Like a gigantic tsunami wave crossing the Pacific Ocean, US dollar depreciation is causing currency appreciation in Asian currencies. A major global currency realignment is underway.
The good news is that some Thai companies that use cheaper parts and raw materials from the West won't suffer as much as companies with zero imported content in them.
The dynamics behind which companies will lose more than others from baht appreciation are complex.
The bad news is that the benefits from cheaper imports won't last long:
"...a 10% gain in the baht will cause Thai exports to fall 3.3% each quarter, while the benefits from cheaper imports will be only short-term. In the longer term, the continuous decline of exports will drag down imports by 2.5% in every quarter..."
This is not the first time the world has experienced a major currency realignment. Bloomberg columnist William Pesek provides some historical background and context (Read article).
Last week, a symposium at the Bank of Thailand was held to discuss the problem. The symposium featured noted economists from around the world such as Barry Eichengreen of UC Berkeley (Twitter: B_Eichengreen) (Read article).
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Winners and Losers: Exporters' anxiety about baht makes daily headlines but not every industry is suffering
The baht's gain of more than 10% against the dollar this year has led to an outcry from some businesses, chiefly exporters who believe the government and the Bank of Thailand are not doing enough to arrest the currency's rise.
But for every outraged exporter, there is probably another business executive quietly enjoying gains from lower-cost imports.
According to the research division of TMB Bank, a 10% gain in the baht will cause Thai exports to fall 3.3% each quarter, while the benefits from cheaper imports will be only short-term.
In the longer term, the continuous decline of exports will drag down imports by 2.5% in every quarter," TMB Analytics said. On the upside, it said, "concerns over inflation have been partially eased."
An executive of a leading food exporter has warned of a crisis on a scale similar to what happened in 1997, when a speculative run on the baht touched off a crisis that dragged down most of Asia for years.
Losses of 80-100 billion baht have been estimated so far for food processors, textiles and other industries that use mostly local raw materials and thus do not benefit from cheaper imported inputs.
The furniture and housewares sector, for example, has seen profit margins decline by 52%. Once the baht gains 20%, the manufacturers will post losses," the TMB report added.
The Economic Intelligence Center of Siam Commercial Bank says the strong baht affects any industries that have a higher export ratio against imported content. For example, smoked rubber sheet and block producers export up to 90% of their output against almost zero imports of raw materials. Rice exporters are in a similar condition.
Prasit Boonchoey, president of the Thai Farmers Association, said some additional costs have been passed on to farmers, yet they have not seen the prices of imported pesticides and fertilisers fall yet.
The strengthening baht has already trimmed rice farmers' income by about 300 baht a tonne.
The farmers' predicament would be worse if there was no government price insurance programme," he said.
However, conditions are not as good for farm products without such insurance coverage. Prices of pineapples, for example, have fallen this year by about one baht per kilogramme to six baht.
We don't know whether buying prices will fall further, as the direction of foreign exchange rates is unpredictable," said Nirut Ruplek, secretary-general of the Thai Pineapple Industry Association.
The association predicted the export value of canned pineapples would drop at least 10% this year from 13.9 billion baht in 2009. However, volumes would remain unchanged from 473,279 tonnes last year.
Chookiat Ophaswongse, honorary president of the Thai Rice Exporters Association, said the strong baht had prompted exporters to delay purchases from farmers, putting pressure on milled rice.
Falling milled rice prices would in turn lead millers to cut their paddy buying prices, which would eventually affect farmers' incomes," he said. "Next year will be another year of risk. It is very hard to predict [the prices].
Agriculture Minister Theera Wongsamut conceded the baht's rise might deter exports of farm products and result in falling farm prices unless the government adopts effective measures.
However, he said there had been minimal impact on the sector so far as the September farm price index rose strongly by 26.7% year-on-year, and 0.41% over the previous month.
Of course, along with losers there are winners. As a country heavily dependent on oil imports, Thailand has been insulated from the 5% rise in global crude prices this year, although local pump prices have been little changed.
Every one-baht appreciation against the dollar reduces the cost of domestic oil production by 50 satang per litre.
Even exporters can offset some losses with lower freight rates.
Exporters pay shipping liners and freight forwarders in Thai baht even though freight rates are quoted in dollars. In doing so, they are paying less for shipments," said Suwit Ratanachinda, president of the Thai International Freight Forwarders Association. "But it is not significant compared to their suffering from the rapidly rising exchange rate."
Sumate Tanthuwanit, president of SET-listed Regional Container Lines Plc, said most of its expenses were in dollars as it also operates overseas. However, most of its services for Thai customers are also quoted in dollars. "Consequently, overall operations have not been affected much by the sharp gains in the exchange rate," he said.
Some industries benefit due to their heavy reliance on imported content if they sell most of their finished products locally. They include steel, mining, energy, infrastructure and machinery. But executives of these industries are reluctant to discuss their gains at a time when their export-oriented peers and rivals are crying.
(Source: Bangkok Post, business section, Economics, Winners and Losers, Exporters' anxiety about baht makes daily headlines but not every industry is suffering, 18/10/2010, link)
currency - the system of money used in one country (See Wikipedia)
align (verb) - to organize and put things in the right position in relation to other things จัดให้อยู่ในตำแหน่งที่ถูกต้อง
alignment (noun) - การจัดให้ถูกตำแหน่ง
realignment - aligning things after they lost alignment and became "out of alignment"
global currency realignment - when currencies move to new values that match the underyling economic situations in the world
underway - event that is happening now
depreciation - when a country's currency becomes less valuable compared to the currencies of other countries (which makes goods exported from the country less expensive)
appreciation - when a country's currency becomes more valuable compared to the currencies of other countries (which makes goods exported from the country more expensive)
raw - in the natural state before being processed or used in manufacturing
raw materials - materials used to manufacture goods in a factory
content - the parts of a good
imported content - parts and raw materials in a good that were imported into the country from another country
dynamics - the forces at work in a situation causing change
quarter - three months (25%, 1/4th, a quarter of a year), a period of time used for budgeting and financial reporting with companies and other organizations
symposium - a meeting in which experts discuss a subject การประชุมสัมมนา
Barry Eichengreen - a professor of economics at UC Berkeley who specializes in the international monetary and financial system and economic history (See Wikipedia)
anxiety - being worried about something
headline - the title of a newspaper article หัวข่าว
suffering - physical or mental pain or problems ความทุกข์ทรมาน
outcry - public reaction of strong anger and disapproval การคัดค้านอย่างรุนแรง
arrest - stop
outraged - extremely angry โกรธแค้น, โกรธ ฉุนเฉียว
executive - a high level manager in a company (making plans and ensuring they executed successfully) ผู้บริหาร
division - one part of a large organisation
benefits - goods things that can happen from anm activity ผลประโยชน์
drag - slowing something down
concerns - worries ความกังวล
inflation - the level of prices rising in the economy as a whole (See Wikipedia and The Economist glossary) ภาวะเงินเฟ้อ (See Economist Glossary) อัตราเงินเฟ้อ
partially - partly; not completely
eased - become less strong, less severe
crisis - an urgent, difficult or dangerous situation วิกฤต
scale - size (relative size)
speculative run on the baht - when large numbers of investors start selling the baht and then the baht suddenly loses value (or here: many investors suddenly start buying the baht so it gains value, Thai exports become too expensive and Thailand loses export market share and income)
touch off - start
food processors - companies that produce food products sold in stores from crops produced by farmers
textiles - fabric made by weaving or knitting (See Wikipedia)
local - from this country
benefit - to get help or an advantage from something ผลประโยชน์
imported inputs - parts or raw materials used to produce good that are imported from another country
housewares - products used around the house, mostly for cooking and cleaning (See Wikipedia)
profit margin - profit as a percentage of sales revenue, the profitability of a company, measured by relating profits to revenues, the three most common profit margin calculations are: operating profit margin, pretax profit margin and net profit margin (Source: RBC Dain Rauscher)
sector - a part of the economy (public sector = government, private sector = all businesses, household sector = families and consumers, banking sector,...) ภาคเศรษฐกิจของประเทศ (See Wikipedia)
profit - money that you make from selling goods and services after all your costs have been paid กำไร
ratio - x/y, used to compare two quantities, a comparison, a proportion อัตราส่วน, สัดส่วน, อัตราเปรียบเทียบ
higher export ratio against imported content - industry does not use a lot of imported parts or raw materials to produce goods for export
rubber - a material that can undergo elastic deformation under stress and return to its previous size without permanent deformation
rubber sheets, ribbed smoked rubber sheets (RSS) - natural rubber in sheet form, the oldest and the most popular type of rubber, the simplest and easiest to produce on a small scale by small farmers (See previous article)
block - an object that looks like a cube or box similar - related, nearly the same thing, the same kind of thing คล้ายกัน
condition - situation สภาวะ
pesticides - chemicals that kill insects that can harm and destroy crops (See Wikipedia)
fertilisers - chcmicals or natural substances that help plants grow, food for plants (See Wikipedia)
trimmed - reduced, caused a decrease
income - money that people receive from work or some other source, used for household consumption and savings
insurance - a system that pays money to help people harmed by bad event
insurance coverage - the amount of loss that insurance protects you against
unpredictable - do not know what is going to happen next ที่ไม่สามารถคาดเดาได้
delay - when you have to wait longer than expected for something to happen, or the time that you have to wait การเสียเวลา
pressure - a force causing change
milled rice - rice that has processed by machines in a factory (rice mill) to turn it into a product that can be sold to customers in stores
paddy - rice after it has been harvested from the field ข้าวเปลือก
eventually - at the end of a period of time or at the end of a process ในที่สุด
risk - a danger, the possibility that some bad event might happen ความเสี่ยง, เสี่ยงอันตราย
predict - to say that an event or action will happen in the future, especially as a result of knowledge or experience คาดการณ์ว่า พยากรณ์จากสถิติว่า
conceded - admitted unwillingly that something is true ยอมรับ
deter - make people not want to do something, make them decide not to do it ขัดขวาง, ยับยั้ง, ป้องกัน
effective - producing the result that was intended ได้ผลดี
measures - actions that are intended to achieve or deal with something มาตราการ
minimal - very small in amount น้อยที่สุด, น้อยมาก
impact - an effect or influence ผลกระทบ
dependent - needing the help of another person to continuing operating or living ต้องอาศัย
insulated - separated and protected from others
global - all over the world ทั่วโลก, ทั้งโลก
crude - still in its natural state, not yet processed or refined for further use in products (here: crude oil)
global crude prices - the price of oil around the world
gas pump - the machine at a gas station used to put gas into a car or other vehicle
local pump prices - the price of oil or gas at the local gas station (where you fill your car up with gasoline)
domestic - relating to a person's own country ภายในประเทศ
offset - move in the opposite direction, reduce by moving in the opposite direction, counter-balance, compensate in the opposite direction ("x offsets y" means "x reduces the effect of y"), make up for (profits from the manufacturing business offset losses from the retail business) (See glossary)
freight - goods transported in large quantities by ship, aircraft, or truck over long distances สินค้าที่มีการขนส่งในระยะทางไกล (เป็นคอนเทนเนอร์)
freight forwarders - firms that make all the necessary arrangements for transporting goods to a destination (usually international) including booking space in ships, trucks, trains, or airplanes, preparing the necessary documentation (See Wikipedia)
shipping - the transport of goods especially on ships
significant - large enough to be important or have an effect ที่สำคัญยิ่ง
exchange rate - how much you get if you change your country's money to the money of another country (for example exchange baht for dollars), the price of one country's money or currency measured in the currency of another country (See Wikipedia)
quoted in dollars - the price they must pay for a good or service is in dollars
sharp - strong ที่รุนแรง
rely on Y (verb) - uses and needs Y to continue operation or continue existence
reliance (noun) - ความไว้วางใจ, ความเชื่อถือ
reliance on imported content - uses imported parts or raw materials from outside the country to produce goods that are then exported out of the country
energy - energy sector, energy industry, "all of the industries involved the production and sale of energy, including fuel extraction, manufacturing, refining and distribution," this includes oil, natural gas, electricity, coal, nuclear power and more experimental forms such as solar or wind power (See Wikipedia)
infrastructure - basic high-cost systems and services such as transportation, electricity, and water (water, roads, electricity, trains) that are necessary for a country to run smoothly สาธารณูปโภค (See Google Definitions)
reluctant - not very willing to do something and therefore slow to do it, without enthusiasm ไม่เต็มใจ, ลังเลใจ
oriented - directed towards some place or doing some activity
peers - usual meaning: people you work with or study with เพื่อนร่ีวมสาขาอาชีพ (here: com panies in the same industry)
rivals - people or groups fighting for the same thing, something they both want, opponents คู่แข่ง, คู่อริ
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