Düsseldorf, Germany — The plastics industry in Southeast Asia remains strong, thanks to a growing middle class, weakening of most currencies against the U.S. dollar and new trade agreements. Messe Düsseldorf, the organizer of the K 2016 trade show in Germany, recently took a closer look at the market.
Members of the ASEAN (Association of Southeast Asian Nation) community, which comprises Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei, Vietnam, Laos, Myanmar and Cambodia, have a combined population of more than 600 million and a combined GDP of US$2.6 trillion.
One of ASEAN's top export sectors, by value, is plastics and plastic products, which generated US$39.3 billion in export sales in 2013.
The sector's production rates have witnessed a steady average growth over the recent years, especially in the so-called ASEAN-6: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Those countries account for more than 95 percent of regional GDP, according to McKinsey & Co.
Vietnam's relatively young plastics industry had an average annual growth of 16-18 percent between 2010 and 2015. Packaging accounts for 37.4 percent, followed by consumer goods (27 percent), construction (18 percent) and technical products (15 percent). Yet, the industry is still at the “low end and of low value”, according to Vietnam Plastics Association (VPA), with a majority of exports being plastic bags to Japan. It also relies heavily on imported raw materials, like polypropylene and polyethylene resins, importing an average of 4 million metric tonnes of raw materials while domestic production totals 1 million tonnes.
Meanwhile, with a population of over 250 million, Indonesia's government has increased efforts to industrialize and develop the nation towards becoming the world's seventh-largest economy by 2030. Its rising middle class, to double to 141 million people within the next five years, will drive plastics consumption. According to the Indonesian Packaging Association, food packaging accounts for 70 percent of plastic consumption sales. The Aromatic, Olefin and Plastic Industry Association (Inaplas) has set a 6 percent growth in domestic demand for the plastics sector, sustained by an improving GDP of 5.3 percent in 2016 and upbeat food and beverage and agribusiness sectors.
One of ASEAN's top exporters of plastic products, Malaysia has more than 1,500 plastic production companies that export to Europe, China, Singapore, Japan, and Thailand. The packaging sector accounts for 45 percent of the total plastic consumption market, followed by electronics (26 percent), automotive (10 percent) and construction industry (8 percent). However, due to a rise in Malaysia's minimum wage to US$214 per month, plastic production costs have increased within the country by approximately 10 percent over the course of 2015.
Thailand's plastic consumption is led by packaging (48 percent), electronics (15 percent), construction (14 percent), and automotive (8 percent). Its automotive sector attracts manufacturing opportunities, although its overall cost index (for example, energy, labor, and property) is 20 to 25 percent higher than Indonesia, Vietnam and the Philippines, largely because of a high quality and mature automotive manufacturing ecosystem, including tiered suppliers of automotive components. The country has also invested US$60 million into bioplastics development over the past seven years, with the government pumping in 80 percent of this investment.
Export-oriented Philippines has witnessed weak exports performance, down by 5.8 percent in the previous year, because of low demand from its top buyers: the United States, China and Japan. The semiconductor and electronics industries account for the majority of the country's exports. Various measures are being instituted to boost exports, such as the Generalised Scheme of Preferences (GSP) of the European Union (EU) that is offering export opportunities to the Philippines by allowing less or no duties on exports to the EU.
Meanwhile, global chemicals hub Singapore, which has been voted the world's most expensive city for expatriates for the third consecutive year by the Economist Intelligence Unit, offsets its high costs by offering strong connectivity through shipping routes, a developed infrastructure, manpower capabilities and ease of doing business.
Around 95 companies are represented on Singapore's Jurong Island, attracting investments in excess of S$35 billion, according to the Economic Development Board. Providing a plug-and-play environment, the island allows companies to quickly ramp up their operations, helping growth in both upstream and downstream sectors. Presently, companies like BASF, ExxonMobil Chemical, Lanxess, Mitsui Chemicals, Shell and Sumitomo Chemicals have plants. However, BMI Research expects Singapore to face an uphill climb in 2016, in the face of a Chinese downturn and regional oversupply. Thus, the country is banking on the specialty chemical sector as the next growth area, according to the Economic Survey of Singapore by the Ministry of Trade and Industry.
Pushing further the region's plastics industry, initiatives are being laid out by plastics trade associations, including the ASEAN Federation of Plastics Industries (AFPI), the Malaysian Plastics Manufacturers Association (MPMA), the Thai Plastic industries Association (TPIA), and the Philippines Plastics Industry Association (PPIA). The associations are working in tandem with international-scale trade agreement blocs, including the ASEAN Economic Community (AEC), the U.S.-led Trans Pacific Partnership Agreement (TPPA), and the China-backed Regional Comprehensive Economic Partnership (RCEP).
AEC, which went into effect on Jan. 1, features liberalization of goods, investments and services and will enable plastic producing countries like Thailand, Malaysia and Singapore to lower duties on finished plastic products, machines and molds to other member countries like Vietnam, which buys about 80 percent of its plastic materials requirements from Thailand and Malaysia.
Indonesia also imports more than 40 percent of its plastics requirements from Malaysia, Thailand, Singapore, Europe, and the United States.
The U.S.-led 12-nation TPPA will liberalize trade regulations between the member countries and also eliminate tariffs as high as 25 percent. The easier access to overseas markets also post benefits for the countries.
RCEP, made up of ASEAN members, China, Japan, South Korea, India, Australia and New Zealand, aims to consolidate the existing ASEAN free-trade agreements and tie-ups with the other six partner economies. It will impose a 65 percent tariff cut, with the percentage likely to increase to 80 percent within a decade. The RCEP could also usher into the Asia Pacific Economic Cooperation (APEC)'s long-time prospect of creating a Free Trade Area in the Asia Pacific (FTAAP).
With these optimistic developments taking place, the ASEAN plastics industry will witness an expansion. In the ASEAN Business Outlook Survey 2014, by the American Chamber of Commerce Singapore and U.S. Chamber of Commerce, Indonesia ranked as the most attractive country for new business expansion, followed by Vietnam, Thailand, and Myanmar. Availability of low-cost labor in countries such as Cambodia, Indonesia, Laos, Myanmar, and Vietnam, renders a competitive advantage. Overall, ASEAN's growing consumer bases, broadening of plastic import and export markets, and expanding foreign trading powers offers foreign investors significant opportunities.
This article was contributed by Messe Düsseldorf, the organizer of the K fair, traditionally the world's largest plastics trade show. The K fair is held every three years in Düsseldorf, Germany. K 2016 will take place from Oct. 19-26. For information, see www.k-online.com.