Rise in product costs as plastic firms unable to absorb increases fully
Aaron Low Straits Times 15 Feb 11;
LOCAL plastic manufacturers are struggling to keep costs in check in the wake of surging oil prices that are making their raw materials more expensive.
Prices of everyday items such as plastic spoons, bags and cups have increased over the past six months while mobile phone casings and medical instruments are likely to go up soon.
Mr Wang Gee Hock, chief executive of Superior Multi-Packaging, which produces plastics products, told The Straits Times that some plastic manufacturers here are unable to completely absorb the price rise as the raw materials form a high percentage of their overall costs.
"So if the price increases by $10 a tonne, most of the time, we end up passing on $7 a tonne to customers, and get hit with the other 30 per cent cost increase," he said.
Mr Eddy Chua, managing director of Allswell Polythene, said he used to buy a 2.3kg bag of plastic bags for $5.50.
"Now it costs $6.50, a dollar more, or about 18 per cent higher," said Mr Chua, who sells his wares to convenience stores and hawkers.
"So profit margins have fallen from 20 per cent last year to 8 per cent now."
That means consumers must pay more for plastic products.
A pack of 10 plastic plates costs between $2.20 and $2.60, about 10 per cent higher than six months ago.
Mr Lee Hock Chew, who owns a dry goods store in Commonwealth, said: "I'm still on my last batch before the price went up, but once I sell this batch, I will have to increase the price as well."
The culprit is in plain sight: rising oil prices.
Crude has risen by about 20 per cent over the past 12 months and now hovers at US$101 per barrel.
As plastic is a by-product of oil, it has seen similar increases.
Take polyethylene, the most commonly used plastic. Its price is up about 20 per cent from January last year to US$1,285 (S$1,650) a tonne, according to Bloomberg data.
Mr Wang, who is also assistant secretary-general of the Singapore Plastic Industry Association, said local manufacturers are worried that prices will keep rising.
Oil is tipped to reach around US$115 per barrel this year, said a Bank of America Merrill Lynch report.
"Many companies are worried that oil prices will spike in the next few months, which will most likely mean higher plastic prices as well," said Mr Wang.
Apart from the cost of oil, which is a big factor in plastic prices, plastics analyst Mazlan Razak also noted that demand for the product will play a key role in determining prices.
Mr Mazlan, a vice-president in oil consultancy DeWitt & Company, noted that polyethylene prices may begin to pick up again due to "restocking requirements amid busy plant turnaround in March and April".
The bigger plastic manufacturers are less worried about the cost increases.
Proway Engineering general manager Jasver Foo said the better business activity has mitigated some of the cost increases.
At the same time, his company, which makes parts for mobile phones, circuit boards and medical equipment, is trying to boost productivity by reducing storage costs and increasing staff training.
An assistant general manager, who wanted to be known only as Mrs Ho, said she regularly passes on costs to her customers at a listed manufacturing firm servicing the medical sector.
"Some of our clients may have been turned away but our major clients accept that plastics just cost more," she said.
"But at the end of the day, managing the input price and impact on business has to be a major part of every manufacturer's business plan, so we learn to deal with it."
