Australian plastics firms need to rethink how they can minimize labor costs, if they want to compete against cheaper Chinese imports, industry commentators say.
Also, they warn that imports will intensify once a free-trade agreement is finalized. Australia and China have had 15 rounds of FTA negotiations since 2005 without yet reaching an agreement. Negotiations are ongoing, but many Australian manufacturers are worried that eliminating tariffs will increase cheaper Chinese imports, putting Australian businesses at risk.
China is Australia's largest trading partner, surpassing Japan in 2009. In the financial year ended June 30, 2010, merchandise exports to China were US$49.4 billion and imports were $38.7 billion. The majority of exports, though, are raw materials, mainly iron ore and mineral concentrates. The top categories of imports are clothing, computers, telecommunications equipment and parts, and toys and sporting goods.
As more plastic products are imported from China, onshore production is decreasing, said Kevin Thomson, former president of the Society of Plastics Engineers Australia-New Zealand and director of Melbourne-based Eco Products Agency.
It's possible for Australian companies to compete with China, but they must demonstrate the benefits of Australian-made products, for example, higher quality and no shipping costs, Thomson said.
John Petschel, managing director of plastic product designer and manufacturer APS Innovations Pty. Ltd. of Ferntree Gully, said many companies have no choice but to source manufactured goods from overseas, particularly China.
“The quality of raw materials is fairly similar whatever country you go to, so the main perk of moving production offshore is reduced labor costs,” Petschel said.
Australia has the ability to manufacture competitive plastic products but companies need to design them to reduce manual labor, he said. “If we want to keep manufacturing onshore, we need to focus our attention on automated manufacturing.”
Petschel said companies have to engineer their products for manufacturability: “The process should be design, engineer, build; not design and build.”
And, he said, there is a misconception that cheap products can only be made in China. “Any Australian company that decides to invest its capital into automated systems will be able to produce at a reduced cost,” Petschel said.
Lex Edmund, SPE ANZ's current president, said manufacturing costs in China have increased. “Places like Malaysia and Indonesia are the next ones to watch,” he said. “They are closer to Australia and production costs are much lower.”
Petschel claims Chinese imports have quality issues because Australia is not China's “highest priority.”
“Australia's low population and relatively low global influence means priority is given to companies operating in the U.S. and Europe,” he said. Products destined for Australia are “often made with off-cuts and leftovers.”
Leisa Dolan, CEO of the Brisbane-based Association of Rotational Molders Australasia Inc., agrees that product quality from China and Thailand is not always comparable to that of Australian firms. Color vibrancy and ultraviolet degradation are issues. Chinese firms use dry-mixed colors but Australian rotomolders use compounded colors, improving color durability, she said.
Rotomolded products tend to be “big, bulky and hollow, making them expensive to shift” between countries, but as more stackable products are developed, Chinese imports will be a greater threat to Australian industry, Dolan said.
Many Australian companies have capitalized on lower labor costs and China's big population by expanding operations there.
Global packaging supplier Amcor Ltd. of Melbourne boosted its market share in China's domestic market after it bought parts of Rio Tinto Group's Paris-based Alcan Packaging business early in 2010 for $2.45 billion.
Amcor makes PET bottles, and flexible packaging for food and health-care markets, among other products. About 80 percent of Alcan Packaging's assets are in flexible packaging. Because of that acquisition, Amcor said its Asia-Pacific flexibles business earnings and returns for the second half of 2010 are significantly higher than the same period in 2009.
Ralf Wunderlich, president of Amcor Flexibles Asia Pacific, claims the business is the leading supplier of flexible packaging in China. Of the packaging AFAP supplies to China, 55 percent is to the food industry, 18 percent to pharmaceutical/medical, 15 percent to household/personal-care and 12 percent to other sectors.
Melbourne-based Cardia Bioplastics Ltd. has used China's growing trend toward bioplastics to increase its presence there. In March, Cardia, a global manufacturer of resins from renewable resources, announced a partnership with a leading plastics distributor, Wesco China Ltd. of Hong Kong.
In the agreement, Wesco — part-owned by South African petrochemicals firm Sasol Ltd. — will market Cardia's bioplastic resins to the Chinese packaging and plastic products industries.
Frank Glatz, Cardia's managing director, said China has become a world leader in sustainable energy production through its investments in solar, geothermal and hydropower, and biofuels. He also said China has begun establishing its environmental credentials in sustainable plastics.
Rising oil prices are a driver in China's move away from fossil-fuel resins, Glatz said. “As global demand for finite oil resources grows, brand owners and retailers want new, cost-effective packaging options that meet regulators and consumers' environ- mental demands.
“Packaging and plastics businesses know that, eventually, higher petroleum prices will erode their competitiveness and their profit margins. They want packaging and bioplastics product solutions based on sustainable resources,” Glatz said.
Miguel Chang, Wesco China managing director, said at current high crude oil and natural gas prices, bioplastics suppliers like Cardia will become competitive with petroleum-based resins. Growing Chinese markets for sustainable packaging and products will be fueled by export demand and by Chinese consumers, retailers and brand owners, he said.