SLP banks on thin-gauge packaging materials for growth

Monday, Jul 13, 2015

Plastic packaging products manufacturer SLP Resources Bhd expects the bottom line of its thin-gauge packaging materials to improve this year, riding on expansion plans that will take off in September.

Group managing director Kelvin Khaw said SLP would install a RM6.5mil production line to increase its capacity to produce 2,000 tonnes of plastic packaging materials per month due to strong demand from the overseas market for thin-gauge packaging materials.

The current production capacity is 1,700 tonnes per month while the utilisation rate is 75%.

“Of the 2,000 tonnes, about 35% to 40% will comprise higher margin thin-gauge materials, targeted at export markets in Japan, Australia and New Zealand, compared with about 20% presently.

“The gross margin of thin-gauge plastic packaging material is between 35% and 40%, compared with the 20% gross margin of conventional plastic packaging materials,” he said.

He told StarBiz that “the overseas sales will generate about 55% of the group’s revenue this year, compared with about 44% a year ago.”

The group has locked in orders for about RM17mil worth of packaging products to be delivered in the third quarter, according to Khaw.

“More orders are expected to come in. In the first quarter of this year, we registered a sales revenue of RM41.4mil,” he said.

However, there was a decline in the demand from the domestic market, Khaw said.

“For example, the orders from the domestic market for this Ramadan period has dropped compared with the same period a year ago. The whole domestic market has slowed down since the last Ramadan period.

“We expect the domestic segment to contribute about 45% of revenue this year, compared with about 56% last year,” he added.

The slower domestic sales would have an impact on group revenue as the domestic contribution was still substantial, Khaw said.

“The lower pricing of polyethylene prices at US$1,400 currently, compared with US$1,700 per tonne in October 2014, has also pushed down the selling price of mid-range plastic packaging materials to about around US$1,900 per tonne, compared with US$2,300 per tonne a year earlier.

“To stay competitive, we try to price our products at the present price level. This will also impact revenue this year,” he said.

Khaw pointed out that overall, the stronger sales of higher-value packaging materials overseas would offset the slower domestic growth.

A Transparency Market Research (TMR) report on flexible packaging materials said the global flexible packaging market would reach an estimated value of US$99.10bil by 2019.

The report on Flexible Packaging Market – Global Industry Analysis, Size, Share, Growth, Trends and Forecast, 2013-2019 from TMR identifies Asia-Pacific as the most lucrative regional market for flexible packaging.

“Other key regional segments of the global flexible packaging market include Europe, North America and the rest of the world,” it said.

According to the report, based on volume, the demand for flexible packaging stood at 18,666.0 kilo tonnes in 2012 and is expected to reach 24,728.7 kilo tonnes by the end of 2019, developing at a 4.1% compounded annual growth rate during the forecast period.

The report said the flexible packaging market was aided by the continuously increasing demand from end-use industries such as personal care, healthcare, pharmaceuticals, and food and beverage (F&B).

“According to the report, the healthcare industry has accounted for the maximum demand from the flexible packaging market in the last couple of years.

“Furthermore, the F&B industry will significantly contribute to the expansion of the market in the foreseeable future,” it added.

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