Spike in flexible packaging materials demand

SLP managing director Kelvin Khaw(pic) told StarBiz that the price surge started about a month ago. For example, he pointed out, the price of paper-based cartons had increased 20% over a span of just one month

GEORGE TOWN: SLP Resources Bhd says panic buying of flexible packaging materials has increased, as the cost of paper-based packaging materials, container charges, and resin continues to rise unabated.

SLP managing director Kelvin Khaw(pic) told StarBiz that the price surge started about a month ago. For example, he pointed out, the price of paper-based cartons had increased 20% over a span of just one month

“On top of this increase, the cost of resins has gone up by 30% to US$1,350 per tonne currently, compared to around U$950 per tonne in January 2020. The cost shipment has also increased by about 200%, ” Khaw said.

“It costs about US$2,000 to send a 20-footer container via sea to Australia and New Zealand now, compared to only US$600 in August, ” he added.

The prices are still going up, triggering the group’s customers to panic-buy, Khaw said.

“Customers are thinking that if they don’t buy and ship now, the cost would escalate further. We, however, believe that this is only a temporary crisis, ” he explained.

According to Khaw, sea freight charges have gone up because there are still many containers stuck at European and US ports.

Explaining the reason for the shortage of containers and hence the steep hike in shipping charges, Khaw said: “Most of the containers originated from China, since it was the first country to restart factory productions and to ship out cargoes following a Covid-19 lockdown.

“When the containers reached European and US ports, they were not unloaded because of the lockdown imposed to stop the spread of Covid-19 in these countries. They are only beginning to unload the containers now as their economies reopen, ” he added.

Khaw advised customers not to resort to panic-buying.

“If they place order with us, we will have to accept them. That means we also have to spend a lot more to stock up inventories, ” he said.

“And if we are right on our assessment that the hike in prices won’t last long, we will be stuck with a very expensive inventory that will erode our margins in the first quarter of 2021, ” he added.

Fortunately, the current cost of SLP’s inventories is low. This helps the group mitigate the impact of the sudden surge in costs in the final quarter of 2020.

“For this final quarter, we have also raised our selling prices to offset the impact.

“The selling price of our average flexible packaging materials is now US$1,850 per tonne compared to US$1,750 in May, ” Khaw added.

On the sector’s outlook, Khaw said the global flexible plastic packaging market size is projected to grow to US$200.5bil by 2025 from US$160.8bil in 2020, representing a compounded annual growth rate of 4.5% over the next five years.

“The market for flexible plastic packaging in Asia Pacific is growing in the food, beverage, pharmaceutical, and personal care and cosmetics industries due to the functional properties offered by flexible plastic packaging, such as safety, cost-effectiveness, durability, strength, lightweight, environmental-friendliness, and handling convenience.

“The Asia-Pacific region, which accounted for the largest market share in 2019, will lead the global flexible plastic packaging market by 2025.”

According to Khaw, the group would step up the production of garbage and kitchen bags for Asia Pacific. Khaw said kitchen and garbage bags formed about 17% of the group’s 16,000-tonne flexible packaging materials output for 2020. In 2019, the group’s output was about 17,000 tonnes.

“We plan to raise the kitchen and garbage bags portion to over 25% in 2021, ” Khaw said.

“Japan’s demand for our garbage and kitchen bags has yet to return to the pre-pandemic level of 43%.

“It is expected to generate about 40% of the revenue this year, ” he added.

Japan is the biggest market for the group’s garbage and kitchen bags.

“However, since last year, Japan has decided to cut down the use of plastic packaging materials.

“We now have to look for other potential markets in Asia to reduce the dependency on Japan.

“Currently, the four biggest traders of plastic packaging materials in Japan are SLP’s customers.

“They buy from us to distribute to the wholesalers, ” Khaw added.

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