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Mixed fortunes for Malaysian industrial product producers [17-12-2012]  
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Industrial product manufacturing companies in the northern region serving the European and Asian markets are feeling the brunt of a slowing global economy, with many seeing a dent in their growth trajectory.

The saving grace are the manufacturers supplying industrial valves for the palm oil industry in Indonesia and consumer packaging materials for the Asian market.

Chin Well Holdings Bhd, for instance, expects lower contribution from the European market for the second quarter of its financial year 2013 due to the economic crisis in Europe.

Group director Tsai Chi-yun said that Europe would generate about 35% of the revenue this time around, compared with about 40% a year ago.

“Due to the weakened demand, Chin Well has reduced the selling price for fasteners, which will affect its margins slightly for the 2013 second quarter.

“The slowdown is particularly significant in the markets in France, Spain and Italy, which usually generate about 15% of the group's revenue.

“This year, these three countries will contribute about 5%.

“The markets in Germany, UK and Holland are still stable, generating the remaining 30%,” she added.

The group's mild-steel fasteners are used in the construction, renovation and automotive industries worldwide.

The markets in the Asia-Pacific and Malaysia, which generate about 60% of Chin Well's revenue, are still stable, Tsai said.

“We expect some pick up in late March or April next year,” she said.

The present selling price of wire-rods, the key ingredient of fasteners, hovers around US$700 (RM2,138) per tonne, compared with US$680 (RM2,077) in November 2012.

The international market price now ranges between US$950 (RM2,902) and US$1,400 (RM4,277) per tonne, depending on the grade and quality.

Due to the strong demand for galvanised wire products this year, Chin Well's production of fasteners and wire harness products will hit about 120,000 tonnes this year, about 9% more than a year ago.

About 55% of the 120,000 tonnes comprised fasteners and the balance galvanised wire products.

On the group's do-it-yourself (DIY) fastener business in Vietnam, Tsai said it was on track to generate about 40% of the group's revenue in 2014 from 20% now.

“The key markets are in the United States and Europe. We are now negotiating with European and US customers, who are in the process of auditing the Vietnam operations before placing orders,” she said.

For its first quarter ended Sept 30, 2012, the group posted a pre-tax profit of RM6.4mil on a revenue of RM114.9mil, versus RM25.8mil and RM134mil, respectively, in the previous corresponding period.

Thong Guan Industries Bhd expects a flat year for its plastic industrial packaging materials due to slower demand from its key markets.

“There has been minimal growth in orders from our customers in Japan, Australia and New Zealand.

“The slowdown is especially apparent in our stretch film business, resulting from the challenging business environment in Europe and China.

“A reason for the slowdown could be that customers are anticipating plastic resin prices to drop further before placing orders.

“The slowdown in China's consumption growth is one of the reasons why there is expectation that plastic resin prices would come down further,” group managing director Datuk Ang Poon Chuan said.

The group's polyvinyl chloride food wrappers and masterbatch compound businesses are experiencing growth, and more focus has been placed on these segments, according to Ang.

The group's production of industrial packaging materials will remain at 110,000 tonnes this year, the same level as in 2011.

Thong Guan is the largest exporter of plastic packaging materials to Japan.

For the six months ended June 30, Thong Guan posted RM20.7mil in pre-tax profit on the back of an RM452.9mil turnover, compared with RM21.7mil and RM399.6mil, respectively, achieved in 2011.

Japan usually generates about 30% of the group's turnover, while New Zealand and Australia would collectively contribute around 20%, and Asean about 25%.

At the other end of the spectrum, Unimech Group Bhd, which supplies industrial valves for the palm oil industry in Indonesia, is projecting strong growth this year over 2011. Managing director Datuk Lim Cheah Chooi said that contribution from its industrial valves business in Indonesia was expected to increase to 30% this year from 25% a year ago.

“We plan to add six more warehouses-cum-marketing offices in Indonesia next year, raising the total number to 36 from 30 at present, to cater to the expanding palm oil industry,” he said.

Unimech's industrial valves are used in palm oil production plants.

The consumption of palm oil is expected to increase to 7.5 million tonnes next year from seven million in 2012, according to a recent Reuters report, citing delegates attending the recently held 8th Annual Indonesian Palm Oil Conference.

For the nine months ended Sept 30, Unimech posted a pre-tax profit of RM25.6mil on the back of an RM163mil revenue, versus RM21.9 and RM141.9mil respectively in the year-earlier period.

Kulim-based consumer packaging material company, SLP Resources Bhd, also expects a double-digit growth in 2012, as its exports to Japan, Australia and New Zealand are still strong.

Managing director Kelvin Khaw said that while the domestic market had softened, demand from overseas markets in Japan, Australia and New Zealand had picked up.

“The domestic contribution for 2012 should fall below 50%, while the overseas contribution should rise.

“The rise in demand from overseas could be due to the stability of polyethylene resin prices, which had been hovering around US$1,400 (RM4,277) to US$1,450 (RM4,430) over the past three months,” he said.

SLP's packaging materials are used in the food packaging industries.

Khaw said the group had already produced over 23,000 tonnes of plastic packaging materials up to October this year.

“We should hit over 30,000 tonnes by the end of 2012,” he said. “Next year, the target is to raise output to 31,500 tonnes.”

According to San Jose-based Global Industry Analyst (GIA), the global market for industrial fasteners is forecast to reach US$81bil (RM247bil) by 2018.

The report said the key factors fuelling market growth included a revival in motor vehicle production, an increased demand from developing regions, and potential growth in the construction, electrical and electronics, and aerospace sectors.

“Asia-Pacific represents the largest and fastest growing regional market worldwide, growing at a compounded annual rate of 10.5%,” the report said.

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