Thailand: Cement industry...Plagued with negative factors in 2007 recovery expected next year

Thailand: Cement industry...Plagued with negative factors in 2007 recovery expected next year
Published: 06 December 2007

In 2007, the cement industry has recorded decelerating growth. Demand for cement shrank steadily throughout the first nine months of this year due to weak demand in the real estate sector and the launch of only a few government infrastructure projects. Kasikorn Research Center (KResearch) expects that domestic cement sales for the entirety of 2007 may total some 28.3Mt, down 2.8 per cent from the record of 29.2Mt in 2006. Notably, this year will also see sluggishness in the cement market at home for the second consecutive year after the cement industry posted growth of 0.7 per cent in 2006. Slowing domestic demand for cement has prompted producers to increase their exports instead. KResearch projects that Thailand’s cement export volume and value will total some 18.5Mt and around US$590m, up 23 per cent and 14 per cent over the record of 15Mt and US$517m in the year before, respectively.

The high growth in exports can be attributed to hefty demand from neighboring countries in ASEAN and South Asia as wellas new market expansions into the Middle East, Europe, Latin America and Africa. Even so, the rising Baht has dampened profit margins of exporters.

Broadly speaking, KResearch forecasts that cement output for 2007 may reach some 36.5Mt, down 7.3 per cent from 39.4Mt in the previous year, primarily due to ebbing domestic sales.

Looking ahead to 2008, KResearch expects that demand for cement at home may pick up after the establishment of the new elected government. The cement industry is likely to be driven chiefly by domestic demand, particularly, from public investments which will also help spur private investments. On the export front, infrastructure-related investment in many developing countries in Asia to upgrade efficiency in their transportation and other utilities will be a plus for Thailand’s cement exports though they may grow at a decelerating pace compared to the year before.

However, it is expected that the risk for business in 2008 will be caused by three main economic uncertainties, such as the factor of oil price, the foreign exchange rate and domestic politics. According to the analysis on both supporting and risk factors, KResearch expects that the cement industry in 2008 will get better (against the sluggishness of the previous year), increasing to around 37-39Mt, growing by 2-7 per cent. The wide range of the estimation reflects the uncertainty of the above economic factors. Domestic demand for cement in 2008 will be around 28.9 - 30.3Mt, growing by 2-7 percent, adjusting higher from 2007 which is likely to drop by 2.8 per cent.

Nonetheless, there will be a risk of uncertainty in the next year. Accordingly, entrepreneurs will face tougher business operation, particularly in preparation for the continuous hike of oil prices because the energy costs of the cement industry in both production and transportation processes is quite high. The surge of oil prices, hence, will inevitably be a key factor that will impact on both the industry and entrepreneurs.