Energy cost may impact manufacturers’ margins

By the Editorial Team · Thursday, October 1, 2026

In the first half of 2026, manufacturers faced cost pressures mainly from raw materials, foreign exchange, freight, and trade policies, with rising energy costs, particularly LNG prices, expected to have a greater impact in the coming quarters. Companies like PGF Capital and Pecca Group encountered margin challenges, while SumiSaujana Group and HSS Engineers outperformed, supported by effective pricing and government infrastructure projects, amid ongoing concerns over policy rate changes and subsidy adjustments.

The first half of 2026 saw petrochemical-linked raw materials, foreign exchange fluctuations, freight costs, trade policies, and tariffs dominate cost pressures for manufacturers. However, industry analysts project that energy costs will become a more significant factor in the second half of the year. According to a report by Mercury Securities Sdn Bhd, rising liquefied natural gas (LNG) prices are expected to increase gas costs, with the full impact materializing in the coming quarters due to a lag effect.

The research firm highlighted several companies in its coverage, noting how energy and raw material costs are expected to influence their margins. PGF Capital Bhd, which produces glass mineral wool insulation used primarily in Malaysia and Oceania, faces direct exposure to energy costs since its production process relies heavily on natural gas-powered furnaces. While PGF’s new capacity planned for 2027 offers potential earnings growth, successful execution remains a key variable.

Nextgreen Global Bhd’s margins are influenced less by raw material costs and more by the product mix it sells. The introduction of solid fertiliser under the NexCompost brand has become a significant revenue contributor since the second quarter of 2026, representing about 22% of sales. However, this product carries lower margins compared to its traditional liquid fertiliser offerings, which may affect overall profitability.

Plastic input cost volatility affected Pecca Group Bhd in early 2026, but the impact on margins was described as minimal. Pecca’s strategy of local sourcing reduces exposure to foreign exchange and freight cost risks tied to imports, though its domestic suppliers still base resin prices on regional market benchmarks.

Among the companies covered, Mercury Securities currently recommends only SumiSaujana Group Bhd as a “buy.” SumiSaujana, which manufactures specialty chemicals for the oil and gas sector, depends largely on imported inputs and is therefore sensitive to fluctuations in input prices, exchange rates, and freight costs. SumiSaujana and HSS Engineers Bhd were the only two among the five companies analyzed to report earnings above expectations in the first half of 2026, driven by effective pricing strategies and cost discipline. Conversely, PGF and Pecca experienced margin pressures and delays in capacity expansion that weighed on their results.

The report also noted that potential increases in Malaysia’s overnight policy rate (OPR) could affect the companies to varying degrees. With the upcoming 2027 budget emphasizing fiscal consolidation, targeted subsidies, and industrial upgrading, Mercury Securities continues to monitor possible changes to fuel or energy subsidies, which could alter input costs sector-wide.

HSS Engineers is positioned as a direct beneficiary of ongoing development spending, holding an RM2.2 billion order book mainly from public transport and water infrastructure projects. The firm is also actively bidding for around RM480 million in new contracts. Additional government allocations for rail, water, and highway projects are expected to support replenishment and sustain its order pipeline.

This article was reported by synthesizing coverage from multiple independent news outlets to present a balanced, unbiased account. Read about our editorial standards. Spotted an error? Let us know.