. Malays make up the majority of the population at 50.4% followed by Chinese 23.7%, Indian 7.1% and other local Malays 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approximately 60.4% of the population practiced Islam, 19.2% Buddhism, 9.1% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is known as Bahasa Malaysia but English as well as Chinese are the business languages. Economical Overview Malaysia is a dynamic country constantly on the move. From a country dependent on agriculture and primary commodities decades ago, Malaysia has now become an exportdriven economy spurred on by high technology, knowledge-based and capital-intensive industries. Malaysia is one of the 20 largest trading nations worldwide and is ranked 30 th out of 125 countries by the Global Enabling Trade Report 2010, published by the World Economic Forum as well as the 21 th largest exporter among the trading nations worldwide. The country is strategically located in the heart of South East Asia and offers a costcompetitive location for investors intending to set up offshore operations for the manufacture of advanced technological products for both regional and international markets. In addition, the Malaysian economy is supported by a market-oriented economy and pro-business government policies. The new Economic Transformation Programme (ETP) by the PEMANDU, the Performance Management & Delivery Unit of the Government from 1

2 Malaysia, has been presented to the public. The ETP is anchored on 12 National Key Economic Areas (NKEAs), which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. ETP is developed under the patronage of the Prime Minister, the objective also known as Vision 2020 to transform Malaysia into a high income country until the year 2020 is to be achieved. Therefore, it is planned to increase the Gross National Income (GNI) per capita to US$ 15, or RM 48, To reach this, an annual growth of the GNI of 6 % is necessary. Within the programme, it is planned to reach a growth of the service sector from 58 to 65 % and to create 3.3 million new jobs. Economical Key facts Malaysia 1 Currency: 1 Ringgit (RM) = 100 Sen Exchange rates: 1 EURO = 4.2 RM; 1 US$ = 3.1 RM ( ) GDP (billion RM): 2007: 639.8; 2008; 738.7; 2009: GDP - real growth rate: 2009: -1.7%; 2010: % Inflation rate : %(2010) Exports: $157.2 billion (2009) Exports - commodities: electronic 36.5%, petroleum and products 8.3%, Chemical products 6.6%, natural gas 6.4%, fats & oils 6.4%, electrical engineering 4.6%, machinery 3.5% Exports - partners 2009: Singapore 14.0%, China 12.2%, US 11.0%, Japan 9.8%, Thailand 5.4%, Hong Kong 5.2%, Germany: 2.7% Imports: $119.3 billion Imports - commodities: electronics 29.4%, chemical products 9.1%, machinery 8.9%, electrical engineering: 7.2%, petroleum and products 7.0%, food and living animals: 6.2%, iron and steel 3.6%, raw materials: 3.4% Imports - partners: China 14.0%, Japan 12.5%, USA 11.2%, Singapore 11.0%, Thailand 6.1%, Germany: 4.2% 1 Source: Germany Trade & Invest 2

3 Unemployment rate: 3.7% (2009) Average wage 2008: Middle management: RM, senior clerk: RM, skilled worker: RM, consultant: RM, unskilled workers: 910 RM Population below poverty line: 5.1% Bilateral Trade: Malaysia & Germany Despite ruled by the British historically, Malaysians still highly value and appreciate Made in Germany products. In 2010, Germany remained Malaysia s largest trading partner within the EU and was ranked Malaysia s 9 th largest trading partner. Malaysia s total trade with Germany recorded a decrease of 22 per cent in 2009, valued at US$ 5.2 billion compared to US$ 6.7 billion in Exports to Germany amounted to EURO 3,996.4 million in 2009, while imports were valued at EURO 3,234.4 million. Among ASEAN countries, Malaysia was Germany s largest trading partner and source of imports. Plastic Sector Overview The plastics products industry can be divided into four sub-sectors, namely plastic packaging, E&E and automotive components, consumer and industrial products; and others. With 40% of total industry output, the largest sub-sector for the plastic industry remains plastic packaging involving both flexible and rigid (including bags, films, bottles and containers). The main production processes used in the plastic products industry are injection moulding, film extrusion, blow moulding and foam moulding. According to the Ministry of International Trade and Industry Malaysia, the plastic products industry recorded a total sales turnover of RM 15.6 billion in 2010, an increase of 7 per cent compared to the RM 14.6 billion The plastics industry is one of the most dynamic growth sectors within the Malaysian manufacturing sector: covering currently about 1,500 plastic products manufacturers within the country and totaling 86,000 employees, recording an increase of 1,000 persons compared with

4 Exhibit 1: Sub-Sectors of Plastic Products, 2009 Source: MIDA: Malaysia2009/Performance of the Manufacturing and Services Sectors According to MIDA, the growth of domestic downstream plastic processing activities can be attributed to the existence of a developed petrochemical sector in Malaysia. The sector provides a steady supply of materials for the plastic industry with world-scale resin production facilities producing polyethylene (PE), polypropylene (PP), polyvinylchloride (PVC), polystyrene (PS), acrylonitrile butadiene styrene (ABS), polyacetal (PA), polyester copolymers, styrene acrylonitrile (SAN) and polybutylene terephthalate (PBT). Other engineering plastics, such as polyamides (nylons) and polycarbonates (PC), continue to be imported. These engineering plastics are mainly used for the production of parts and components for the E&E, automotive, medical equipment and construction industries. In flexible packaging, more bio-, photo- or chemical- degradable plastics are being introduced with increasing awareness on environment protection. Exhibit 2: Profile of the Plastic Products Industry by Manufacturing Process, 2009 Source: MIDA: Malaysia2009/Performance of the Manufacturing and Services Sectors 4

5 Major market segments According to the Malaysian Plastic Manufacturer Association (MPMA), the packaging subsector, both flexible and rigid (including bags, films, bottles and containers), contributed 42% of the total production of plastic products, and increased from 40% compared to This was due a mild contraction in the sector compared to other sectors as demand from the food sector remained relatively strong even during the economic downturn. Market share for the electrical and electronics consumer products expands from 23% to 25% due to a strong surge in the production of TV sets. The sales for plastic household wares reduced to 11% in terms of market share, due to stiff competition from lower cost countries. The market share of the construction sub-sector remains unchanged at 7% in 2008 due to a mild recovery in the sub-sector. Market share for the automotive sub-sector increased to 10% due to a small decline of 2% in the production of passenger cars. Exhibit 3: Major Market Segments for Plastic Products 2009 Agriculture 3% Construction 7% Others 2% Automotive 10% Packaging 42% Household 11% Source: MPMA Electrical & Electronics 25% Exports Malaysia is currently a net exporter of plastic products. Exports of plastic products amounted to RM7.4 billion during the period January-November 2009, a decrease of 16 % compared with The main products exported were bags, bottles and containers of plastics (32%), films and sheets (38%) and other articles of plastics (27%, excluding household wares). Major export destinations were Europe, Singapore, Japan, Australia, Thailand, Indonesia and the People s Republic of China. 5

6 Exhibit 4: Export of Plastic Products ( ) in RM billion Source: MPMA: Performance of the Malaysian Plastics Industry H Total exports of plastic products in H increased by 34.2% from RM3.54 billion to RM4.75 billion compared to H Exports account for 59% of the total plastic products manufactured (RM8.04 billion). Recovery of the developed countries, particularly, Japan, EU and US helped boost the demand for plastic products. However, export growth for the second half would be moderate - slower pace of the world economic recovery. Exporters profit margins are eroded by the strengthening RM against the major currencies Exhibit 5: Export of Plastic Products Item Product Category RM 000 RM 000 RM 000 RM 000 RM 000 RM Tubes, pipes, fittings and hoses 85, , , , , ,900 Floor, wall and ceiling coverings 37,282 43,247 49,734 56,974 43,616 51,100 Self-adhesive plates, sheets, films, foils, strips, tapes, etc Plates, sheets, films, foils, strips, tapes, etc; non-cellular and not reinforced, laminated 247, , , , , ,300 1,137,864 1,447,161 1,707,650 2,164,807 2,330,395 2,566,500 Other plates, sheets, films, foils, strips, tapes, 526, , , , , ,500 6

7 Baths, wash-basins, seats and covers and other building materials Sacks and bags, boxes, casings, bottles & containers Tablewares, kitchenwares, other household articles and toilet Windows, articles doors, frames, tanks and other building materials 109,072 23,557 32,685 26,314 28,266 31,900 2,202,186 2,555,237 2,948,522 3,392,838 3,754,614 2,903, , , , , , ,900 88,948 97, , , , , Other plastic articles 957,880 1,166,635 1,444,324 1,375,134 1,705,410 1,361,600 Total: 5,568,818 6,563,413 7,594,675 8,300,941 9,295,483 8,236,600 Source: Malaysia External Trade Development Corporation (MATRADE) Imports Imports of plastic products amounted to RM5.6 billion in 2008, compared with RM6 billion in 2007, a decline of 6.7 per cent. Major sources of imports were Japan amounting to RM1,2 billion, followed by the People s Republic of China (RM857 million) and Singapore (RM796 million). The main items were containers of plastics, articles of plastic and plates, sheets, films and foils. Imports of plastic in primary forms (synthetic resin) were valued at RM10.4 billion in 2008 recording a decline of 2.8 per cent from RM10.7 billion in Malaysia s major sources of imports were Singapore, with imports valued at RM2.8 billion followed by Japan (RM1. billion) and Thailand (RM862 million). 7

8 Projects Approved in 2009 A total of 42 projects with investments of RM770.8 million were approved in 2009, of which 22 were new projects with investments of RM624.0 million and 20 were expansion/diversification projects with investments of RM146.8 million. Foreign investments amounted to RM549.8 million, representing 71 % of total investments, while domestic investment totaled RM221.0 million. Projects approved in 2009 are expected to generate employment opportunities for 2,190 persons. Of the 42 projects approved: The packaging sub-sector remained the leading sub-sector in 2009 with 15 projects and investments of RM644.9 million. Of these, 7 were new projects (RM541.6 million) and 8 were expansion/ diversification projects (RM103.3 million). The majority of these projects were for the manufacture of flexible films, sheets and bags, and blow moulding bottles and containers; 21 projects were approved in the consumer and industrial sub-sector (RM99.1 million). Of these, 9 were new projects (Rm55.6 million) while 12 were expansion/ diversification projects (RM43.5 million); and Six projects were approved on the E&E and automotive component sub-sector with investments of RM26.8 million. The major projects approved involved Malaysian-owned companies with investments on RM14.4 million. Among the major projects approved were: A new foreign-owned project with investments of RM290.0 million to manufacture biaxially-oriented polyester film (metallized & non-metallized). The product is used as packaging materials in food, medical and E&E industries; A new majority foreign-owned project with investments of RM133.0 million for the manufacture of film and courier bags; and A new foreign-owned project with investments of RM53.0 million to manufacture plastic bags. 8

9 Exhibit 3: Investments in Projects Approved in Plastic Products Industry by Sub-sector 2009 (in RM million) Source: MIDA: Malaysia2009/Performance of the Manufacturing and Services Sectors Industrial Matters and Government Liaison Plastic industrial related matters had been brought to the attention of relevant government authorities. Among the issues discussed are as follows. MITI Dialogue: The government had agreed to remove the 10 % sales tax for plastic pallets effective 25 October Tenaga National Berhad (TNB): The MPMA had proposed for Tenaga National Bhd (TNB) to offer Off-Peak Electricity Rates for SME Plastic Manufacturers but TNB could not offer this benefit. TNB however agreed to assist the plastics SMEs by organizing road shows to promote energy saving and power quality. Bank Negara Malaysia: MPMA had also requested Bank Negara to look into relevant issues pertaining to the plastic industry which include:- i) Facilitate the availability of cheaper funding ii) Reduce the cost and increase the availability of resins by reviewing the tariff rates. 9

10 Malaysia has also imposed a prohibition on the importation of plastic wastes under the Second Schedule (Prohibition of Imports) 1998, Customs Act 1967, effective 1 February Importation is now subject to Import License (AP) issued by MITI. The prohibition is imposed on health and environmental considerations to prevent hazardous materials from being imported into the country. Potential Ban on Plastics Scraps Imports: Pursuant to a directive imposed by the Government to prohibit the importation of plastic waste under HS Code in 1 October 2007, The Recycles Subcommittee had successfully pushed for the Government to implement the Import Ban of Plastic Waste (under Customs Code 39.15) under Schedule 2 Part 1 (Prohibition of Import) Order 1998, Customs Act 1967 effective from 1 February 2008 through an approved permit (AP) system to enable the proper regulation of imports of plastic recycling materials. Foreign Investments Top five sources of foreign investments in 2008 were Australia (RM13.1 billion), the USA (RM8.7 billion), Japan (RM5.6 billion), Germany (RM4.4 billion) and Spain (RM4.2 billion). Together these five countries accounted for 78.1% of total foreign investments in approved projects. Malaysia s imported manufacture of plastics with Germany was valued at RM152.9 million in 2007 while 2006 amounted to RM141.8 million. Malaysia s exported manufacture of plastics with Germany is valued at RM106.8 million in 2007 while 2006 remained at RM83.5 million. Germany has investments worth USD 46 million with 16 projects in Malaysia s plastic sector. Exhibit 4: Major sources of foreign investments in projects approved, ,000 10,000 5,000 0 Sources of foreign investments in projects approved 13,106 8,669 5,595 4,438 4,156 Australia USA Japan Germany Spain Investment Source: Ministry of International Trade and Industry Malaysia/Report

11 As at 31 December 2007, Germany has total investments worth USD 64 million invested in expandable polystyrene resin. This project was conducted by BASF (Malaysia) Sdn. Bhd. BASF (Malaysia) Sdn Bhd was incorporated in 1989 as a wholly-owned subsidiary of BASF AG of Germany. The company has production sites in Pasir Gudang, Bukit Jelutong, Bukit Raja and an operation site in Kulim. The company headquarters in Bukit Jelutong Shah Alam. BASF Polyurethane (Malaysia) Sdn Bhd, the subsidiary of BASF Malaysia operates a Polyurethane Systems House. Bukit Raja site accommodates the construction chemicals manufacturing facility. The production site in Pasir Gudang located at the Johor Free Trade Zone accommodates an Expandable Polystyrene (EPS) plant, a Tamol plant and an Engineering Plastics Compounding plant. The plant at Kulim, Kedah involve trading activities for electronic materials chemicals and provides total chemical management services to customers. BASF operates a polyurethane systems blending facility. The EPS, Tamol and Engineering Plastics and Polyurethanes plants are all ISO certified. Currently BASF (Malaysia) Sdn Bhd employs approximately 473 staff. Future Outlook for the Plastic Industry Global economy has emerged from recession in 2009 and Prospect for a sustainable global recovery is good, driven by the aggressive policy stimulus and significant improvements in the financial systems. Local economic recovery is building up momentum which would provide further impetus to the growth of the plastics industry. According to MPMA, the plastics industry is expected to benefit from: (a) Increase in export for plastic packaging, mostly industrial applications owing to increasing demand, especially the food sector. (b) Increase in in-direct export for electrical and electronics appliances owing to stronger purchasing power. (c) Mild Increase in local demand for building and construction materials due to increased Government spending on infrastructure projects. (d) Higher demand from the local automotive sector due to improving consumer spending. (e) Increase supply of competitive resins arising from new capacities coming on-stream. 11

12 The plastic products industry has a broad and rapidly growing range of industrial and consumer applications. Nevertheless, the industry faces a number of major challenges, such as declining market demand due to the impact of the global economic slowdown, high production cost and environment concerns. Plastics used in toys, medical devices and food containers have been regulated for more than two decades. With the introduction of the Restriction on Hazardous Substances (RoHS), Waste Electrical and Electronics Equipment (WEEE), Energy Using Products (EuP), End of Life Vehicle (ELV) and Regulations such as Registration, Evaluation and Authorisation of Chemical Substances (REACH) by the EU and other developed economies, the use of plastics in electrical and electronics equipment, parts and components, automotive parts and components, and articles in general such as furniture, labels, shoes and packaging have come under more stringent scrutiny and surveillance by these regulatory bodies. Malaysian plastics products manufacturers must address these issues and concerns effectively to ensure their competitiveness in the global market place. Globalisation poses both challenges and opportunities simultaneously for Malaysian plastics manufacturers. Therefore, it is imperative for Malaysian plastics manufacturers to sustain their competitiveness, through improved technologies and enhanced skills and penetrating new markets in developed and developing economies. Conclusion The plastic industry recorded total sales of RM16.1 billion for the year 2008, an increase of 4.1% as compared to RM15.46 billion in Export of plastic products increased by 11.5% from RM8.38 billion in 2007 to RM9.34 billion in The main exported plastic items were bags, bottles and containers, films and sheets, and other plastic articles. The growth in sales turnover was considered moderate as it was more due to cost-push factors. Average cost of resins almost tripled over the past 4 years, driven by, inter alia, escalating crude oil and gas prices, before collapsing in September Cost of resins accounts for between 50% and 80% of total cost. The collapse in resin prices and the subsequent price stability provided much needed relief to the plastic manufacturers as they can now use much cheaper material to re-strategise their business. The increase in supply of resins and the drop in prices will augur well for the plastics producers, placing them in a position to gain export opportunities. Prospects for future developments are still bright as plastics will continue to be the materials for the future in many applications. 12

13 Globalization will increase trade opportunities for the resins and plastic industry and at the same time also expose Malaysian manufacturers to competition. The Malaysian plastics industry must therefore strengthen its competitiveness through the continued acquisition of the appropriate technologies as well as enhance skills training and marketing capabilities. 13

14 Trade Fairs in Malaysia 2010 / 2011 MIMF - AseanPlas 21 July July 2011 Putra World Trade Centre (PWTC), Kuala Lumpur, M-Plas 09 November November 2011 Kuala Lumpur Convention Centre (KLCC) We hope the market report serves you with actual information on the Malaysian market. Our core business is to establish contacts, finding distribution partners, project acquisitions, etc. Our Office- In-Office Concept and our Firmenpool Malaysia will give you a permanent address to develop the market. Please contact us for further information. Contact: Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de Ms. Schvonne Choo: schvonne.choo@malaysia.ahk.de 14