Drawback for furniture industry

MALAYSIA’S export-reliant furniture business is one of the hardest hit by US President Donald Trump’s tariffs.

With the 90-day pause on a 24% tax for most Malaysian exports to the US approaching its end, many local furniture manufacturers are said to be selling as much as they can to the Americans – one of their key export markets.

Around 80% of Malaysia’s furniture production is exported, making it one of the world’s top 10 furniture exporters.

Reports indicate that the local furniture export market was worth close to a whopping US$2bil last year.

With the end of the tariff pause in July, will the current rush of orders from the United States, the key market, come tumbling down? No one is exactly sure what will happen.

Some companies claim that in contrast to the rush of orders, some US furniture importers have ceased procuring stock for now.

A small furniture exporter says his business has been “negatively impacted” because of this.

Furniture exporter Synergy House Bhd says it is crucial to adapt to changes.

Group executive director Teh Yee Luen says companies do not know what will happen after the 90-day pause.

“Businesses will just have to adapt and make the best decision at every juncture,” he tells StarBiz 7.

Teh says the group’s business-to-business US customers are largely continuing with their orders but certain product lines at the company are facing delays due to price re-negotiation.

Nevertheless, he says the company’s business is largely focused on the business-to-consumer segment, giving it the flexibility to adjust prices to cover higher costs.

“This will be done in tandem with the understanding of how the market and competitors respond. We may have to increase prices minimally to offset the impact of any tariff.

“However, we are negotiating with our supply chain so that every party will absorb part of the cost so that we remain competitive.”

As a result of its strong presence in the United States, Synergy House generates 55% of its revenue from there. However, it also sells its products to Canada, the United Kingdom and Europe.

“Malaysian furniture exports to the US account for less than 5% of total furniture exports to the country, while Chinese furniture accounts for 30%,” Teh adds.

Opportunity beckons?

With China losing some of its competitiveness in the ongoing tariff war, Malaysian furniture players can tap into the huge US market, he says.

However, the Federation of Malaysian Manufacturers warned last month that some markets may divert their furniture buying away from Malaysia in view of the proposed 24% tariff.

Other countries with lower taxes and overall costs like Thailand and Cambodia, could prove more attractive, it said.

As a result of its proximity to the United States and favourable trade terms under the United States-Mexico-Canada Agreement, Mexico could also be a more compelling choice for Americans.

An official at a Bursa Malaysia-listed furniture company who declined to be named reckons that while this may be true, certain buyers are already shifting their orders from China to Malaysia.

“Malaysia has advantages like the high quality of its furniture due to the wood types it uses like rubberwood,” he says.

Like Teh, he notes that companies must be agile and be able to seek ways to remain innovative and competitive.

“Find ways to lower costs and leverage on Malaysia’s advantages like our wood quality as well as experience and global reputation in the furniture industry,” he adds.

Synergy House’s Teh says for now, the company does not see any immediate earnings impact as a result of the proposed tariffs.

“We stocked up a reasonable level of inventory before the tariff was even announced.”

At last look, shares of Synergy House was at 74 sen apiece, valuing the company at more than RM370mil. The stock has traded between 65.5 sen and RM1.89 in the last one year.

Other Bursa-listed furniture companies include Poh Huat Resources Holdings Bhd, Lii Hen Industries Bhd, Spring Art Holdings Bhd, Mobilia Holdings Bhd, Wegmens Holdings Bhd, Jaycorp Bhd, HeveaBoard Bhd, Eurospan Holdings Bhd and Homeritz Corp Bhd.