ASEAN`s Plastics Industry is Thriving – Free Trade Agreements Offer New Opportunities

ASEAN`s Plastics Industry is Thriving – Free Trade Agreements Offer New Opportunities

Recent economic trends such as the low oil price and the weak USD exchange rate of many Asian currencies have brought new strengths to the region´s already thriving plastics industry. With its population of 600 million people, a GDP of 2.6 trillion USD and a growing middle class, ASEAN offers a profitable consumer base. Moreover, plastics and plastic products are amongst the top export goods of many ASEAN states, achieving a total export turnover of 39.3 billion USD in 2013.

Vietnam – Despite the plastics industry still being relatively young it Vietnam, the sector is amongst the country´s most important growth engines, achieving annual growth rates of 16 to 18 percent in the 2010 to 2015 period. According to the Vietnam Plastics Assocations, not only is demand for plastic products experiencing record growth, but production output too is rising strongly. While in 1990 plastic production output per capita hovered around merely 4kg/year this figure reached 41 kg/year in 2015. The biggest output contribution of 37.4% stems from the packaging sector, followed by consumer goods (27%), construction (18%) and technical products (15%). The plastic sector´s Achilles heel is its strong import dependence for products such a polypropylene resin.

Indonesia – The Indonesian middle class is expected to double over the next five years, then counting 141 million people. The growth in demand for plastic products will likely parallel this pattern as packaged goods are popular in the Island state, food product packaging accounts for 70% of plastic consumption. The weak demand from the automobile and construction sectors negatively impacted the plastics sector in 2015, however, according to the Indonesian Olefin & Plastic Association, growth is set to return to 6% in 2016 as the country implements economic reforms. Much like in Vietnam, the industry’s biggest weakness is its import dependence on raw materials and primary products, hurting small local producers in particular due to the weak Indonesian Rupiah.

Malaysia – Malaysia finds itself amongst the region´s top exporters of plastics. More than 1500 plastic producers are settled in the country, supplying major markets across the world. Like in Indonesia the packaging sector accounts for the biggest share in plastics consumption (45%), followed by electronics (26%), automotive (10%) and construction (8%). However, the recent increase in production costs stemming from minimum wages raising by 40% as well as a 17% raise in electricity costs tampers the country’s competitiveness.

Thailand – The Thai plastics industry is experiencing a growth boom similar the that of Vietnam, with currently over 5000 companies manufacturing in the country. Other than in many ASEAN states, however, more than 60% of these are small sized companies. Despite total costs being up to 25% higher than in neighbouring Vietnam or Indonesia, Thailand has positioned itself competitively in the global plastics market. The main reason for this is the well-developed automotive industry, including a range of indirect and direct suppliers. The majority of foreign direct investments in Thailand´s plastic industry went towards greenfield investments sponsored by car tyre manufacturers. Moreover, Thailand has profiled itself by investing more than 60 million USD in the development of bioplastics over the last 7 years, sponsored up to 80% by the state.

Singapore – Despite costs being at a record high in Singapore, the city state is a global centre for high-end plastic production. Developed infrastructure, easy access to shipping, highly skilled personnel and a high ease of doing business counterbalance the cost disadvantage. Jurong Island alone hosts 95 of the world´s biggest petrochemical producers such as BASF, Shell and Exxon Mobile. Recent expansion projects have further increased the location´s competitiveness. For instance, Shell´s new production facility increased the production of ethylene by 20%, new facilities for the production of high value products such as ultrapure ethylene oxide are planned for 2016.

A number of free trade agreements are set to further boost the plastic industry across the region. Firstly, the ASEAN Economic Community (AEC) in place since January of this year aims at gradually liberalising the markets for goods, investments and services within ASEAN. Vietnam, in particular, should benefit from lower tariffs on plastics and machines as the country´s plastics industry imports 80% of is input goods from Thailand and Malaysia. Indonesia, too, imports more than 40% of its primary plastic products from inner ASEAN. Malaysia, on the other hand, will benefit from the free movement of labour agreement under the AEC framework, allowing the country to balance its shortage in both skilled and unskilled labour. Other important trade deals include the US led Trans-Pacific-Partnership agreement, involving 12 pacific rim states, and the China led Regional Comprehensive Economic Partnership (10 ASEAN states plus China, Japan, South Korea, India, Australia, New Zealand) soon to come into effect. According to the US Trade Ministry the TPP will eliminate up to 25% of tariffs applicable to the plastics industry. Vietnam, for instance, will eliminate almost all tariffs on plastics over the next four years, hoping this will help the county develop a more integrated raw materials industry supplying automotive, electronics and machinery sector.

BDG Insights:

Under the AEC plastics producers will increasingly be able to seek a cost effective supply chain combining the competitive advantages of the different member states, sourcing more complicated high-value products from Singapore while producing lower value components in Vietnam or Indonesia. The thereby advantaged cluster building will further encourage diversification, cost effectiveness and rising productivity. With the AEC ASEAN has a new economic framework, company´s should not miss the new opportunities it has created.

Sources: Process, Plasticker