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As global supply chains come under strain, shortages in petrochemical inputs could ripple across the economy, eventually spilling over into consumer products and everyday household items. How prepared are we for the downstream impact of supply disruptions? On this episode of #ConsiderThis Melisa Idris speaks with CC Cheah, President of the Malaysian Plastics Manufacturers Association, and Dr Chin Chee Seong, National President of the SME Association of Malaysia.
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00:10Hello and good evening. I'm Melissa Idris. Welcome to Consider This. This is the show
00:15where we want you to consider and then reconsider what you know of the news of the day. From
00:19industrial components to food packaging, plastics are embedded in our everyday life. But as global
00:27supply chains come under strain, shortages in petrochemical inputs could ripple across
00:33the economy and eventually spill over into consumer products and our everyday household items.
00:40Now just how prepared are we for the downstream impacts of supply disruptions? Joining me on the
00:47show to discuss this further, I have Sisi Chia, who's the president of the Malaysian Plastics
00:53Manufacturers Association. He's also the managing director of Sihau Global, which is a manufacturer
00:59and marketer of plastic pallets. Mr Chia, thank you so much for joining me on the show today.
01:06To start our conversation, maybe you can briefly begin our conversation today by describing some
01:13of the inputs that are needed as part of the plastic supply chain. I'm quite curious to know how
01:20dependent we are on imported inputs to create plastics that we clearly need for everyday products.
01:29Yeah, thank you. It is a very important question. I think most people do not know that plastics come
01:38from crude oil. Actually, in Malaysia plastics are produced from two main feedstocks. Number one is the LNG,
01:47which is what we are doing in Tungganu, where Petronas, with this offshore LNG production,
01:56is being fed onshore and fed into a few plants that make the polymers, plastics.
02:03So that is one of the feedstocks source that we have, and that is completely domestic.
02:11And that one, in terms of costs, I don't think that is being impacted by the war in the Middle
02:20East.
02:21The other feedstocks that we have for making plastic is actually crude oil.
02:27It's actually nafta, which can be imported from the Middle East mostly, or it can be also refined
02:38by refining crude oil. We can import and refine crude oil, which is what Petronas is doing in the
02:45Penggarang facility. All right. So whether it is nafta or crude oil for the production of
02:55plastics, we are very heavily dependent on imports of nafta and crude oil from the Middle East.
03:02And therefore, Malaysia, we are impacted by the war.
03:08Okay. Can you tell me, Mr. Chair, what you've observed since the war on Iran began? At what point did
03:17you and
03:18your members start noticing signs in the supply? Has there been disruption that you've noticed?
03:27Well, very quickly, I mean, I think after a week, one, two weeks after the war broke out,
03:34I mean, there are some producers in ASEAN region has declared a false major. Basically,
03:41what I've heard is that plastic polymer producers typically hold about two weeks or a bit more of
03:50nafta inventory. So when the supply is interrupted because of the war, you know, a few of them started
04:00to declare false major. And that's why we realized that, you know, there'll be a huge impact on the
04:07supplies and the price and therefore the price of the plastic raw material to the market.
04:15Yeah. So how much, how much have prices moved since the war began?
04:20Well, the prices was around $930 per ton for PE and PP before the war. Now the market price is
04:34for PP
04:36locally is selling for $1,750 for PP and for PE is probably selling at $1,650. So it has
04:48gone up by
04:4880% to 100%. Oh my gosh, that's double.
04:54Certain grades, certain grades are going at above $2,000 per ton. So yeah, it's a big impact.
05:03Right. So talk to me about that impact. Which industries are most exposed? So you talked about how
05:10there's some domestic production, but the NAFTA is from the Middle East, that input is from the Middle East,
05:18the feedstocks you said. Which industries are most dependent on those inputs? If we talk about the
05:26downstream impact of these disruptions, can you give me some examples of where they might be most obvious?
05:33Well, plastics is actually an enabler to many industries. But the biggest sector that is used,
05:41consumer plastics would be the packaging. Plastics are about 45% of total plastic productions goes for
05:50packaging. So you have industrial packaging and consumer packaging. So plastics are being used for
05:57packaging of consumer products like beverages, food, your daycare products, your detergents,
06:09your shampoos, your shampoos, and all those things. So that will be the biggest sector that will be impacted
06:15by the shortage and the price increase of plastic raw materials. This second one will be E&E,
06:24electrical electronics industry. They use a lot of plastics as well, plastic components. And then you have
06:32the autonomy, also a lot of plastic components, construction, construction materials, the pipes and the trunkings.
06:44Those, yeah, they will also consume plastic products. So many industries.
06:50That's everything. That's every industry. Yes. Yes. Correct. Yes.
06:55Okay. All right. So my next question is, are substitutes available? So we're clearly very
07:04dependent on plastic and some of the key inputs are in areas that are affected by the war. So are
07:12inputs
07:12like NAFTA able to be substituted with something domestically or produced elsewhere outside of the Middle East?
07:22Unfortunately, plastic production is very dependent on NAFTA supplies. You can use natural gas, but
07:32you cannot simply have it have NAFTA supplied by natural gas just suddenly, you know, because the
07:42facility in Congano that is built with LNG as a feedstock, you cannot change that suddenly, you cannot just
07:50switch on and switch off to a different material. Yeah. Therefore, there's no short and quick fix for this.
07:59Yeah. And that's why I'll say that the alternative for Malaysian plastic manufacturers is to import those raw
08:07materials. And that's why about a month into the war, we have a lot of members inquiries and we have
08:17encouraged our members to source from overseas, basically to import these raw materials. It can be
08:24imported from the US. The US is a big producer of polymers. And we can also import from China.
08:30All right. We can also import from China. So those are what we have encouraged our members, you know,
08:38to source from these two countries. Can I ask you how closely you and your members are coordinating
08:46with the government on this? I mean, clearly the supply productions will have such a ripple effect
08:52across the economy. Are you engaging or is the government engaging with you and your members?
08:58What kind of stakeholder consultation process is happening at the moment?
09:04Well, we have returned to MITI, the Ministry of International Trade and Industry, and we have
09:10returned to the Prime Minister to get them to help us because when there is a shortage of polymer, it's
09:18going to impact many downstream industries. And so we have the first thing we have asked the government to do
09:25is to temporarily exempt the members from paying import duty, 10% import duty for the importation of plastic
09:39raw materials for at least six months, and to also temporarily do away with SST. There's a 5% SST
09:49on
09:49the importation of the importation of raw materials as well. So by removing this food, the duties and the SST,
10:00we are then able to import raw material at a lower price because now you have materials that have gone
10:09out
10:09in price by 80 to 100%. A 10% on this is very significant. Yeah, 10% or 5%
10:17on
10:19doubling the price of raw materials is very significant. Mr. Chia, is it just that prices have gone up or
10:28is there a clear shortage in supply, meaning that there's no supply to be had, that there's just not enough
10:37NAFTA to go around and fulfil demand around the world?
10:42Mr. Chia, there's certainly a shortage in supply in supply of NAFTA, shortage in supply in the
10:53plastic raw material as a result of the shortage in supply of NAFTA. So availability of raw material is one
11:03thing
11:04and because of the shortage, and because of the shortage, it results in a huge jump in price.
11:09Mr. Chia, okay. I'm just wondering whether there's going to be limited supply or there's going to be
11:17less packaging available and therefore businesses will have to cut down, reduce their own production.
11:24Mr. Chia, what is the impact to the economy, to everyday users? Are we expecting this cost to be passed
11:35on to the end consumer?
11:38Mr. Chia, yeah, the cost is definitely passing to the downstream manufacturers, whether it's a food company or E&E
11:47companies or automotive company.
11:51Mr. Chia, whether they choose to pass on to the end consumer, it's up to them.
11:57Mr. Chia, but I think for our members, there's no other way but to pass on this cost to their
12:02customers
12:03because the price increases, that's too much for us to bear.
12:08Mr. Chia, you mentioned recommending or asking the government for an exemption on import tax and SST.
12:18Mr. Chia, is there anything else policy makers should be thinking about, particularly since you've
12:23raised the red flag over some of these constraints? What would you like policy makers to understand
12:30about this industry particularly and the impact of the war?
12:34Mr. Chia, I would say generally, we appeal to the government to
12:41remove the import duty for plastic raw materials completely because
12:48Malaysia, our plastic products are not protected. It's a very open market. There's no import duty on
12:56any or most of the plastic products that has come to Malaysia. So we have a lot of Chinese manufacturers
13:02that are exporting their plastic, whether it's semi-finished or finished plastic products into Malaysia.
13:09But there is a 10% protection for raw material producers, which I think is not fair. We have to
13:17have a very
13:20We have to have a very open economy. We see that the open economy without import duty for plastic raw
13:29materials or open market will benefit the plastic industry as well as downstream manufacturers in whatever sectors we are in
13:38so that we can be more competitive internationally.
13:42So we are we have returned to METI to appeal for the complete removal, permanent removal of import duty and
13:51we hope they can decide in our favour.
13:54Thank you so much for joining me on the show. That was Sisi Chia from the Malaysian Plastics Manufacturers Association.
14:01We're going to take a quick break here and consider this. We'll be back with more on this topic. Stay
14:06tuned.
14:27Hi, welcome back to Consider This. I'm Melissa Idris. Let's continue our discussion about the global supply crisis and the
14:35impact on businesses, especially small and medium enterprises.
14:39Could rising costs and tighter supply affect production and pricing and ultimately survival?
14:47Well, let's ask this question to Dr. Chin Chi Siung, who's the president of the SME Association of Malaysia. Dr.
14:54Chin, thank you so much for joining us on the show today. It's good to have you back.
14:58We've been talking in this episode specifically about how the global supply crisis is affecting plastics input and plastic supply.
15:08But I'm curious to know how from an SME perspective, from a business perspective, how these disruptions, not just limited
15:16to plastics and packaging, but how all of these supply disruptions are impacting businesses. What have you heard from your
15:23members?
15:25Okay, I think we all know that the plastic product rely a lot on the, you know, resin from the
15:31petroleum, you know, by-products. So it is really important that we have a good source and also a cheaper
15:40kind of supply. But at the moment, we all know that price have high up. And many SME, in fact,
15:46are very much exposed to all this hype in the material.
15:51In fact, it's not only the plastic manufacturer. In fact, we have a lot of plastic manufacturers have been complaining
15:57already, right? But more to more is for SMEs. We are a lot in F&B businesses, right? The retailer
16:05and a lot of e-commerce reseller and manufacturer as well.
16:11And in various fields like pharmaceutical, you know, logistic and many of us also do a lot of export and
16:19all depend on this plastic packaging in one way or another.
16:23So we have been facing the issue right from, in fact, we've really feel it since last month. You know,
16:30the members telling me the material, the raw material of the plastic has gone up almost as much as 30%.
16:38So what do they feel is that the supplier who's doing, especially on the plastic packaging industry, we have a,
16:45I have a so-called members who are doing chocolate product manufacturing, right?
16:51And he has put out the PO months ago to, you know, to purchase plastic packaging, everything. The supplier came
16:59back and returned the PO to him.
17:00Sorry, we cannot accept your order anymore. You can take back your PO even decide to accept it.
17:05So because the hype is too high, they cannot afford to give the old price. So they have to come
17:10out with the new costing to all the customer they have.
17:14So that part, in fact, a lot of increase from even up to 20% of the packaging of the
17:20product.
17:21So for many of us, we are difficult to adjust the price because our, our many of our products are
17:27already out there and the price are fixed.
17:29And we have also, you know, a lot of our distributor retailer are selling the price that have been fixed.
17:36So there's hard for us to increase the price right now. So we have to absorb it.
17:40And really we are trapped.
17:42Okay. So I, what I'm hearing is that margins are being compressed on the SMEs for the SMEs.
17:48Can you tell me what you're seeing, Dr. Chin, in terms of signs within, within industry, within, within businesses?
17:58Are they, are they, you know, cutting production? Are they reducing their output? Are they delaying their audience?
18:05What, what has been the contingency plan to manage with some of these price hikes and supply disruptions?
18:11I think many of us are beginning to, to hold on the production, you know, the output for sure. That's
18:19number one.
18:20And number two is that because of this, this cost of the increase in all the costs, not only because
18:28of plastic or all the packaging increase,
18:31because we are also facing the transportation charges, right? The fuel costs, right? And also utilities are all been going
18:39up.
18:39So that's where most of us have to tighten our expenses. You know, we beginning to, you know, keep, not
18:46to spend so much,
18:47or even we stop hiring. Many of us have stopped hiring and go back to our, our, our supplier and
18:54asking for more,
18:56better terms and better, you know, negotiate for better, you know, costing and rather than increase the price yet.
19:02So, like I say again, it's not only, uh, we, we lack of sales. We can see that, you know,
19:09last, last couple of months,
19:10and also because of work from home, many of us are suffering, right? With expression in F&B.
19:15Uh, I have one or two, uh, Muslim, uh, F&B, uh, customer, and also our members are complaining, you
19:23know,
19:23his sales dropped more than 30% during this period, and how he could survive, you know, and the business
19:28cost is the same, right?
19:30The renter SST you have to pay, the renter never go down, and everything is up.
19:35So what we need now, in fact, to manage our cash flow. Most of us are having a really cash
19:41flow problem.
19:42Okay. All right. Just a couple of questions on, on what you've, um, mentioned, some follow-up questions.
19:48When you talk about tightening expenses, and you mentioned stop hiring during this period, can you talk to me a
19:55little bit about that?
19:55Uh, how these, um, the current supply chain disruptions, or the crisis around supply, um, is affecting planning and investment
20:04decisions for businesses?
20:06But also, what are the risks to employment? Um, is there a risk of layoffs, risk of closure of businesses?
20:15Uh, talk to me about that, Dr. Chin.
20:18Okay. It depends on which, uh, business are we in. I can see that many of our F&B customers,
20:24our members, they are not hiring anymore.
20:27If there's any staff who, who are going to resign or retire, they are not going to even replace them.
20:33Uh, so the first thing they do, right. And then, uh, uh, uh, for the fact that coming to delivery
20:40costs, you know, I, I know one distribution company who is doing, uh,
20:46sort of, fraction material distribution delivery for, for their client. And, uh, because of the diesel hype, all, you know,
20:53some of them, they use a lot of Hilux.
20:54And the Hilux cannot move now. And they have to, you know, uh, provide a less customer service to their
21:01customer because they want to consolidate deliveries.
21:04They're trying to bring down their costs by, uh, using other way, because there's no choice. All right. And because
21:10of that, you don't need many, uh, delivery, uh, people.
21:13So a lot of that also start looking into contracture out, subcontract it away. You don't do it themselves. All
21:20right. And wherever you contract out, then you terminate the service of your own.
21:24Uh, staff. So that is where many, many of us have to do it. No choice. Because the, the, the
21:30first thing we need to do is cut our basic costs.
21:34Right. The basic is where we can, we can move it. The variable, we really can't, can't really touch it.
21:40Like petrol go up, diesel go up. We have no control.
21:43Right. We have to absorb it. And if you are using a third party, you know, especially when you are,
21:49you are, you are, you are, you are using freight services for instance right now.
21:51When freight services have been increasing, air freight, you know, sea freight, of course. Right. The air freight also increased.
21:58And many, many issues, uh, we are, we are facing. Right. And, and all this add, add to what should
22:04SME do? What should the owner do right now?
22:07Right. If you, you, you face a shock in your revenue and you face a height in your costs. The
22:15only thing you, only logical thing to do is minimize your basic overhead.
22:19Right. And we are definitely, we can see a lot of company has started, you know, reducing their stuff. And,
22:26and, and, and you can see that the last report.
22:28Right. For, I, I, I think if not mistaken from the DOSM that the amount of, uh, uh, job loss
22:36has increased. Right.
22:38I've been increased. That is where we see all come from the SMEs.
22:42Are you concerned that the impact could be similar to a reminiscent of, um, the pandemic, the COVID time impact
22:51on businesses?
22:52I think it is not as bad as COVID, but it is rather something that, uh, we have to take
23:00extra precaution.
23:02Because we don't know when the war going to end. Right. At the same time in COVID, we don't know
23:06when it's going to end.
23:07So we will continue to be very cautious. And in the meantime, those companies are not doing well.
23:12For instance, many of our SME members, they couldn't even get financing. Even government announced the, the, the, the five
23:19billion facilities going to announce by Bandagara.
23:21But even the Kuskok have given some loans, you know, to the, the SME to ease their cash flow.
23:29But those, those people get access to this fund. Are those companies doing well?
23:35Because the bank still go back to the basic, you know, when I assess the company performance, whether you are
23:42capable to pay or not,
23:44whether you are able to pay back and then you want to see your project.
23:46Are you running any project that coming, you know, on the way or you, you, you need some fund to,
23:52to make some profit.
23:53So that taking into consideration that so many of the loans are not accessible by many SMEs.
23:59Okay. So, so what kind of support would SMEs need most from the government?
24:03You mentioned that, yes, there are, you know, there's all these initiatives and measures being announced.
24:08But if they're not getting to the businesses that need them the most, then the point is moot.
24:14So what, how, how should the government readjust or tweak so that these measures are actually impactful?
24:21I think first, first thing is, at least you have a less stringent kind of assessment, meaning you cannot use
24:28the normal commercial bank assessment to the company who facing issue.
24:32Right. And sit down with them using whatever knowledge that you have from your, your, your assessment team.
24:39That's because all these go to, go back to commercial bank, run the loan.
24:43So the commercial bank team is always has the SOP.
24:46You got to have, you know, you have to, you have to qualify for this.
24:49For instance, the CTOS report, you need this report, you need that.
24:53And finally I need your sign as a personal guarantor.
24:57Right. Okay.
24:58Even you're willing to sign personal guaranty.
25:00Then they say, Oh, sorry.
25:02You have signed a few personal guarantor for three facilities.
25:05You cannot afford anymore.
25:06So those are the thing that maybe, uh, government can have a special team with the bank.
25:12Sit down with each company, look at the past performance.
25:15Right.
25:16Are they able, possibility to repay you back?
25:19With their past business and also their, their future projection.
25:23Right.
25:23And, and give them a, a lifeline.
25:26Uh, maybe you don't have to give so big amount.
25:28For instance, government announced 750,000 is a max for, for those 5 billion thing, but
25:33you can give a smaller, you know, two or 300 car of a fund.
25:37So they're easy to access and then give it a longer period to pay back and not so stringent
25:42on the guarantor because you are sent to sign guarantee, no issue, but you still say that
25:47you are not qualified.
25:48Right.
25:49So these are the thing that I see, I see can be more, uh, helpful to them so that they
25:55can ease.
25:56It's over this period of problem.
25:57It's a, it's a buffer to get through some of the, these difficult times.
26:02Right.
26:03Uh, Dr. Chin, thank you so much for being on the show with me today.
26:06Dr. Chin Chi Siong there from the SME Association of Malaysia, wrapping up this episode of Consider This.
26:11I'm Melissa Idris signing off for the evening.
26:14Thank you so much for watching and good night.
26:16Thank you so much for watching.
26:17Bye.
26:17Bye.
26:18Bye.
26:18Bye.
26:20Bye.
26:26Bye.
26:32Bye.
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