The plastic packaging sector is poised for a turnaround in 2026 as elevated resin prices, stronger order flows, and new customer wins boost profitability, according to Kenanga Research.
The research house said the sharp increase in resin prices, driven by higher crude oil prices following the Middle East conflict that escalated in February 2026, has created favourable conditions for established plastic packaging manufacturers operating under cost-plus pricing models.
Resin prices surged by an average of more than 80% during the second quarter of 2026 before beginning to normalise gradually from late May.
Kenanga noted that historically, higher resin prices have translated into stronger earnings for plastic packaging companies because manufacturers are generally able to pass on higher raw material costs to customers while expanding margins.
“Historically, plastic packaging producers tend to enjoy higher profits during periods of elevated resin prices underpinned by a cost-plus business model,” the research house said.
It pointed to operating profits between 2013 and 2014, which were more than 40% higher on average than during 2009 and 2010 when resin prices were significantly lower.
Kenanga expects Brent crude oil to average US$80 per barrel in 2026 before easing to US$74 per barrel in 2027, adding that oil prices are unlikely to return to pre-conflict levels even if geopolitical tensions in the Middle East moderate.
Supply disruptions create opportunities
The report said damage to oil production facilities in the Middle East, coupled with supply disruptions caused by blockades, has resulted in shortages of resin and plastic packaging materials globally.
This has triggered stockpiling activity among manufacturers since March, with customers placing larger orders in anticipation of further price increases.
At the same time, several Malaysian producers have begun receiving enquiries from new customers after some overseas suppliers declared force majeure and were unable to fulfil existing contracts.
Kenanga believes the ongoing energy crisis has become a turning point for financially stronger Malaysian plastic packaging manufacturers that possess diversified supply chains and healthy balance sheets.
Most industry players currently hold inventory equivalent to between two and three months of production, positioning them to benefit from inventories purchased at lower costs but sold at current, higher market prices.
The research house also noted that order volumes are expected to remain elevated over the next one to two quarters as customers continue building inventories.
Plastic packaging companies under Kenanga’s coverage have not experienced major supply disruptions due to diversified sourcing across the United States, Asia and the Middle East, supported by longstanding supplier relationships.
Meanwhile, the ringgit’s modest depreciation to an average of RM4.00 against the US dollar during the second quarter, from RM3.97 in the first quarter, is broadly in line with Kenanga’s annual forecast and is expected to have only a limited impact on earnings.
Sector recovery expected
Kenanga expects the sector’s earnings recovery in 2026 to be driven by three main factors:
- Higher average selling prices supported by stronger resin prices.
- Increased customer orders due to supply shortages and stockpiling activity.
- New customer acquisitions resulting from supply disruptions affecting competing producers.
Its sensitivity analysis indicates that every one percentage point increase in resin prices could improve sector profitability by approximately 0.3%.
The research house values the sector based on normalised FY2027 earnings using a long-term Brent crude oil assumption of US$74 per barrel.
Challenges remain
Despite the improving earnings outlook, Kenanga cautioned that several structural challenges remain.
Although direct exposure to higher US tariffs is relatively limited, with exports to the United States accounting for less than 10% of industry revenue, global trade tensions continue to create uncertainty for businesses.
The research house also highlighted persistent industry overcapacity and intense pricing competition, which have weighed on demand since 2024.
Competition has intensified as manufacturers retain older production facilities alongside newly upgraded lines, while Chinese producers continue offering products at discounted prices in Southeast Asia following weaker demand from Western markets.
Top sector picks
Kenanga maintained Outperform ratings on Thong Guan Industries Bhd and BP Plastics Holding Bhd, while downgrading Scientex Bhd to Market Perform following recent share price gains.
Thong Guan remains the research house’s preferred pick due to its strong growth in food and beverage packaging and continued expansion into overseas markets with environmentally friendly packaging products.
The stock is trading at nearly a 20% discount to its 10-year historical forward price-to-earnings ratio of around nine times.
BP Plastics also remains a top pick, supported by its success in securing several major bread manufacturers as customers and its ability to pass through higher resin costs through its quality stretch-film business.
Kenanga retained an Outperform recommendation on SLP Resources Bhd, although it remains cautious over the potential impact of weaker tourist arrivals in Japan and the stock’s relatively low trading liquidity.
