Speech by Parliamentary Opposition Leader, DAP Secretary-General and MP for Tanjong, Lim Kit Siang, in Dewan Rakyat on Thursday, 12th May 1994 on the 30 per cent customs duty on Polyethylene plastic resins
Government should not destroy the local plastics industry just to protect shoddy production of Titan polyethylene (Malaysia) Sdn. Bhd.
Over the weekend, the Malaysian Plastics Manufacturers Association President, Liew Sew Yee said in Ipoh that many plastic factories are expected to close if they continue to face difficulties obtaining supplies of plastics resins.
This has confirmed what I had been saying in Parliament last week of the crisis in the local plastics industry, caused by the protection given to Titan Polyethylene (M) Sdn. Bhd. for PE (polyethelene) plastics resins in terms of 30 per cent customs tariff imposed since December 9 last year and the imposition of AP since April 7 for any import of PE resins.
The crisis in the local plastics industry, whether for local market or for the highly competitive export market, is very serious, for there is a pervading sense of gloom and doom.
The Ministry of International Trade and Industry should know for instance that there is one Licensed Manufacturing Warehouse (LMW) plastics manufacturer in the Kulim Industrial Estate which exports 100 per cent of its products for the Japa¬nese market which had abandoned its expansion plans, which would increase its production from 400 metric tons of garbage bags to 1,400 metric toils per month.
Many plastics manufacturers, especially those compet¬ing for the world market, are facing the serious prospects of having to close down production within a year.
The present crisis in the plastics industry is caused by giving Titan the virtual monopoly on PE because Titan is unable to meet the special needs of plastic manufacturers in Malaysia, especially for those catering for the export market.
I understand that Titan is a Taiwan specialist in LLDPE (or low-linear density PE), with no history in HDPE (High-density PE) production. The Malaysian market, however, is overwhelmingly for LDPE (Low-density PE) and HDPE (High-density PE). Furthermore, the international export market is basically a HDPE specialist market, as for shopping bags for the markets in Japan, United Kingdom, Singapore, the European Community and the United States.
By giving Titan the monopoly over the PE resins market, MITI has created a crisis in the plastics industry for users of LDPE and HDPE, who constitute the bulk of the Malaysian plastic manufacturers.
Titan is producing shoddy resins and charging 40 per cent above the Asian price, destroying the competitiveness of the Malaysian plastics industry
According to information which had been supplied by TITAN itself, LLDPE comprise only 24 per cent of the Malaysian market demand, while LDPE represents 26 per cent and HDPE 50 per cent.
Because it is not a. specialist in HDPE production, the HDPE it produces is not comparable or competitive, both in quali¬ty and price, with international HDPE resins. In fact, one local manufacturer for the export market has described the HDPE resins produced by Titan as ‘shoddy resins’!
At present, Malaysia is the world’s third biggest exporter of plastic bags after China and Thailand.
This position is now jeopardised with the imposition of AP for PE and the granting of the monopoly to Titan. This is because Malaysia’s export factories could be killed by Titan’s current pricing for HDPE which is 40 per cent higher than the Asian price, roughly RM2,010 per ton charged by Titan as compared to the Asian price of RM1,480 per ton available to Malaysia’s competitors!
Furthermore, Titan is unable to produce the HDPE resins to meet the international grades demanded by the export markets. This is one main reason why plastic manufacturers, who cater for the export market continue to import HDPE from overseas sources despite the imposition of 30 per cent tariff on PE resins last December.
These local plastic manufacturers who are competing for the export market complain that they should not be forced to use a grade of HDPE produced by Titan which are not acceptable by the international market – which would itself cause the loss of such export markets eventually. .
In fact, Malaysian plastic exporters are worried that the AP imposition and the monopoly position given to Titan has gravely undermined their competitiveness and even survival capacity in the international export market and they see the destructive of 25-years of manufacturing in this field.
Titan has also caused havoc to plastic manufacturers who use LDPE, as they are being bullied by Titan to switch from LDPE to LLDPE since Titan does not manufacture LDPE.
Government must investigate whether Titan produces shoddy resins because it had imported second-hand
machinery from the United States
A plastics manufacturer who uses LDPE complaints that in having to mix and match the LLDPE produced by Titan, they end up with inferior finished products which has jeopardised their established export markets!
Although Titan uses the Unipol process of Union Carbide to produce its PE resins, complaints by the local plastic manufacturers against the quality of its products are very prevalent.
The Government must investigate whether Titan produces shoddy resins because it had imported second-hand machinery from the United States, instead of the latest state-of-the-art machinery for 2020 – rather than for the 1960s!
The Government should be aware of the talk which is rife in the plastics industry about the second-hand machinery which Titan had imported, which may explain for the breakdown of its cracker plant recently.
If this is true, then Titan had cheated Malaysia and the Government as well, as PNB had been induced to take up 30 per cent equity in the RM1.5 billion Titan Petro-chemical complex, comprising three plants, namely Titan Petrochemical (M)¬ Sdn. Bhd which produces propylene, ethylene and pyrolysis gasoline, Titan Himont Polymers (M) Sdn. Bhd. which produces PP plastic resins and and Titan Polyethylene (M) Sdn. Bhd. which produces PE plastic resins.
I understand that the PNB had only recently discovered that the machinery brought in by Titan is second-hand. If this is true, the Government owes the nation a full explanation as to how it could be so careless as to allow Titan to get away with such dishonesty – bringing in second-hand machinery as well as over-pricing them! Has Titan taken Malaysians for a ride?
MITI should not undermine the competitiveness of plastic manufacturers in the export market. The long-term solu¬tion must be the local production of PE resins particularly HDPE which are comparable in quality and competitive in price to enable Malaysian plastic manufacturers to be more competitive in the export market.
The Titan PE plant has failed on this score, creating havoc for the plastics industry. The question is whether MITI could learn from the mistakes of Titan and ensure that the second PE plant in the country, namely the Trengganu Petrochemical Project, would be able to provide local plastic manufacturers with the PE resins with the quality and pricing which would not undermine their export competitiveness!
The HDPE produced by the Union Carbide Unipol process is very inferior compared to other processes, such as Philips Petroleum and Mitsui technology. However, I understand that the Trengganu Petrochemical PE project would also be using the Unipol process of Union Carbide.
In the meantime, MITI should remove the AP restriction for the import of PE resins, and even review the imposition of -the 30 per cent tariff protection given to Titan for PE resins.
The MITI should be sensitive and responsive to the problems faced by the plastics industry, because it involves over 1,000 plastic manufacturers with over 60,000 workers.
In 1993, the Malaysian plastics industry recorded a total turnover of US$800 million, which represents a ten-fold increase during the 20 years since 1974. Total exports last year was estimated at US$200 million, about four times the 1988 fig¬ure.
Six objections to granting monopoly over PE to Titan
The conferment of the national monopoly over PE plastic resins to Titan is questionable at least on six grounds:
Firstly, it has made MITI an agent of Titan, giving Titan the final powers to decide whether to approve APs to import PE to local plastic manufacturers as MITI has announced that it would not issue any AP unless Titan issues a ‘No Objection Letter’ – NOL;
Secondly, Titan is not able -to meet the consumption needs of the local plastics industry for PE, which is in the region of 300,000 metric tons.
Titan’s capacity for the local market is 140,000 metric tons, (with 60,000 tons for the export market);
Thirdly, Titan cannot meet the specific requirements of local plastics manufacturers, producing only LLDPE and HDPE of inferior quality.
Forthly, Local buyers had faced numerous problems when contracting for PE from Titan – which has not been able to provide smooth and satisfactory delivery – both in term of delivery time and consistent quality of PE raw materials. These problems have been further compounded after Titan has been granted a virtual monopoly over PE since Apri1 7. There have been cases where local manufacturers are still waiting for the NOL from Titan after ten days!
Fifthly, why is it necessary to give further protection to Titan by giving it a virtual monopoly over the PE plastic resins by the imposition of AP requirement and the ‘No NOL from Titan, No AP from MITI rule last month?
Sixthly, FTZ and LMW plants complain that the imposition of AP and the requirement that they seek approval from Titan by way of NOL is a funda¬mental breach of the condition of their investment, i.e. they could freely import raw materials for their manufactures which are l00 per cent for export markets.
In this connection, the Deputy Minister for International Trade and Industry, Chua Jui Meng has caused utter confu¬sion in the plastics industry with his contradictory statements on this issue in Parliament last week.
Has Titan vetoed Chua Jui Meng’s announcement in Parliament that MITI would issue APs if there is no reply from Titan on NOL in. five days?
Up to now, the plastics industry are still waiting for official confirmation from MITI to what Chua Jui Meng had said: Firstly; that if Titan does not issue NOL in five days, MITI would proceed to issue APs; and secondly, that FTZ and LMW plants would be issued APs to import PE resins automatically!
Can the Government explain why the MITI had not confirmed both these statements which, had been made by the Deputy .Minister for International Trade and Industry in Parliament last week? Or has Titan vetoed both these announcements made by Chua Jui Meng in Parliament last week?
MITI had promised local plastic manufacturers that the whole process of applying for APs would be ‘as painless as possible – but as things worked out, it has become a very painful process, creating a crisis for the local plastic industry.
The Government should explain why it had failed to ensure that the whole AP process would be ‘as painless as possi¬ble’.
When APs was imposed on April 7, many plastic manufacturers were caught with shipments at ports – waiting for their, NOLs from Titan before they could obtain their APs. This is despite the fact that there was an understanding that APs be issued to all shipments in transit.
There was also an understanding with Titan that as far as possible, NOLs be given for the grades of resin not produced locally, and that for the first six months of implementation of the AP requirement, NOLs should be issued according to the quan¬tity consumed in the past 12 months.
This understanding has also not been observed and many plastic manufacturers are now using stocks before the AP require¬ment was introduced and their supplies are now running low.
The Government must not take the dumping argument so tar as to destroy the local plastics manufac¬turing industry
One reason the government has given for the 30 per cent tariff and AP is that it does not want dumping of cheap plastics resins in the country.
The Government must not take the dumping argument so far as to destroy the local plastic manufacturing industry – particularly those competing for foreign export markets.
The current world price of plastics raw materials is based on low crude oil prices, which are the lowest for 20 years at around US14 per barrel. As a result, the prices of the plas¬tic raw materials in the Asian region are totally determined by the world glut situation in raw material. As the raw material prices constitute about 60 per cent of the total finished goods prices, they are even more critical than other factor costs like land rent/electricity/labour/carton boxing/freight – and to be uncompetitive in the purchasing of raw materials is to lose the export markets! These manufacturers stress that customers in foreign countries are only interested in getting world prices for their products – and not bothered whether the finished product is the product of a dumped resin or otherwise!
Overprotection to Titan jeopardises not only the export markets of the plastic industry, but also the local market as well.
I understand that the tariff on finished plastics goods is 40 per cent. If the price of raw materials to the plastic -manufacturers in China is 10 per cent cheaper than Malaysian manufacturers, this advantage could be converted by the plastic manufacturers in China to a 50 per cent, price differential with the Malaysian manufacturers for plastics finished products, because all the other costs in China are lower – lower carton box costs, lower freight and electricity costs due to state subsidies and lower salary costs with subsidized housing, state transport and subsidized food.
Overprotection will also lead to inflationary effects for the consumers in having to pay higher prices for plastic products.
Plastic manufacturers are questioning whether the government protection given for Titan is really because Titan could not produce resin that is of world export class – making Malaysian plastic industry and eventually the Malaysian people pay for their shoddy resins.