Plastic product buyers to delay orders due to low resin price

SLP Resources workers at the production line of plastic packaging products and plastics related goods at SLP plant in Kulim, Kedah

GEORGE TOWN: The price of resin – now hovering at about US$850 per tonne, the lowest in the past 10 years – will prompt buyers of plastic products to delay orders for the short term.

SLP Resources Bhd group managing director Kelvin Khaw told StarBiz that in Jan 2019, polyethylene resin prices was US$1,200 per tonne, compared to US$900 per tonne currently.

“When resin prices come down this much and this fast, customers of resin manufacturers and our customers will delay their orders, as they believe the price of raw materials and plastic packaging products will drop even further.

“The ‘wait and see’ sentiment of domestic customers in anticipation to buy products at lower prices in line with their expectation on the decreasing trend of average prices of plastic resins have resulted in slower demand for the computer’s products in the third quarter.

“The disruption of orders will also continue into the short term.

“The sharp decline of resin prices, however, lowers production cost and improves margins.

“In fact, for the third quarter that ended Sept 30, the group had recorded higher pre-tax margin as a result of lower input costs, ” he said.

Khaw added that the group’s 2019 revenue and net profit would likely stay flat.

“This is because we paid for more for resin early this year, and now we have to pass on the ‘savings’ by adjusting our pricing, ” Khaw said.

In 2020, SLP Resources Bhd will introduce a new range of high-value environmentally friendly packaging materials to offset the impact of the slower demand.

“This new product will generate a higher margin and will help us to expand our markets in high-income countries like Japan, Australia, New Zealand.

“The good news is that the demand from Japan – an important market for us – has remained stable even though Japanese importers now have to pay a 10% consumption tax compared to 8% previously, ” he added.

According to Khaw, the group expects polyethylene price to shrink further by 5% to 10% in the short to medium term.

“Between 2022 to 2024, an additional 4.5 million tonnes of resin supply will kick in.

“The MNCs in Texas started expanding their production capacity in 2015.

“The expansion is almost completed, and the new supply is expected to come in next year.

“Because of the trade war, China is now cut off from the US resin supply.

“So, the US resin producers will look to South-East Asia to sell, triggering resin prices to spiral downwards, ” he said.