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Asian, domestic markets to contribute substantially to plastic packaging, industrial product makers [04-03-2013]  
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The domestic and Asian markets are expected to contribute substantially to the revenues of plastic packaging material and industrial product makers.

Plastic packaging material and industrial product manufacturing companies such as SLP Resources Bhd, Unimech Group Bhd and Astino Bhd are expected to benefit from the relatively healthy status of the local economy.

SLP managing director Kelvin Khaw said the domestic contribution would still remain at about 52% this year, although the plan was to reduce dependency on the local market by 2016.

“By 2016, the plan is to bring down the domestic contribution to 30% and increase the overseas contribution to 70%.

“But because of the stormy economic conditions worldwide, the domestic market will still play a major role in generating revenue and bottom line for the group this year,” he said, adding that the local food and beverage industry was a key consumer of the company's products. He said the company fell short of achieving its production target of 30,000 tonnes, but this year, it was confident to hit the target due to the steady orders from the local market and the expansion of its market share in Japan.

In Japan, Khaw said the group planned to increase its market share of plastic packaging materials for the food and beverage industries.

“We will produce more thin gauge packaging materials for the Japanese and local markets. We invested RM5.5mil recently in another production line to manufacture a new range of thin gauged packaging materials,” he said.

The price of polyethylene resin, the key ingredient for consumer packaging materials, is about US$1,320 per tonne (RM4,092) compared with US$1,300 (RM4,030) in December 2012.

“The price is on an upward trend. Because the demand for packaging material is still strong, producers of consumer and food and beverage products do not mind buying plastic packaging material to stock up, lest the pricing goes up further,” he said.

SLP produces plastic packaging materials at its Kulim manufacturing facility, which is equipped with 60 production lines.

Besides Japan, the group's overseas market includes Australia and New Zealand.

Unimech executive chairman Datuk Lim Cheah Chooi said the domestic market was still important for the group, although it was expanding its valves business in Indonesia.

“The driver of growth in the domestic market comes from the heating, ventilation and air-conditioning (HVAC), shipping, water and palm oil industries.

“Our valves are widely used in the central cooling and heating systems of commercial and industrial premises in the country,” Cheah Chooi said.

The palm oil industry in Indonesia is likely to generate 35% of Unimech's revenue this year, compared to 30% in 2012.

“We are setting up four more warehouses-cum-sales offices for our brand-name valves, Arita and Unimech, in Indonesia this year, which are widely used in palm oil production processes, to increase our market share.

“We are expanding in Indonesia, as we expect Indonesian palm oil producers to increase production output this year, barring unfavourable weather conditions,” Cheah Chooi said.

The production of palm oil is expected to rise to 27.5 million tonnes in 2012, up 9.1% from an estimated 25.2 million tonnes in 2011, according to the Indonesian Palm Oil Association's forecast. Indonesia's Palm Oil Board projects total palm oil consumption to rise to about 7.5 million tonnes in 2013, from an expected seven million in 2012. “The rise in output and weakened demand in Asia will worsen the oversupply of the palm oil situation, which would also bring down further palm oil prices,” Cheah Chooi said.

Astino Bhd expects government projects to take up 15% to 20% of the sales orders for its roofing products this year.

“The remainder will be generated by the demand from multinational corporations (MNCs) building new plants and expanding their present facilities in the country.

“The domestic market should remain strong, generating about 80% of the group's revenue this year. We expect the first half of 2013 to perform better than the corresponding period a year ago,” group managing director Ng Bak Teng said.

Astino plans to spend RM40mil to build another roofing product manufacturing plant next year in Selangor. “This will be our seventh roofing manufacturing facility in the country,” he said. Astino manufactures roofing products such as c-channels, truss, and zinc bars from facilities in Nibong Tebal (three), Malacca (one), Pahang (one) and Bukit Beruntung, Selangor (one). Each plant generates around RM6mil to RM9mil in sales monthly.

Meanwhile, producers of acrylonitrile-butadiene-styrene (ABS) plastic extrusion sheets for the semiconductor and electronic industries are still experiencing a slowdown.

“Sales to MNCs in the country are still soft. We expect about a 10% drop in our sales for the first quarter of 2013,” Cepco Trading Sdn Bhd director Jansen Lim said.

“The price of ABS plastic resin is high and the demand is weak. The price has gone up because of the frequent shutdown of petroleum production plants in Asia for maintenance, causing shortage and price hikes,” he added.

The present price of ABS plastic resin is around US$2,150 (RM6,665) per tonne compared to US$1,900 (RM5,890) per tonne in October 2012.

Jansen said no manufacturer would want to keep a high inventory of plastic components used in consumer electronic products because of their short life-cycle.

“The life-cycle of consumer electronic products is now six months to a year. No one wants to stock up because the same product may not be popular and is very likely to be replaced by a new model after a year.

“Fortunately, the orders from the food and medical industries in the country, which generate 40% of the company's revenue, for our plastic extrusion sheets are stable, and should offset the negative impact from the semiconductor and electronic segment,” Jansen said.

According to the Los Angeles-based IBISWorld research house analyst Sean Windle, the revenue of global plastic product manufacturers was expected to grow 3.5% in 2012 to US$779.8bil, marking an annualised growth rate of 0.5% over the past five years.

Windle said the five-year period to 2017 was also expected to be prosperous for the plastic product and packaging manufacturing industry. “Global economic uncertainties, including the European debt crisis and concerns about a slowdown in rapidly developing Asian economies, would subdue growth over the next five years,” Windle added.

According to the Illinois-based McIlvaine research report released in January 2013, the compounded annual growth rate (CAGR) of the industry valve market from 2013 to 2017 is expected to be 5.5%, with increased anticipated revenues from the sales of smart valves.

The report said the biggest growth would occur in Asia, with the oil and gas (O&G) sector adopting increasingly the use of smart valves.

“For subsea O&G, the use of intelligent control systems for valve trees is becoming a defining factor of intelligent well development. All electric subsea production control systems are replacing industry standard electro-hydraulic control systems, with the aim of making them more reliable, more responsive and more cost-effective,” it said.

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