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SLP (7248) SLP Resources Bhd sees strong demand for packaging materials

Main player: SLP’s plant in Kulim, Kedah. Domestic sales will generate about 50% of the company’s revenue this year, compared with 40% in 2019.

GEORGE TOWN: High resin prices will see improved sales of SLP Resources Bhd’s flexible packaging material products in the final quarter, making it the top quarter of 2020.

Group managing director Kelvin Khaw (pic below) told StarBiz that this would be the group’s top-performing quarter because of the surge in demand.

Resin price is now about US$1,000 per tonne, compared with about US$800 per tonne three months ago.

“This increase has spurred panic buying of resin-based products. We expect the sales of our flexible packaging materials to improve by 5% to 10% this fourth quarter, compared to the second and third quarters.

“From March to July, resin prices hovered between US$680 per tonne and US$800 per tonne. Resin prices have risen because of the hurricane season in the US that has halted the production and export of oil.

“There’s also strong demand for resin from the automotive, footwear and household sectors that have caused the ethylene feedstock price to stay high. We expect resin prices to stay firm until December, ” Khaw added.

The US oil and gas exports have been severely interrupted by Hurricane Laura, which bore down on the Gulf of Mexico and closed most of the oil production in the region.

The US energy industry had reduced crude production of 1.56 million barrels per day (Mbpd), which accounted for 83% of the Gulf crude oil production.

According to Khaw, the group would step up the production of garbage and kitchen bags for Asia-Pacific.

Khaw said kitchen and garbage bags form about 17% of the group’s 16,000 tonnes of flexible packaging material output for 2020. In 2019, the group’s output was about 17,000.

“We plan to raise the kitchen and garbage bag portion to over 25% in 2021. Japan’s demand for our garbage and kitchen bags has yet to return the pre-pandemic level of 43%. It is expected to generate about 40% of revenue this year, ” he added.

Japan is the biggest market for the group’s garbage and kitchen bags, which generate over 40% of its revenue.

“However, since last year, Japan has decided to cut down on the use of plastic packaging materials. We now have to look for other potential markets in Asia to reduce our dependency on Japan.

“Currently, the four biggest traders of plastic packaging materials in Japan are SLP’s customers. They buy from us to distribute to the wholesalers, ” Khaw added.

Khaw said the prospects of kitchen and garbage bag demand worldwide looked positive.

Last year, the Zion Market Research forecast that the global garbage market will reach US$2.29bil in 2024 from US$1.41bil in 2017, growing at a compounded annual growth rate of 6.7% between 2018 and 2024.

Khaw said the global packaging market during the Covid-19 pandemic is projected to grow from US$909.2bil in 2019 to over US$1 trillion by 2021.

“According to a research report, the demand for fast-moving consumer goods and pharmaceutical products will drive the sales of flexible packaging materials, ” he said.

Khaw said the domestic demand for fast-moving consumer goods would be a major contributor to the group this year, contributing about 20% to its revenue.

“The local construction sector will contribute another 10% to the group’s revenue. Our flexible packaging materials are used for wrapping building materials, ” he said.

Khaw added that domestic sales would generate about 50% of revenue this year, compared with 40% in 2019.

“The demand from Australia and New Zealand for the group’s retail bags have returned to the level of the pre-pandemic situation, which is about 6% of revenue.

“Our flexible packaging materials for hygiene products will contribute about 4.5% this year, a slight improvement compared to last year, ” he said.

Khaw said the group’s revenue would contract by a double-digit percentage this year from RM167 mil in 2019, due to the business disruption caused by the pandemic.

The group currently has around RM77mil in net cash as at June, sufficient for working capital and to maintain operations for 24 months should the pandemic worsens.

Khaw added that the group’s trade receivables as of June were around RM26mil.

“The balance sheet is healthy, as our credit terms do not exceed three months, ” he added.