New discoveries of oil and gas sources have strengthened the hands of Malaysia's plastics industry, which feels it can now compete well in the global markets.
With greater emphasis on recycling, Francis Pereira, Titan Chemicals' vice president for corporate development, said he expects ``judicial use of the country's natural resources.''
In an interview at Titan Chemicals Corp. Bhd's executive office in Kuala Lumpur, Pereira said: ``This will help us reduce dependency on oil. The rising prices of oil have also underlined the importance of reducing our dependency on oil. About 5 percent of each oil barrel goes into plastics production,'' Pereira said.
The region's petrochemical industry has been posting double-digit growth, except during the Asian crisis in the late 1990s.
``The petrochemical industry has grown at almost twice the [gross domestic product] growth rate,'' Pereira said. ``Indeed, during the past 15 years since we started operations, the number of fabricators has doubled.''
Titan Chemicals, Malaysia's ``first and largest integrated producer'' of petrochemicals, olefins and polyolefins, as it calls itself, is a key player not only in Malaysia but also in all of Southeast Asia. The firm recently bagged an impressive contract from South Korea's Sumho Petrochemicals Co. Ltd., worth nearly US$150 million, to supply Sumho with butadiene over a five-year period, effective 2007. The contract was placed even before the company's new butadiene plant in Johor, Malaysia, has been completed.
According to Pereira, Titan is the second-largest polyolefins producer in terms of capacity in the Southeast Asia region. Some months back, Titan held Malaysia's biggest initial public offering since 2003; its shares have been traded there since June. Half of the firm's export sales are destined for China, where demand for plastic parts in factories making phones, computers and other electronic goods caused ethylene prices to more than double last year.
Meanwhile, Malaysia has cast its eye on global markets, and China, although a huge market itself, is also turning out to be a huge competitor. In response, Malaysian analysts say that their country should focus on niche markets with high-quality products.
Pereira said he sees consolidation in store for Asia's rubber and plastics industry in the coming years, with those companies showing ``fiscal resilience'' as having the best chance for survival. ``Rising oil prices are a source of great concern to us,'' said Michael Yeo, a Malaysian plastics processor who runs a small company outside of Kuala Lumpur. ``We will be unable to compete against low-end producers in China, where labor and production costs are much lower than in Malaysia.'' According to the Kuala Lumpur-based Malaysian Plastics Manufacturers Association, Malaysia's plastics industry posted an average annual growth rate of about 10 percent from 2001-04. Those numbers were achieved during the gradual phase-in of the Association of Southeast Asian Nations Free Trade Area among the six ASEAN countries.
``The high growth posted by Malaysia's plastics industry proved that most of the plastics manufacturers were able to adapt well to meet the challenges of the free trade environment. More importantly, many of them are repositioning themselves to focus on higher value-added and export-oriented production to improve on their competitive edge,'' said MPMA President Dato' Peter Yong. Of MPMA's 900 member companies, 60 percent are processors.
Malaysia's plastics industry is pinning hopes on trade liberalization ushered in by the World Trade Organization. Indeed, Malaysian experts like Yong feel that the pace of that liberalization will be accelerated for selected markets through free trade agreements on a bilateral basis - expected to be finalized by 2018 between Malaysia and its major trading partners, including Australia, China, India, Japan and New Zealand. But experts also are urging Malaysia's plastics industry to enhance its competitive edge through acquiring appropriate technologies, upgrading skills and improving marketing capabilities.
Malaysia's plastics industry recorded total sales of about 11.5 billion ringgit (US$3.04 billion) in 2004. Its per capita plastics consumption was 123.5 pounds, which is not far behind that of industrialized countries such as Australia (183 pounds), Japan (192 pounds), and Singapore (198.4 pounds). Malaysia's consumption is, however, among the highest in the developing countries, ahead of Thailand (66 pounds), China (48.5 pounds) and Vietnam (22 pounds). Half of Malaysia's products - mainly bags, films, housewares and other packaging materials - are exported to major world markets like the United States, the European Union, Australia and Japan.
Yong said that, according to raw material suppliers, supply will continue to be tight, perhaps for one or two years, mainly due to the lack of expansion plans by resin producers and the high demand growth in China. ``Resin prices will go in tandem with the oil prices,'' he said.
Malaysia's major plastics-consuming industries include packaging, 34 percent; electrical and electronics - mainly parts and components for TV, air-conditioners and telecommunication equipment, 28 percent; household products, 15 percent; construction, 8 percent; automotive, 7 percent; and other miscellaneous industries, 8 percent.