The Southeast Asian markets: A Utopia for Growth

04/04/2013

When the global economy dipped in 2008 and again in 2010, opportunities for growth in Southeast Asia remained unperturbed. The convergence of ASEAN into a single market, the ASEAN Economic Community (AEC), by 2015, presents further opportunities for companies in the plastics and rubber sectors that are seeking a larger market share, especially with the slowdowns in Europe and the US.

The Association of Southeast Asian Nations (ASEAN)’s 600 million consumer base is treading towards an optimistic growth trend. Although anchored to the US and Europe for their export revenues, the shift to regional consumption has since increased and has buffered the group against the global crisis. The region’s plastics industry has shown an average annual growth of 9%, against declining demand, volatile prices, capacity constraints and labour shortages.

Firming up trade initiatives, such as the ASEAN Free Trade Agreement (AFTA) in 2010, which has cut importation tariffs from zero to 5%, as well as the ASEAN-Korea Free Trade Area (AKFTA); the trade pact with China (ACFTA), and the Expanded Economic Engagement (3E) initiative are expected to bolster investments opportunities for the ASEAN. This should be furthered with the consolidation of the ASEAN Economic Community (AEC) by 2015, which aims for a single market and production base, with duty waived amongst the member countries.

Improved economic conditions and favourable manufacturing environments in Singapore, Malaysia, Indonesia, Thailand and Philippines have drawn significant investments to the engineering plastics market in Southeast Asia. According to Frost & Sullivan, it was valued at EUR 6 billion in 2011 and is expected to reach EUR 3.2 billion by 2018, and will grow more than 10-15% over the eight years, due to the robust sales in electrical appliances and vehicles in the region.

Moreover, demand for more fuel efficient vehicles that are CO2 emissions regulation-compliant; smaller, turbo-charged engines and lightweight parts have made inroads in the region, thus driving the market for engineering plastics.

In Singapore, printed or organic electronics as well as green electronics, bioelectronics and security devices are emerging growth areas for the country’s plastics sector. According to the Economic Development Board (EDB), printed electronics is already contributing to 10% of the country’s total electronics output and by 2020 will grow by 30%, against the global market that is expected to grow to more than EUR 9.4 billion in 2016, says BCC Research.

The biorenewable materials market, which according to Frost & Sullivan is expected to grow at a rate of over 19% until 2018 (Strategic Analysis of the Asia-Pacific Biorenewable Materials Market), is the target of Thailand’s government-initiated strategy to turn the country into a bioplastics hub by 2021. It also hinges on the Thailand’s biobased polylactic acid (PLA) capacity, which will increase to 721,000 tonnes in 2020, according to the National Innovation Agency (NIA) of Thailand and Nova Institute of Germany. This is against the Asian capacity for PLA, which is expected to reach more than 350,000 tonnes. But most of the capacity will be exported as domestic demand still remains weak.

A forerunner in the packaging sector is Indonesia, which has a sizable domestic demand from its food, beverage and pharmaceutical industries; with the sector’s revenue climbing 11% to EUR 3.27 billion in 2012. Indonesia’s plastic consumption went up to 3 million tonnes in 2012 and almost 70% of the total plastics use was accounted for by the food and beverage packaging sectors.

Meanwhile, the medical device sector in Malaysia is forecast to reach EUR 1.27 billion in 2015. Comprised of 190 medical device firms producing gloves, catheters, cannula needles, lenses, orthopedic products and other high value devices, the country’s industry has been meted as a priority sector under the National Key Economic Area (NKEA). It is geared to serve the flourishing regional demand, fuelled by an ageing population, increased access to healthcare, lifestyle modifications and shifting trend towards medical tourism, according to the Malaysian Investment Development Authority (MIDA).

While Vietnam’s plastics sector grew by 15-20% in 2011 and is anticipated to grow to 17.5% by 2020, it may not be competitive because the country still relies heavily on imported raw materials and machinery for the sector.

Meanwhile, the mélange of performances of some ASEAN members in the automotive segment show that demand and other variables, including government support, upgraded facilities and location, factor in the growth. For example, the Philippines’s low domestic demand for vehicles could prompt some of the existing car manufacturing plants based to shut down. Likewise, the comparably small industry could hit the consumption of engineering plastics and rubber, although PVC will benefit from the 6% growth in the construction sector.

Nonetheless, location-strategic Thailand still remains as Asia’s Detroit, with its automotive sector growing at around 8.1% of GDP, with local capacity forecast to reach 2.3 million units by 2014. The various free trade agreements it is involved in, as well as the government support bolsters Thailand’s competitiveness.
Overall, a healthy automotive industry in the ASEAN will foster higher demand and help to pull up rubber prices, especially for the top Asian rubber producers, Thailand, Indonesia and Malaysia, which account for 67% of global output of rubber.