Resin price drop a boon for SLP
KULIM: The drop in resin prices will help SLP Resources Bhd grow its gross margins and profits in 2018 with a double-digit percentage improvement over 2017.
The resin price of high density polyethylene has dropped from about US$1,450 per tonne in April to US$1,350 per tonne presently. “The decrease has contributed to lower raw material costs for plastic packaging materials, while maintaining a competitive selling price,” group managing director Kelvin Khaw told StarBiz.
According to Khaw, resin prices are expected to dip further before the end of the year, which would impact positively on the group’s cost of production and business strategy to conquer new markets.
“Due to the trade war between US and China, we don’t see the demand for resin from China going up. China plays a major role in determining resin prices.
“We expect resin prices to soften further due to the weak demand from China,” Khaw added.
The Chinese government has forecast that the growth this year will be around 6.5% compared to 6.9% in 2017, as the Chinese government ramps up efforts to cut risk in its financial system and close down inefficient, polluting factories.
Based on current orders and enquiries, the tonnage of plastic packaging materials to be delivered for the group’s customers in Japan, Australia, New Zealand, Europe, and Malaysia will hit about 9,000 tonnes in the second half of the year, compared to 7,800 tonnes in the same period 2017.
According to Khaw, about 30% of the shipment comprises niche thin-gauged plastic packaging materials, which command a higher selling price.
“Our new RM30mil plant, which started production in April, also gives us the economy of scale to produce cost effectively to improve our margins.
“The plant raises our maximum production capacity to 27,000 tonnes this year, which will enable the group to penetrate the healthcare sector in China and Asia.
“The sales to the healthcare sector in Asia, which is insignificant now, is expected to generate more than 10% of our revenue in 2019,” he added.
In 2019, SLP’s targeted utilisation of the production floor is around 78% or 21,060 tonnes of the maximum production capacity, up from about 70% a year ago.
“The domestic market absorbs about 40% of the output,” Khaw added.
As of the March 31 2018, SLP has about RM66mil in cash and zero borrowing.
SLP produces in three production facilities in Kulim on an 18-acre site.
According to a report from Mordor Intelligence, the flexible packaging market, valued at US$230.97bil in 2017, is expected to reach a value of US$291.96bil by 2023 at a compounded annual growth rate of 3.86% over the forecast period (2018-2023).
The regions considered in the scope of the report include North America, Europe, AsiaPacific, Latin America, and Middle East and Africa.