Siam Cement Group: quick spending urged, Thailand

Siam Cement Group: quick spending urged, Thailand
Published: 14 December 2009

Government spending under the Thai Khem Kaeng infrastructure programme should be accelerated to help support economic recovery and ease pressure on the baht to appreciate, said Kan Trakulhoon, president and chief of Siam Cement Group (SCG).

Private investment has remained weak due to excess production capacity, economic uncertainties and an unfavourable investment climate, highlighted by concerns over political stability and the suspension of major industrial projects in Map Ta Phut.

Mr Kan, who leads the country’s largest industrial conglomerate, said economic growth will depend on the government continuing to spend until private investment recovers.

The Thai Khem Kaeng programme will commit THB1.43trn to tens of thousands of infrastructure projects nationwide through 2012, ranging from improvements to community hospitals and schools to new Bangkok mass transit systems and logistics and rail improvements.

But spending to date has been slow, with only around 20 billion baht in funds drawn to date, or one-fifth of the budget earmarked for 2009.

Meanwhile, private investment has been moribund, due in part to new regulatory and legal risks emerging after the Administrative Court ordered dozens of industrial projects in Map Ta Phut suspended for failing to comply with rules under the 2007 constitution requiring public hearings and health and environmental assessments for new projects. For Siam Cement, 18 projects under subsidiary SCG Chemicals involving investment of THB57.5bn were suspended.

Mr Kan urged the government to accelerate spending to not only support economic growth, but also ease pressure on the baht to appreciate.

"The government must speed up budget disbursement for infrastructure projects such as irrigation systems and electric trains, which benefit the economy in terms of employment and reduction of pollution and logistics costs," he said.

"Government spending will also stimulate capital outflows. The appreciation of the baht has become a concern and will hurt Thailand’s exports. With imports still weak, the increases in the trade and current accounts have pushed the baht to appreciate."

Mr Kan said the Thai Khem Kaeng could help reduce pressure on the baht by increasing import demand.

Sales of cement and construction materials should also benefit from new infrastructure investment, he said. Cement consumption rose 7% year-on-year in the third quarter, a welcome sign after a 4% year-on-year contraction in the second quarter and a 10% fall in the first.

But cement sales remained down 3% year-on-year for the first nine months, and is likely to post a slight contraction for the full year. Margins have also come under pressure as oil prices have begun to rebound with the global economic recovery.

Mr Kan said he was cautiously optimistic however about the signs of improvement seen in the local and global economy.

"The economic recovery will also benefit Siam Cement’s paper and pulp business, which has seen improvement in terms of both volume and prices," he said.

SCG reported third-quarter net profits of 6.98 billion baht, up 2% from the previous quarter and up 185 from the same period last year. Net sales rose 13% quarter-on-quarter to THB64.54bn, but were down 19% YoY on lower product prices.

For the first nine months, net profits totalled 19 billion baht, a 6% decline YoY due largely to lower income from its chemicals units and lower earnings from its paper operations. Net sales for the first nine months were THB176.6bn, down 26% from the same period last year.