Future for Growth - The Malaysian Plastics Industry

1. MPMA Roadshow 2015 24.03.2015 Future for Growth - The Malaysian Plastics Industry

2. Contents • Trends • Strategies • Prospects • Conclusion

3. Trends

4. Source: ICIS Consulting

5. Global Polymer Industry • In 2005–2013, the global resin consumption grew by 45m MT to 202m MT, corresponding to an average annual consumption growth of 3.2%. • Global annual GDP growth was 2.3% during the same period. • The market is likely to be better over the next few years. Global consumption of the nine major thermoplastics should grow by around 4.5% per year during 2013-17, adding a further 40m MT of polymers demand by 2017.

6. Source: ICIS Consulting

7. Global Polymer Industry • Demand for polymers has been growing at different rates in the various regions of the world, based on the maturity of the different markets. • The different regions will continue to perform unevenly, with the emerging regions growing at rates typically three times higher than those of North America and Europe.

8. Manufacturing – A Critical Component of the Economy

9. The Manufacturing Sector

10. Manufacturing – A Critical Component of the Economy • What happened in the US..??? … and the UK …..???... • Consumption is generally the principal driver of a robust GDP. • Consumption can, directly or indirectly , account for 60% of the GDP. • However, consumption can only take place if the people are gainfully employed.

11. Manufacturing – A Critical Component of the Economy • Unemployment in the US and UK spiked when manufacturing jobs were lost … • No jobs = no money = no purchasing capacity = manufacturing and other sectors of the economy spirals downwards.

12. Manufacturing – A Critical Component of the Economy • China boomed, even without the superior technology or the “Apple-like” type of innovation, …. because the manufacturing sector was humming along …. creating jobs … spurring consumption …. • Innovation creates wealth … for a few …but manufacturing creates jobs for the masses … that is the REALITY …

13. The Malaysian Scenario… Trends of the Manufacturing Sector

14. Share of the Manufacturing Sector in GDP is Shrinking Malaysia, following Germany or US/UK? Source: Economic Reports

15. The Future of the Malaysian Manufacturing Sector • MNCs are not expanding, some are relocating. • Less conducive manufacturing environment, Government is emphasising more on the service sector and selected high-end manufacturing activities. Pressure of labour issues. • MNCs have more choices: Indonesia, Vietnam, Thailand, etc. • Migration to China has however abated due to the increase in labour cost and increasing difficulty in securing workers in certain main areas.

16. Trends and Challenges of the Malaysian Plastics Industry

17. Trends and Challenges • Domestic sector: construction sector is still strong, however, growth for the automotive and electrical & electronics is minimal. • Packaging sector remains bright, both domestic and export. • Third generation effect: some are leaving the plastics industry – not keen in the trade, but others are stepping up to the challenge. • Labour issues will continue to weigh negatively on cost and availability of workers. • .

18. Future Trends in Packaging • (1) Reduction in packaging materials – thinner, stronger design, lighter, simpler. • (2) Packaging closer to manufacture – less empty cartons carried in lorries. • (3) Smart packaging – more use of RFID technology for electronic tagging, tracking of stock, as cost of RFID tags falls.

19. Future Trends in Packaging • (4) Better recycling – easier recycling of packaging, higher percentage recycled materials in new packaging. • (5) Space-saving packaging – e.g. growth of square cartons for drinks. • (6) Customer returns packaging – improvement in re-seal pouches to keep pace with huge growth of online ordering of e.g. clothes where customers often order several sizes to try on, returning most goods ordered.

20. Future Trends in Packaging • (7) Better ways to print branding/marketing on plastics e.g. bottles. • (8) Less use of solvent-based inks for printing. • (9) Consolidation of packaging industry – economies of scale with larger machines, faster turnarounds, next-generation technology. Source: GlobalChange.com

21. ASEAN Economic Community (AEC) – Challenges or Opportunities? • The AEC aims to transform ASEAN into a region with free movement of goods, services, investment, skilled labour, and freer flow of capital. • The AEC areas of cooperation: • (1) Human resources development and capacity building – Malaysia is lacking both skilled and unskilled labour. • (2) Recognition of professional qualifications – a common standard must be established for mutual recognition.

22. ASEAN Economic Community (AEC) – Challenges or Opportunities? • (3) Closer consultation on macroeconomic and financial policies – more consistency on regional policies. • (4) Trade financing measures – facilitate cross border investments/joint ventures. • (5) Enhanced infrastructure and communications connectivity – creating a more business friendly environment, if you are doing intra-Asean trade. • (6) Development of electronic transactions through e-ASEAN – more efficient and speedy import/export procedures.

23. ASEAN Economic Community (AEC) – Challenges or Opportunities? • (7) Integrating industries across the region to promote regional sourcing – greater economies of scale. • (8) Enhancing private sector involvement for the building of the AEC – more public-private collaborations.

24. Strategies for Future Growth

25. Strategies • Increase productivity and efficiency – need to focus on quality throughput. Automation/machine upgrades – investment is not a choice, it is a necessity. Reduce dependency on workers, especially unskilled general workers. • Allocate resources to a winner ….. make what the market wants, not what you can make ….. • Move towards higher value-added products with better margins. Product differentiate, instead of price differentiate. (Invest in people/machines). • Forward and backwards integration – suppliers and customers technical support/optimisation

26. Strategies • Keep up with technology – tap on suppliers’ resources, exhibitions/trade fairs, magazines, etc. • Possible to monetise your current factory land ? Relocate to purpose built factory – better new floor space utilisation/process flow translates to improvement in yield, safety and workers work conditions. • Seek new markets - intensify marketing/sales activities…the world is out there …. Global market is huge. • Place emphasis on customer loyalty and develop products that they want to invest in …focus on long term relationship – there are always ups and downs

27. StrategiesJoint-ventures/Mergers • Size matters - better pricing, supply reliability and technical support from suppliers. • Size matters - provide comfort to key customers on wider range of capability and capacity. Ability to grow with them. • However, may be a challenge for SMEs as majority are family owned. • Merger integration issues may not result in 1+1 = more than 2.

28. StrategiesAutomation • Automation will take time but moving forward now is a necessity. • Reinvestment Allowance (RA) – great help to companies but many have their RA lapsed after they started to make claims 15 years ago or earlier. (continuing to pursue this matter with the Government – especially when the authorities are pressuring manufacturers to reduce dependency on foreign workers.) • Depreciation in the Ringgit poses a challenge due to higher cost of imported machines

29. Prospects

30. StrategiesSkills Upgrading/Development • MPMA-Talent Development Programme (TDP) • The Malaysian government allocated a grant of RM3 million to MPMA for the MPMA-TDP ( Phase 1) • MPMA-TDP’s primary objective is to create a pool of knowledge-based technicians/engineers as envisioned in the Government’s Strategic Reform Initiatives (SRI) for human resource development as outlined in the New Economic Model (NEM) for Malaysia. • However, efforts to source for balance RM7 million for Phase 2 is still ongoing.

31. Growing Market … Lighter, Thinner, yet Stronger • Reduction in weight will translate to lower production/transport costs and lower carbon footprint. • Downsizing, light weighting and downgauging – “less is more” approach. New polymer and processing technology allows for plastic products to be made thinner and lighter and yet retain or exceed the mechanical properties that is required for many applications. • Changes in lifestyle has resulted in an evolution in design – compact, light, mouldable, etc. Advanced printing, extrusion, moulding processes have transformed the shape and design of many products.

32. Growing Market … Lighter, Thinner, yet Stronger • Food packaging – changes in family unit, working/family lifestyle, rural-urban migration, smaller family units, etc . • Food waste reduction – packaging cuts down waste tremendously. Global population rapid growth putting strain on food production. Urgent need to cut down on food waste • Desire for lower carbon footprint targets – lighter product/packaging. Particularly with global warming being a major issue.

33. Innovate… Plastics Make it Possible

34. Heavy Duty Sacks Downgauging: Doing More with Less Temporisation 0,5 s Temporisation 0,5 s 1990 200 µm 2015 80 µm Source: ExxonMobil

35. Heavy Duty Sacks for Cement: Which Consumes More? 100% 70% Water consumption 30% Paper sack 1 Paper sack 2 Exceed™ mPE Source: Study conducted by ExxonMobil Chemical and peer reviewed by external panel per ISO 14040 & 14044 -- Photos used are representative of potential product applications only

36. Heavy Duty Sacks for Cement: Which Consumes More? 100% Energyconsumption 60% 55% Paper sack 1 Paper sack 2 Exceed™ mPE Source: Study conducted by ExxonMobil Chemical and peer reviewed by external panel per ISO 14040 & 14044 -- Photos used are representative of potential product applications only

37. Heavy Duty Sacks for Cement: Which Consumes More? Weight 100% 65% 50% Paper sack 1 Paper sack 2 Exceed™ mPE Source: Study conducted by ExxonMobil Chemical and peer reviewed by external panel per ISO 14040 & 14044 -- Photos used are representative of potential product applications only

38. Heavy Duty Sacks for Cement: Which is more Susceptible to Damage? Paper or Exceed™ mPE Damage Damage rate up to 5% Damage rate negligible Source: Study conducted by ExxonMobil Chemical and peer reviewed by external panel per ISO 14040 & 14044 -- Photos used are representative of potential product applications only

41. Conclusion • Over the years, the Malaysian plastics industry has transformed from being manufacturers of low-end consumer products for import-substitutions, into manufacturers for high-end industrial applications and for the export-oriented sector.

42. Conclusion • Prospects for future developments are bright as plastics will continue to innovate to be the material for the future in many applications. • Co-extrusion technology = less means more through downgauging. • Enhancement in machine/processing technology. • Enhancement in polymer technology. • LCA savings in carbon footprint, water, energy, waste disposal. • Higher awareness of global warming and water shortage concerns.

43. Conclusion • To face the global challenges, the Malaysian plastics industry will focus on new product development, advanced materials, advanced technology and skills upgrading to develop into a world class player. • This will enable the Malaysian plastics industry to compete effectively in the world market through high quality “product differentiation” instead of merely low cost “price differentiation”. • PLASTICS MAKE IT POSSIBLE … Innovate!

44. Thank you Malaysian Plastics Manufacturers Association, 37, Jalan 20/14, Paramount Garden, 46300 Petaling Jaya, Selangor, MalaysiaTel: 03-7876 3027 Fax: 03-7876 8352