Southeast Asia's export-led plastics industries are facing many challenges, from rising raw material costs and slowing economies in major markets to homegrown challenges like volatile currencies, political instability and increasing environmental pressures.
If that's not enough, the region has to operate under the shadow of its increasingly brawny and economically expanding northern neighbor, China. All this uncertainty makes it hard to say what the future will bring, some industry leaders said.
``The business environment is totally unpredictable and always in a state of flux,'' said Ronald Lim, president of the Singapore Plastic Industry Association and secretary-general of the Association of Southeast Asian Nations Federation of Plastic Industry Conference. ``Today's enterprises have to contend with tremendous opportunities and numerous challenges stemming from a rapidly developing global economy.''
High material costs are a fact of life, and some industry participants at three plastics conferences held May 26 to May 29 in Singapore suggested low-cost producers with high volume could have advantages. Those events included ASEANPlas, the Asia Petrochemical Industry Conference and ASEAN Federation of Plastic Industries conference.
The high resin costs are prompting upgrades as companies seek ways to reduce waste with more energy- and production-efficient machines, exhibitors at the ASEANPlas trade show said.
For example, half a dozen high-end PET bottle-to-bottle recycling facilities have sprung up in Asia in the last three years, as virgin resin prices have risen and created better economic opportunities for waste plastic, said a representative of Ansfelden, Austria-based recycling equipment supplier Erema Engineering Recycling Maschinen und Anlagen GmbH.
But the region's fragmented markets are in some cases slower in responding to higher grade products, others said. There is a wide gap in buying power among the disparate economies of the 10 countries in ASEAN, which collectively have more than 550 million people.
One higher end product, ethylene-methyl methacrylate copolymer, designed as a PVC replacement, has been slower on the market in ASEAN countries and in China, according to Brian Tan, sales manager at Polyolefin Co. (Singapore) Pte. Ltd., an EMMA producer.
Some ASEAN industry leaders advocate building stronger ties between local economies as a strategy for economic growth and to better compete against the much larger economies of China and India.
Mary Ng, chairwoman of the ASEAN Federation of Plastic Industries and president of the Philippines Plastics Industry Association Inc. in Caloocan City, the Philippines, said the six most developed ASEAN countries plan to eliminate plastic products duties by 2010, and the four less developed members expect to erase their tariffs by 2015.
ASEAN countries have had free trade deals in goods with China since 2005 and with South Korea since 2007, and have harmonized standards for at least 140 products to aid trade flows, she said.
Still, governments also need to eliminate duties on plastic raw materials, pursue investment-friendly policies and foster creation of single production platforms in some cases to build economies of scale, she said.
``Our lack of significant gas and oil reserves, and consequent dependence on imports for raw material exposes our industries to price fluctuations in the crude oil markets and impacts the trade flows into our countries,'' Ng said.
The ASEAN Federation of Plastic Industries includes plastics associations from Indonesia, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
Others are taking note of opportunities in the region.
German injection press maker Ferromatik Milacron Maschinenbau GmbH said it sees processors needing more complete solutions as a competitive advantage, such as tooling, materials handling and other auxiliary equipment offered as a package.
``We see this market as getting more and more important, especially as an alternative and competitor to China,'' said JÃ¶rg Dassow, director of marketing for the Malterdingen, Germany, firm.
Helmar Franz, executive vice president of Ningbo, China-based press maker Ningbo Haitian Group Ltd., said rising costs in China mean places like Vietnam and Thailand are much more attractive. ``If you only look to cost, I am not sure that China is the cheapest place anymore.''
Still, the mood in the region's processing community is cautious, according to representatives from several resin makers. The Prai, Malaysia, office of Japanese resin maker Toray Plastics (Malaysia) Sdn. Bhd., which recently brought online a 243 million pound expansion of its ABS manufacturing in Malaysia, said processors are slowing their spending because of concerns about rising costs.
``The lower end is getting too saturated,'' said Wong Wai Seng, product manager for Singapore-based resin distributor GME Chemicals (S) Pte. Ltd. ``If [those firms] do not diversify or venture out, I think sooner or later they will face difficulty.''
Here's a country-by-country breakdown of some ASEAN markets:
Malaysia's plastics industry suffered in 2007 from weaker demand in the automotive and electrical sectors.
For 2008, an automotive recovery would help, but a further slowdown in the U.S. and European markets could affect exports, which account for more than half of all industry shipments and raises the possibility of ``minimal'' growth that mirrors the overall manufacturing sector, according to a report prepared by the Malaysian Plastics Manufacturers Association and delivered at a May 27 ASEAN Federation of Plastic Industries forum in Singapore.
The industry grew just 3 percent in 2007, to 15.4 billion ringgit ($4.68 million), while exports did show stronger growth, rising 6.7 percent, to 8.3 billion ringgit ($2.5 million), MPMA said.
Much of the export growth came from plastic bags to the European Union, as Malaysian producers benefited from no anti-dumping penalties in the latest round of EU trade sanctions, according to the Malaysian Petrochemicals Association.
Malaysian firms also faced pressure on environmental issues, with concern about plastic bag litter and calls for bans on polystyrene food packaging. MPMA said it staged an environmental conference and participated in a government program to recycle plastic bags.
Thailand's growth was hurt by the appreciation of the Baht and by nontariff trade barriers from the European Union, especially anti-dumping duties on HDPE bags, according to the Plastics Industry Club in the Federation of Thai Industries.
But the Thai government lowered import duties on LDPE and LLDPE to 5 percent in 2007, from 8.75 percent previously, supporting a growth in consumption of the two commodities.
Polypropylene enjoyed strong demand from the Thai automotive, and electronic and electrical parts industry in 2007, with consumption up 11 percent to nearly 2.2 billion pounds.
For this year, the Thai plastic converting industry expects demand growth in line with projected 5.6 percent gross domestic product growth, led by the automotive, electronics, construction and agricultural sectors.
The group said Thailand's free-trade agreements with Japan and Australia should facilitate more re-exports, with car production in the ``Detroit of Southeast Asia'' projected to reach 2.5 million units in 2014, up from 1.43 million this year.
The PIC said it remains concerned with high energy and polymer costs, tight supply, the strong Baht and environmental issues.
Indonesia is seeing more and more Chinese-made plastic products available in the domestic market, especially for the housewares and electronics sectors, according to a report prepared by the Indonesian Olefin and Plastic Association (Inaplas).
The plastic industry is also feeling environmental pressure to reduce plastic consumption, while grade blending converters are being encouraged to reduce cost, Inaplas said.
On the brighter side, Inaplas projected that PE and PP resin prices are at the tail end of the up-cycle as new capacity in the Middle East increases supply over the next five years.
It has projected polymer demand to increase to 4.8 billion pounds this year, from 4.7 billion pounds in 2007.
PE demand is projected to increase by 6 percent to 1.6 billion pounds and PP is likely to increase by 3 percent to 1.87 billion pounds. PVC demand growth is projected at 5 percent to 1.1 billion pounds but polystyrene demand will decline by 13 percent to 220 million pounds.
Inaplas sees the potential of further polyethylene growth, which at 22 pounds is lower than Thailand's 66 pounds per capita, China's 31 pounds per capita and Malaysia's 104 pounds per capita rates.
The Philippines had its best economic growth in three decades in 2007, up 7.3 percent, and plastics consumption rose 12 percent. Nonetheless, the local plastics industry is ``bracing for the risks ahead,'' according to the Philippine Plastics Industry Association Inc.
Chief among them is lower worldwide economic growth, particularly from its largest trade partner, the United States, which could mean weaker exports and lower remittance payments from overseas Filipinos, which could weaken domestic consumer spending, PPIA said.
Exports are projected to grow only 4-6 percent, a downgrade from 8-11 percent previously projected, PPIA said.
PPIA said it was able to avert any moves for bans or restrictions on plastic bags, in spite of global moves in that direction. It credited its advocacy work promoting recycling and markets for recycled bags.