KUALA LUMPUR (May 7): Malaysian manufacturers are reporting deteriorating conditions with more than two thirds facing worsening raw material supply as the conflict in West Asia drags on, a survey showed.
The most affected inputs include resins and polymers, petrochemical feedstocks, industrial chemicals, metals, and packaging materials, the Federation of Malaysian Manufacturing (FMM) said in a statement following the release of another survey since the first was published on April 7.
“What began as a freight and logistics cost disruption has now spread across the manufacturing value chain, affecting raw material availability, order volumes, cash flow, investment decisions and employment,” FMM said.
The large-scale strikes by the US and Israel at the end of February have widened as Iran retaliated against targets across the Middle East. The US has blockaded the Strait of Hormuz while Iran has threatened to deploy mines in the waterway critical for global flow of everything from oil to metals.
The survey involved 225 respondents from April 28 to May 6. Small and medium enterprises (SMEs) with fewer than 75 employees made up 35% of survey respondents.
FMM found that 72% reported poorer operating conditions since early April, out of which 22% described the situation as significantly worse. Only 5% reported some improvement, mainly by firms that secured alternative supply sources, while the rest said conditions were unchanged for them.
Inventory levels were also tightening, with 40% of respondents holding only one to two months’ worth of critical materials, while 29% had supplies lasting between two and three weeks and 6% had less than two weeks' supply.
China was cited by 72% of respondents as the main alternative market, followed by domestic Malaysian suppliers at 40%, and India and Thailand at 16% each. However, the transition remained constrained by quality mismatches, customer approval, and lengthy qualification, FMM noted.
Freight and logistics costs also remained elevated, with 87% of respondents reporting higher freight costs compared with levels before the outbreak of the US-Iran conflict on Feb 28, 2026. Half of the respondents said costs had risen between 20% and 50%.
At the same time, 68% reported reduced or deferred customer orders, while 60% said they had postponed or cancelled investment, automation or expansion plans.
FMM said the prolonged pressures were beginning to affect employment, with 28% of respondents either implementing or planning workforce adjustments. The most common measures are reduced overtime or shorter working hours, followed by hiring freezes, while 5% had retrenchments.
Recommendations
In addition to recent announced measures, FMM is urging the government to implement a series of immediate measures to cushion manufacturers from the crisis.
The federation called on the Ministry of Finance to introduce duty exemptions on alternative-origin raw materials for manufacturers forced to replace the disrupted supply sources, with about two-thirds of respondents saying the measure is the most urgent intervention needed.
FMM also asked for further tax deductions for freight surcharges, war risk insurance premiums, rerouting charges and demurrage fees incurred. As an interim measure, the federation said the Inland Revenue Board should clarify that such costs are deductible in the year they are incurred.
Further, the government should introduce a targeted industrial fuel subsidy or cost stabilisation mechanism for manufacturers using diesel in production processes as well as expanding diesel quota allocations for domestic hauliers servicing industrial and port feeder routes, FMM said.
The government has announced an exemption from import duty and sales tax on reimported Malaysian goods that could not complete delivery due to the conflict, government-facilitated arrangements to secure critical raw material from alternative origins, and an SME support package worth RM5 billion.