Manufacturers hoping crude oil prices stay low

Local manufacturers hope to reap the benefit if oil prices stay low following the sharp falls in recent weeks.

Cheaper crude in the long term would bring down transport costs and the prices many pay for oil-based products.

Mr Ronald Lim, president of the Singapore Plastic Industry Association, said lower oil prices might mean lower raw material costs for companies in the plastics industry, as many resins are derived from crude.

However, it will take time for the effect of lower oil prices to trickle down the plastics supply chain, he said.

"It is definitely a relief, provided the oil price stays low for a longer period," he added.

The price of crude has dropped nearly 10 per cent this month amid disappointing economic data from China and the United States, the world's biggest oil consumers.

Last Tuesday, it slipped below US$100 a barrel for the first time in 10 months, recovering slightly to US$100.25 on Friday.

Mr Willie Soh, managing director of Song Seng Associates, which supplies disposable food service packaging products, said that while the fall in oil prices is "obviously a piece of good news", the effect on costs will be minimal if the decline is temporary.

"If the oil price continues to slide in the long run, our costs will go down, but the effect will be limited in the short term," he added.

Mr Eddy Chua, managing director of Allswell Polythene, said the company absorbed the higher costs that resulted from escalating oil prices earlier in the year instead of passing them on to customers.

"We did not increase the prices of our products due to market competition...this provides some sort of relief," he added.

The company, which supplies plastic bags and other disposable plastic products, might adjust its prices later in the year if raw material costs stay low, said Mr Chua.

However, said Mr Brien Cai, general manager of plastic household products supplier Citylong Group, labour costs continue to increase at a much faster rate than the decline in oil prices.

"Also, the effects of low prices are short lived, so we cannot work on lowering our prices to consumers and retailers, then increasing it again should the price of oil increase again," he added.

Mr Lee Choong Kit, a dealer at Phillip Futures, said the recent drop in gold prices "caused a massive sell-off in commodities due to market panic", and crude oil has been one of the commodities hit.

"The slowdown in China's growth also weakened demand for crude oil because China is the world's second-largest oil consumer," he said.

The increasing stocks of oil in the United States also contributed to the oversupply situation in the global crude market, he added.

Mr Alan Bannister, executive director of energy products at Chicago-based futures exchange CME Group, said the decline in oil prices is set to continue, with the market expecting another US$1-per-barrel drop by the end of the year.

"The market has been aware of the current economic situation for a few years now, so that isn't new. It's more likely that the fear of hyper-inflation has reduced - commodities are seen as sensible to hold in an inflationary environment."

chiaym@sph.com.sg

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