President

President

 

Message from Mr Yeaw Kok Kwey

Vice-President/Chairman, Management Committee, Malaysian Rubber Products Manufacturer’s Association 

 

The Current Scenario Related to MCO etc.

As the industry is slowly moving in the ‘new normal gear’ in the revival of business activity we are confronted with some unchartered waters related to conditional Movement Control Order (MCO)/Enhanced MCO, stringent safety and SOP protocols to suppress the epidemic and flatten the disease curve. Also to contend with foreign labour situation and protection, global best practices, and new norms related to sustainability, without a legal shield to protect micro and SMEs against litigation, multichannel business, digital transformation, and the like,  amid deep cash flow pressures and cost-cutting measures. What more we are drawn into a global ‘Great Lockdown’ recession.

We have just recovered from the 50-day moment of unimaginable proportion and desperation for the industries in which the entrepreneurs had spent years and millions in their operations, with only one thing in their minds, that is the very survival of the businesses and the precious established markets locally and overseas when the MCO was again extended for another month to 9 June 2020. Nevertheless,  the industry must  remain fully operational with the predominantly fixed cost structures which limit the extent to which the business operation can reduce operational costs in severe downturns and have the ability to redeploy their productive capacity to the local and international markets for rubber products.

 

Commencing Production

We are glad that with our many letters of pleas affecting our rubber product manufacturers and their apprehensive concerns, to the various Ministries from the onset of the MCO (since 18 March 2020), and the number of press releases (Table 1 ), many were permitted to commence operations, and now most are operating at full capacity from 4 May 2020.  For those in operation we need to strictly adhere to the SOP, and after instituting all the requirements stipulated (to protect the business premises and the workers against the dreaded CCVID-19 pandemic and prevent the next wave of the epidemic). Some rubber product manufacturing operations are labour intensive and dependent on foreign labour and monitoring their movement is tedious. One product expert proposed that

sanitising footwears of employers and employees (Figure 1 ) should be part of the SOP protocols which was overlooked by the authorities (It was included in the MRPMA proposals). The industry is implored to be proactive in enhancing the company’s and the nation’s reputation as leaders in upholding ethical business practices, conforming to international labour conventions,   environmental issues, in undertaking right-sizing, restructuring, strengthening workforce and technology (including implementing Industry 4.0) harnessing remote and digital  technologies, working from home, etc. During this  precarious global economic challenges with the imminence of COVID-19 epidemic, the industry can ill afford to jeopardise our valuable exported products.

 

Table 1.  The critical performance of the Malaysian Rubber Products’ Manufacturers Association during the lockdown in vigorously clamouring the plight of the industry.

 

Overriding the gloom and doom. The Chinese character for the word ‘crisis’ is: one represents danger and the other depicts opportunity; Andrew Cuomo rightly says that there is  energy and power in a crisis. The industry must go forward: although it will be an abnormal kick-start,  let us grind the machinery and resurrect slowly and put everything back to the per-MCO period, re-establish/or renew the various related industries, client relations and the supply chains,  production links and move forward in resilience, competitiveness, productivity, and establish our manufacturing activities. The industry  should also make the best and respond well to the various stimulus packages of the Government and banks substantial fiscal boosts to assist cashflows, cheap loans, higher unemployment benefits, numerous cash handouts, reasonable grants and soft loans to support  manufacturers and businesses.

 

The industry should prove our mettle and contribute to the Malaysian manufacturing sector, desperate local markets and global demands and consumers of our niche rubber products, and to the GDP of our economy. About  50% of the 297 rubber product companies in Malaysia are manufacturers of general and industrial dry-rubber products and most of them are mico and SMEs. This sector was gravely affected by the lockdown.

 

We will and must start operations cautiously, probably a third or half the capacity (for obvious reasons related to SOP protocols, etc.), and steer into the unknown future beyond our control (unfavourable global economic scenario influenced by the pandemic, and especially in our major rubber product consuming countries) with cash flow pressures (effect of the lockdown). Thus, a detailed roadmap (to restructure/undertake cost-cutting measures, digitisation/ digital technologies to change business models,  etc.) and an ideal logistics is a prerequisite. Most importantly the industry must out scheme the decisive decision of preserving lives and livelihood. We will probably reap the fruits of our harvest at the end of the year, or even into 2021 when the global economy recovers (an optimistic 5.8% growth was projected), while the mean forecast of our GDP hovers in the negative zone.

 

Trends in major rubber products. The world is  plunged into a ‘worst economic slump in living memory’ after the industrial nations, including Malaysia, confronted the world of ‘new normal’ after the lockdown when economic/socio-economic activity slowly revived again. No one can fathom the demand pattern of Europe and America, the major consumers of rubber products, and even Malaysia’s over-dependent Chinese market? More than 75% of the global demand for NR comes from the automobile industry. The global elastomer industry is overdependent on China which accounts for 40% of global NR demand. The country plays a key role in the value-chain of the global rubber industry. A decline in global tyre markets was evident and the European and US automotive industries were neither favourable including the Chinese automotive industries even before the emergence of the CORVID-19 epidemic.

 

The future of tyres, automotive rubber components is indeed cloudy. Tyres, engineering, and general rubber goods are also reducing operations and many are undertaking restructuring to avoid closures. Since March 2020 a drop in new vehicle demand affected global demand in the Japanese auto industries. The global unfavourable economic trends leading to a ‘Great Lockdown’ recession,  trade strains among major economies, and with  Brexit, a continued downward growth trajectory is evident.

 

The only consolation currently is the weak global crude oil prices which might influence the demand patterns in the above-mentioned rubber products, and for the synthetic rubber which might be able to meet the shortfall of NR production, consumption and pricing.  Moreover, low crude oil prices are expected to keep commodity indices low. The industry must accept that global shifts in consumerism will become a new norm in the face of coronavirus. The local new tyres, retraders, and other tyre-related industry players in tubes, pipes, and hoses,  autoparts including rubber bearing, rail pads, etc. must be cognizant of the international trends in this sector.

But all is not gloom. The local boost in the sale of used cars (compared to the current slum in the sale of new cars), and the  gradual reviving of the Chinese automotive  sector after the lockdown is good news indeed. Simultaneously  China’s rubber products manufacturing sector which is dominated by the auto-tyre sector heavily depends on exports, and its export-dependent manufacturing will be affected by foreign markets decline and poor global demand. Thus, local consumers would opt for cheaper substitutes, and this will affect Malaysian producers especially when businesses are barely picking up after the lockdown and are on track. Now is the time for the Government to enforce and promote  ‘made in Malaysia ’ products in their procurement policy which will be conducive for the growth and revival of this sector in such a time as this where external market sentiments are in limbo. In the global market value of Malaysian rubber products  before the emergence of the

COVID-19, China’s dominance was around 18%, equaled by the USA and Germany (9% each), followed by Japan (9%) and only a lowly 3% share by Malaysia. In the Malaysian scenario, rubber gloves dominated in value by 75%, followed by new tyres (5.3%), tubes, pipes and hoses (4%), and latex thread (2.5%).

The epidemic resulted in a sudden spike in the demand for rubber gloves and other rubber-based healthcare/medical products  in our major rubber products consuming countries (China, USA, Europe, India, Southeast Asia, etc.). In March 2020, the price of nitrile dropped 8% and in the gloves sector, it was estimated that “every 1% drop in raw material costs could boost earnings by 1% to 4%”.

 

 

Figure 1. A bathtub filled with sanitisation liquid to disinfect  footwears of employers and employees in the workplace — “to invent you need imagination and a pile of junk” and “it does not consist in creating out of void but out of chaos”.

 

Export value of rubber products. 

There was continuous growth (in value) in the last few years; and in 2019 there was a marginal decline by 2% in the export of latex products influenced  by gloves. Of the total exports,  80% was contributed by latex products and another 20%  from dry-rubber products (tyre, inner tube, footwear, industrial, and general rubber goods). Rubber products, on the whole, contributed 2.4% to national exports in 2019. Of the total exports, about 80% was contributed by latex products and another 20% was from dry-rubber products namely tyre, inner tube, footwear, industrial, and general rubber goods. Altogether, rubber products contributed 2.4% to national exports in 2019 (Table 2  and Table 3 ).

Gloves. As for latex-based products, demand for gloves (essential product) escalated dramatically since the COVID-19.  Export revenue from the manufacture of gloves is expected to register a significant increase mainly to countries that were highly affected by the contagion outbreaks in 180 countries globally including China, Italy, Iran, Spain, Germany, France, South Korea, Switzerland, and the UK. Gloves represent 93% of the total export value. In February 2020, the glove exports increased by 4.7% from the previous month to RM1.59 billion.  Recently, the world demand for rubber gloves was forecast to increase rapidly in 2020 to reach 350 million pieces compared to 290 million pieces in 2019 achieving an export revenue of RM21.8 billion in 2020 compared to RM18.7 billion in 2019.

 

Table 2.  Malaysia’s Exports of Rubber Products by Product Sector (Value in RM Million).


Source:  Department of Statistics Malaysia (DOSM)

Note: *   Industrial rubber goods

** General rubber goods

 

Table 3. Malaysia’s Exports of Selected Rubber Products, 2014 – 2019.

 

Source:  Department of Statistics Malaysia.

 

Table 4. Exports of Rubber Products in Januaru and February 2020 (RM ‘000).

Source: Department of Statistics, Malaysia.

 

Dry-rubber products. Due to the implementation of MCO in February 2020 losses will only be visible in March or subsequent months, and inadvertent the lockdown would affect the Malaysian exports of dry-rubber products (Table 4.). A large chunk (75%) of the dry rubber is exported to China, Europe, Japan, and South Korea. Except for China (which has recovered from the coronavirus crisis, but herself experiencing doubts with its foreign exports), exports to the other countries, some still under the spell of COVID-19, and some reeling with its after-effects, indicates that the industry has to wait  at least by the end of 2020 to see some light at the end of the tunnel.