Plastic Industry Facing Growing Risks
The industry is likely to experience worsening business conditions this year due to high oil prices, economic slowdown, increasing imports from low-cost manufacturers, and other risk factors.
● Raw material prices may go up by 15 to 20% year on year affected by high oil prices, but the industry is expected to face bigger burden given that they usually pass less cost increase onto consumers than other industries.
● While upstream businesses such as automobiles and electronics are likely to continue to grow, the industry may witness sluggish demand as a whole with still gloomy outlook for the construction sector which accounts for a significant share of demand.
● As cheap products imported from China are soaring, they will fuel competition in the local packaging and household products.
Production as well as sales and profits of leading producers are expected to slow down.
● The factors mentioned above are likely to slow down the growth of domestic consumption and exports in 2011, with leading producers experiencing much sluggish sales year on year.
● The major companies may achieve limited profit gains only, given growing burden of rising cost, intensifying competition with cheap imports, and increasing prospect of bankruptcy for small manufactures.
Risk management is recommended for manufacturers facing strong downward pressure on profitability.
● Close monitoring is required for building and construction plastic businesses, given the possibility that it may be hit hard if exposed to risk factors, due to continued weak growth and little leeway to pass on cost increase.
● A conservative approach is also recommended for credits offered to small businesses with sales of less than $20 million and already recording deficits.
● Potential IPO and M&A deals may be capitalized on as a new business opportunity.
● More IPO opportunities are likely to come up, considering that there are a large number of non-listed companies among top players with strong performance including those producing industrial plastics.
● As the market expected to be re-organized this year in changing environments with some companies forced to be out of business, it may offer M&A opportunities for financial institutions.