PETALING JAYA: What began as disruptions to crude oil and feedstock supplies from the Middle East has turned into a raw material crunch for the plastics industry.
A combination of conflict-related supply shocks, tax policy changes and depleted inventories has pushed raw material prices up by as much as 100%, forcing manufacturers to seek alternative sources to keep production lines running.
Malaysian Plastics Manufacturers Association president Cheah Chee Choon said the industry is still grappling with the fallout from a sudden shortage of resin feedstock and a sharp spike in costs.
“Right now, the market landscape is very different. More and more Malaysian plastic manufacturers are sourcing from new markets instead of their traditional suppliers in South-East Asia or the Middle East.”
Before the conflict, the industry had a relatively balanced supply base, with about half of Malaysia’s plastic raw materials supplied by local producers such as PETRONAS and Lotte Chemical, while the remainder was imported mainly from the Middle East and other Asean countries.
That balance was upended when the crisis disrupted supplies of crude oil and naphtha –key feedstocks used in resin production – from the Middle East.
“When the conflict broke out, there was an interruption to the supply of feedstock to resin producers.
“Some producers in Asean declared force majeure (a provision in a contract that frees both parties from obligation if an extraordinary event directly prevents one or both parties from performing).
“In Malaysia, they declared near force majeure or potential force majeure and cut down supplies. Most were running at only 50% capacity or not running at all,” Cheah said when contacted.
He said the situation was compounded by the temporary shutdown of PETRONAS facilities in Terengganu for scheduled maintenance just as supply conditions were tightening, further reducing local supply.
The supply crunch was worsened by a tax policy change that weakened the traditional buffer provided by traders and stockists.
Under the 5% sales and service tax imposed on raw materials in October 2025, plastic manufacturers could apply for an exemption, but traders were not eligible.
“Since traders cannot get the 5% exemption, they stopped acting as stockists.
“They now only buy when they can get the exemption, and that is only possible if the buyer works with them to submit documents to the government,” Cheah said.
Without the ability to hold untied inventory, traders reduced stock levels significantly.
“So there is a shortage of raw material among stockists, and when the conflict happened, that resulted in a very dramatic shortage of raw material.”
The combination of lower local production, disrupted imports and shrinking inventories triggered strong demand in February and March, particularly for high-density polyethylene, which is widely used in bottle manufacturing.
Prices that were around US$930 (RM3,771) per tonne before the conflict surged to about US$1,700 (RM6,893) per tonne, while some specialised grades exceeded US$2,000 (RM8,110) per tonne during the height of panic buying.
“Overall, prices increased by about 80% to 100%,” Cheah said, adding that market conditions in February, March and even April were “highly volatile”.
To manage the disruption, the association has helped members diversify their sourcing, including from China, which Cheah said has ample feedstock supplies and has become a major resin exporter to South-East Asia.
