Market Watch 2010 The Rubber Sector in Malaysia

Market Watch 2010 The Rubber Sector in Malaysia Malaysian Market General Overview With an annual average of 20% export surplus, Malaysia is one of the 20 largest export nations worldwide and is ranked 28 th out of 121 countries by the Global Enabling Trade Report 2009, published by the World Economic Forum. Malaysia s total trade in 2008 amounted to RM 1,185 trillion, which depicts an increase of 6,8% compared to 2007 trade balance; exports even rose 9,6%, while total imports grew by 4.9% to RM 504.57 billion. But the weak global markets also affected Malaysian trade in 2009. In the first 6 months of 2009, total trade accounted for RM 441.75 billions, decreasing of about 30% in comparison to the first half of 2008. The estimated exports of 2009(January-August) are RM347.1 billion; total imports amounting RM270.5 billion. 1 Major export countries for Malaysian goods are Singapore, Japan, China, India, Korea as well as the United States, Australia, the Netherlands and Germany among others. In 2008, Malaysia s largest export revenue contribution was made by the electrical and electronics products sector (38%). Other crucial sectors are palm oil & palm oil-based products, crude petroleum, liquefied natural gas and timber/timber-based products. Major import products are electrical/ electronic products, machinery, iron / steel products as well as chemical products. Malaysia s top five trading partners were the United States of America, the Republic of Singapore, the European Union, the People s Republic of China and Japan. Malaysian FDI reached RM 48 billion in 2008, but in first half of 2009 the FDI has dropped to RM4.2 billion. 2 Sources of foreign investments mainly lie in Japan, Germany, the USA and Singapore 3. 1 MIDA (Malaysian Industrial Development Authority), Wed. 06/01/10 2 Aseanaffairs, Wed. 06/01/2010 3 German Trade and Investment Center 1

Rubber Sector Overview The rubber products industry can be categorised into the latex products, tyres and tyrerelated products, and industrial and general rubber products. At present, there are more than 500 operating companies, consisting of over 68,000 employees. Small and mediumsized industries assume an important role in the growth of the industry. Exhibit 1: World Rubber Production and Consumption ('000 Tonnes) 2006 2008 2006 2007 2008 Natural Rubber Production 9698 9709 9876 Consumption 9329 9884 9726 World supply-demand surplus/deficit 369-177 150 Synthetic Rubber Production 12690 13442 12819 Consumption 12481 13161 12573 World supply-demand surplus/deficit 209 281 246 Source: International Rubber Study Group (IRSG) Domestic consumption of natural rubber in 2008 was estimated at 464,490 tons while synthetic rubber consumption was estimated to be around 130,000 tons. Consumption by the latex products sector constituted 80 % of the total domestic natural rubber consumption in Malaysia. For the first 11 months of 2008, the rubber products industry contributed to 1.9 % of Malaysia s total export earnings. The total revenue from the export of rubber products amounted to RM11.8 billion, registering a growth of 24.1 %. The major export markets were the U.S. (RM4 billion), Europe (RM2.7 billion), the People s Republic of China (RM2.4billion), and ASEAN (RM1billion). For the period of January-November 2008, imports of rubber products totaled RM3.3 billion, comprising industrial and general rubber products (66%), tyre and tyre-related products (26.4%), and latex products (6.7%). The largest sub-sector in the rubber products industry in terms of sales is the latex products sub-sector. Currently, there are a total of 165 companies in this sector. At present, Malaysia is a major producer and exporter of latex products, consisting mainly of - 2 -

catheters, latex thread, and medical gloves. For the period of January- November 2008, the latex products sub-sector was the largest contributor to export earnings of rubber products amounting to RM7.5 billion (63.8%). Malaysia continued to maintain its position as the world's leading producer and exporter of catheters, latex threads, and natural rubber medical gloves, supplying more than 80 % of the world market for catheters, 70 % for latex threads, and 60 % for rubber gloves. Presently, there are 120 companies in the tyres and tyre-related products sub-sector comprising nine tyre producers, while the remaining companies produce retreads, tyre treads for retreading, valves, and other accessories. There are three major tyre manufacturers producing passenger car tyres, commercial vehicle tyres and earthmover tyres, and another six companies manufacturing different types of tyres. Moreover, there are 184 companies operating in the industrial and general rubber products sub-sector. This sub-sector focuses on a wide range of rubber products such as antivibration mountings, belting, hoses, tubing, seals and sheeting for the automotive, electrical & electronics, machinery & equipment, as well as construction industries. For the period of January-November 2008, export earnings for this sub-sector amounted to RM3.5 billion. There are currently 120 companies in the tyres and tyre-related products sub-sector with ten tyre producers, while the remaining companies manufacture tyre retreads, inner tubes, and other accessories. For the first 11 months of 2008, this subsector contributed RM810 million to the export earnings of the country. Rubber Production In 2008, the overall production index for the industry increased by 4.7 % to 128.2 from 122.5 in 2007. Production of rubber gloves recorded a total increase of 10.4 %, which was due to a rise in the demand for latex-based products. In 2008, production of rubber tyres and tubes as well as retreading and rebuilding of rubber tyres decreased by 2.8 % and 19 % respectively from 2007. This was due to the strong competition from the People s Republic of China and ASEAN countries. - 3 -

The productivity of the industry increased by 1.3 % to RM63,100 in 2008 from RM62,300 in 2007. Furthermore, labour cost competitiveness for the industry improved, reflected by a decrease of 0.4 % in Unit Labour Cost. Among the segments, the manufacture of rubber tyres and tubes recorded the highest productivity of 5.8 %. Exhibit 2: Production Indices of the Rubber Products Industry Source: Ministry of International Trade and Industry Malaysia/2008 Rubber Consumption The Malaysian rubber-based industry has performed well in the last two decades. Malaysia is currently the world's ninth largest consumer of all rubber, following China, the U.S., Japan, India,, France, South Korea then Russia and also the fifth largest consumer of NR behind China, the U.S., Japan and India. Sales Overall sales for the rubber products industry increased by 2.4 % to RM12.2 billion in 2008, compared with RM11.9 billion in 2007. The rubber gloves segment recorded an increase of 5.8 % to RM6 billion in 2008, while sales of retreading and rebuilding of rubber tyres registered the biggest decrease of 18.4 % (RM83.7 million) in 2008 from RM 102.6 million in the previous year, due to a decline in the demand for tyres, in particular from automobile manufactures affected by the world economic slowdown. - 4 -

Exhibit 3: Sales of Rubber Products Source: Ministry of International Trade and Industry Malaysia/2008 Exports The rubber product industry contributed 1.9 % of Malaysia s total export earnings. The total revenue from the export of rubber products amounted to RM11.8 billion in January- November 2008, registering a growth of 24.1 %. Exports of rubber products expanded by 21.2 % to RM12.8 billion in 2008, compared with RM10.6 billion in 2007. The increase was largely due to a higher global demand for rubber gloves. Exports of rubber products were rubber gloves valued at RM7 billion, followed by industrial rubber goods (RM3.7 billion), tyres and tyre-related products (RM810.9 million), and synthetic rubber (RM380.3 million). USA remained Malaysia s largest export market for rubber products. Exports of rubber products expanded by 21.2 % to RM12.8 billion in 2008, compared with RM10.6 billion in 2007. The increase was largely due to a higher global demand for rubber gloves. Exports of rubber products were rubber gloves valued at RM7 billion, followed by industrial rubber goods (RM3.7 billion), tyres and tyre-related products (RM810.9 million), and synthetic rubber (RM380.3 million). In 2008, with exports valued at RM2.9 billion, followed by the People s Republic of China (RM2.6 billion), Germany (RM802.2 million), Japan (RM508.4 million), and the UK (RM460.2 million). These five major export destinations constituted 56.7 % of total exports for rubber products. - 5 -

Exhibit 4: Malaysia's Export of Rubber Products (Million RM), 2008 / 2007 Source: Ministry of International Trade and Industry Malaysia/2008 Malaysia enjoys several distinctions in the rubber industry and it is a global player in the export of quality rubber. Malaysia is the world's largest consumer of latex concentrate, the largest supplier of medical rubber gloves, catheters, latex threads, and cords. The latex sub-sector was the largest contributor to the export earnings of rubber products amounting to RM7.5 billion (63.8%) for the period of January-November 2008. Furthermore, the country is the third largest producer of natural rubber, the third largest exporter of NR, the fifth largest consumer of natural rubber, and the ninth largest consumer of rubber. Imports Imports of rubber products increased by 23.3 % to RM 23.6 billion in 2008 from RM2.9 billion in 2007. This was mainly caused by an increase in non-traditional products, such as articles of rubber (21.5 %), industrial rubber goods (31.1 %), rubber gloves (86 %) as well as imports of synthetic rubber, and tyres and tyre-related products, resulting from a higher demand of the domestic manufacturing industry. Japan remained the largest source of imports of rubber products, with a value of RM850.7 million. Other major sources of imports were Thailand, valued at RM 822.5 million, the U.S. (RM279.9million), Taiwan (RM255.1 million), and Indonesia (RM197.5 million). These five major import sources contributed 66.9 % of total imports for rubber products. The - 6 -

high import values from these countries were due to raw material used for the production of rubber gloves. Exhibit 5: Imports of Rubber Products Source: Ministry of International Trade and Industry Malaysia/2008 Projects Approved in 2008 A total of 25 projects with investments of RM344.4 million were approved in the rubber products industry (excluding medical devices). 16 of these projects were new ones (RM142 million), while nine were expansion/diversification projects (RM202.4 million).the approved projects involved domestic investments of RM114 million (33%) and foreign investments of RM230.4 million (67%). A total of 15 projects approved (RM88.9 million) were wholly Malaysian-owned companies, one (RM23.2 million) was a joint-venture with Malaysian majority ownership, and two (RM10.7 million) were joint-ventures with foreign majority ownership. The investments were mainly in latex products (RM212.8 million), industrial and general rubber products (RM107.8 million), tyres and tyre-related products(rm14 million) and recycling of waste tyres into rubber crumb, carbon black, steel tubes, fuel oil, and fibres (RM9.8 million) industries. A total of 10 projects were approved in the latex products sector, of which three were new projects (RM28.2 million) and seven were expansion/diversification projects (RM184.6-7 -

million). Domestic investments amounted to RM67.4 million (31.7%), while foreign investments totaled RM145.3 million (68.3%). A total of 11 projects with investments of RM107.8 million were approved in the industrial and general rubber products sector. These projects were for the manufacture of products such as moulded rubber products for electrical & electronic and automotive industries, industrial & hydraulic hoses, anti-vibration dampers, seals, washers, o-rings,and rubber defeathering fingers. Domestic investments amounted to RM22.8 million (21%), while foreign investments totaled RM85 million (79%). There were ten new projects (RM104 million), while one was an expansion/diversification project (RM3.8 million). Three new projects with investments of RM9.8 million were approved for recycling of waste tyres into rubber crumb, carbon black, steel wires, fuel oil, and fibres. All these projects were wholly Malaysian-owned. Exhibit 6: Investments by Projects Approved in the Rubber Products Industry by Sub- Sector, 2008 Source: Malaysia 2008/Performance of the Manufacturing and Services Sectors - 8 -

The major projects approved include: An expansion/diversification project by Shorubber (Malaysia) Sdn. Bhd., a foreignowned company to produce latex products, such as new grades of industrial gloves, synthetic rubber coated gloves, and polyurethane gloves with an additional investment of RM91million. The project will be located in Arau, Perlis and these products are mainly for industrial use and will be exported; A new project by a foreign-owned company to produce a range of hoses such as high-pressure wire spiral reinforced hydraulic hoses, textile/steel reinforced industrial hoses, and high-pressure wire braid reinforced hydraulic hoses with a total investment of RM54.4 million. The project will be located in Johor; An expansion/diversification project by a foreign-owned company to produce clean room face masks with an additional investment of RM26million.The project will be located in Selangor; An expansion/diversification project by CE Technology Berhad, a Malaysian-owned company with an additional investment of RM25million to produce clean room products/critical environment products such as gloves, wipers, and face masks in Taiping, Perak; An expansion/diversification project by Lamifoam Sdn. Bhd. with an additional investment of RM23.5 million to manufacture natural latex foam in Klang, Selangor; A new project by a foreign-owned company with a total investment ofrm21 million to produce high engineering industrial rubber products, such as rubber sheetings, rubber jig/trammel screen plate/stone, rubber hoses and tubings, rubber rings, plug bushes, car mats, fenders, gaskets, washers, and tin ore tubs. - 9 -

Malaysia during the current Economic Recession The current economic downturn and financial crisis affect Malaysia as well. Malaysian banks, however, has not been involved with the U.S. and western financial markets to a large extent, and therefore not affected by the crisis in this respect. On the contrary, the financial turmoil has created an upward trend in the Islamic Banking Industry when the country is trying to be a world hub in "Islamic Banking". Furthermore, Malaysia is a very young nation with an average age of less than 24 years (Germany: about 42 years), and this drives the consumption. Malaysia s wealth of raw materials for example oil & gas, natural rubber, palm oil, etc. contributes largely to the state and private revenues; likewise these revenues promise future income. Malaysia s central role in the prosperous ASEAN region with its 570 million people serves further as a regional home market. The Electronics & Electrical (E & E) is the only highly affected sector by the crisis resulting from its strong dependence on the U.S. and the rest of the world. Malaysia s government takes stern measurements and introduces government-driven stimulus packages to support the economy. Its stimulus package is in the same league of some mega-programmes by the United States, China or Singapore, if it is set in relation with the nominal economic performance amounting to 740 billion RM in 2008. It contains aids to accelerate implementation of infrastructure projects, a car-scrap bonus, and guarantees working credits and funds for labor market. On 10 th of March 2009, the government introduced a second economic package for the year 2009. Further to this, an additional "mini budget" amounting to 60 billion RM (about 13 billion Euros) shall be disbursed between 2009 and 2010. The Ministry of Finance and other economic cycle analysts calculate that the Malaysian economy will contract approximately 3,3 % in 2009. - 10 -

Conclusion Malaysia has positioned itself to be the world s leading producer and exporter of rubber products. One of the challenges for the Malaysian rubber industry is to remain competitive against cheaper products from low-cost producers, particularly the People s Republic of China and India, through higher productivity and quality. The Malaysian rubber products industry also has to remain resilient in competing with other natural rubber producing countries such as Thailand and Vietnam, as these countries also have easy access to readily available raw materials. Malaysian companies need to focus on R&D activities. Efforts have been made to improve efficiency, productivity, and new product development in the downstream activities to produce high value-added and high-technology rubber products such as for engineering, construction, and marine applications. R&D is also required to comply with stringent standards and regulations imposed by export markets, particularly in the EU. Malaysian rubber product manufacturers and exporters will face greater challenges to penetrate the global market, particularly the European market. The EU has implemented the Registration, Evaluation, Authorisation, and Restriction of Chemical Substances (REACH) regulations since the 1st of June 2007. With the deadline for the process of preregistering chemicals with the European Chemical Agency (ECHA) ending on the 1 st of December 2008, the rubber products industry will have to reformulate its products to comply with the regulations. It was estimated that the rubber products industry would have to register over 300 substances compared with 70 for the chemical industry, 40 for the pharmaceutical industry and 38 for the petroleum industry. Malaysian rubber manufacturers and exporters can benefit from the ASEAN-China Free Trade Agreement, Malaysia-Pakistan Closer Economic Partnership Agreement, ASEAN- Korea Free Trade Agreement, and Japan-Malaysia Economic Partnership Agreement to gain new market access in these countries. Intensifying promotional and branding activities, which include the promotion of a green image in the finished products need to be undertaken to further strengthen Malaysia s position in the global market. - 11 -

Trade Fairs in Malaysia Rubber Plas Malaysia 2010 15 July 2010 M-PLAS 2011 2nd quarter of 2011 Rubber Plas Malaysia The main objective of the 17th Malaysia International Rubber, Plastic, Mould and Die Industry Technology Exhibition (Rubber-Plas Malaysia) is to develop the nation's manufacturing industry with special attention given to the Small and Medium-Sized Industry (SMIs) to further develop and keep ahead with the competitive environment. M-PLAS 2011 As the point of convergence for key industry players in the plastics and rubber industries, M-PLAS 2011 is the ideal platform for updates on the latest industry news, innovations and developments. This four-day exhibition will bring together leading international manufacturers and suppliers. Professionals will benefit from this state-of-the-art showcase and be able to explore the opportunities for better business. Contact: Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de Ms. Schvonne Choo: schvonne.choo@malaysia.ahk.de 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 Konzept and our Firmenpool Malaysia will give you a permanent address to develop the market. Please contact us for further information. - 12 -