SINGAPORE — Suppliers to Southeast Asia's construction, housewares and automotive markets have borne the brunt of region's economic collapse triggered by Thailand floating its currency in July 1997, but virtually no one has escaped unscathed.
Some injection molders of electrical/electronic components in Indonesia are running at 10 percent capacity on state-of-the-art presses. Vehicle sales plunged by more than two-thirds. Government infrastructure and other construction projects all but screeched to a halt. And polyethylene consumption regionwide plummeted 35 percent, prompting the delay or canceling of several resin-producing projects. Profit margins in many sectors have all but evaporated, and loan defaults are rampant.
Despite it all, participants in Singapore's March 23-26 ASEANplas 99 plastics and rubber trade fair managed to evoke some optimism, perhaps in the hope, if not the knowledge, that the worst is over.
``The crunch came in 1996 when the first export downturn occurred, well before the devaluation,'' explained Kelvin Fahey, managing director of Sira International Corp., a Canberra, Australia-based consulting firm that focuses on the Asian plastics industry.
``In Thailand, for example, there was a 40 percent decline in housewares, which really was the foundation of the Thai plastics industry. Then the Thai baht fell by 40 percent in August 1997,'' Fahey said in a March 25 interview at Plastics News' booth at ASEANplas.
``The shortcut answer to survive was to export, so you were finding plastic products dumped around the world at crazy prices — and resin prices followed, too.''
Belt-tightening, restructuring, signs of improving consumer demand, and a renewed emphasis on producing high-enough-quality products that truly can compete as exports in international markets — all these factors are serving to brighten the horizon in the seven-country Association of Southeast Asian Nations.
A case in point is Malaysia. Callum Chen, president of the Malaysian Plastic Manufacturers Association, said, ``We see signs of recovery,'' albeit slowly.
Though Malaysia's total plastics industry employment is expected to fall to about 80,000 next year, compared with 90,000 in 1997, Chen said the country boosted its plastic product exports in 1998 by 32 percent in value terms and by about 15 percent in volume terms. That helped counterbalance huge declines in domestic demand, including contractions of 50 percent in both construction and automotive markets, and yield a net 1998 decline in industry output of about 7 percent, in both value and volume terms.
Chen said Malaysia's processing companies, as a rule, are not highly leveraged — ``not necessarily because we didn't want to borrow, but because the banks wouldn't lend us money.''
One concern he has now is in getting MPMA's 900 member firms to invest in training. During boom times, many said they were ``too busy'' to take time to train people; conversely, these slower times should offer an opportunity to enhance staffers' skills.
``Who doesn't want to export?'' he said, but then added, ``Do we have the people to do it? ... We need to look at it as an investment, not as an expense.''
At the darker end of the spectrum, meanwhile, is Indonesia. The dire economic situation in the world's fourth-most-populous country is exacerbated by civil unrest and political turmoil, punctuated by last year's resignation by longtime President Suharto.
``In Indonesia, we're seeing plastics consumption down, depending on the material, from 30 percent on the bright side to 60-65 percent on the very low side,'' Fahey said, commenting on the nation's 1998 resin demand. However, he stressed that Indonesia's plastics industry is fundamentally competitive and, in many cases, has world-class equipment. The bigger problems are shattered consumer confidence, low purchasing power, and a poor infrastructure that makes it tough to efficiently get products out of the country, which consists of 213 million people and 17,000 islands straddling the equator.
``The factories that have done well are the ones that are relatively close to the ports, and the ones that utilize uncomplicated, straight, virgin resins or uncolored compounds, like cling or stretch film,'' Fahey said.
Akron, Ohio-based A. Schulman Inc. has a 40-employee compounding plant near a port in Surabaja, Indonesia, about 250 miles east of Jakarta, that it opened in 1997.
``We had to take some very tough steps since the crisis. We had to tighten our belts a lot, and be very lean and very focused,'' Rengarajan Ramesh, Schulman's general manager for Asia, said in an interview at ASEANplas.
For example, Ramesh said, the going price in the region for a pound of flame-retardant, V0-rated, compounded black or natural polystyrene is only 55 U.S. cents. ``That's tough for the compounder.
``It'll take till 2005 to get back to 1995 [levels],'' he said about the region's plastics industries.
Ramesh's biggest concerns are payment defaults by customers — ``anybody could look healthy on the outside, but could be dying of cancer on the inside'' — and the possibility of a currency devaluation by either India or China, which would be ``a big trigger.'' But he, like so many others in the region, remain hopeful even though, ``with this economic situation, you really can't plan more than about six months down the line, people are here for the long term,'' he said.
Tang Chuen Chong, president of the Singapore Plastic Industry Association and chairman of the ASEAN Federation of Plastic Industries, shares Ramesh's concerns about a possible China devaluation.
``China has a tremendous impact on the Asian region,'' he said. Though China's leaders have stated publicly they do not plan any such action this year, Tang said, ``A lot of people think [a devaluation] might come next year.''
He suggested that while the shakeout and restructuring will continue in the ASEAN region this year, there is ``a little more optimism, regionwide, now compared with six months ago.''
Singapore, whose plastics industry depends heavily on injection molding higher-end electrical and electronics components for multinational customers, saw its plastics product output dip 18 percent last year, following declines of 5.2 and 7.8 percent, respectively, in the two previous years.
The electronics market will continue to be a growth driver in the ASEAN area, Fahey said, but the product mix will change significantly, as videocassette recorders and tapes diminish in importance and video compact discs and digital versatile discs rise to take their place.
Such market evolution is inevitable, but it also offers new opportunities. Fahey is bullish on the region's longer-term prospects.
``The new industrial powerhouse in the world is east Asia — from China to Indonesia — there's no doubt about it, with the technology, the labor force, the increasingly sophisticated infrastructure and the low cost,'' he said.
These have not been happy times in Southeast Asia, but then again, as MPMA's Chen puts it: ``Tough times never last; tough people do.''