INDUSTRY

Petrochemicals riding the up cycle

Busrin Treerapongpichit

More help needed to sustain growth.

DESPITE THE lack of strong support from the government, Thailand's petrochemical industry is expected to sustain a strong performance over the next two years. Most manufacturers have successfully enhanced their efficiency in a bid to best tap the cyclical uptrend of the petrochemical industry, a marked improvement from seven years ago.

During the 1997-98 economic crisis, local petrochemical manufacturers were among the hardest hit, as were their counterparts in Asia-Pacific, which struggled under huge debt burdens and product surpluses. Fortunately, the global industry entered an upward cycle shortly after, driven by higher-than-expected demand, while supply has been steady since the beginning of 2003.

With limited new supply, the global demand has shown healthy growth of 5-6% annually. A large part of the demand came from China, which has been experiencing an economic boom that has driven local consumption of all types of commodities to unprecedented levels.

Phatra Securities has projected that the current price of ethylene will increase to an average of $556 a tonne compared with $420 in 2002.

Analysts have also estimated that a strong recovery in the international petrochemical market would continue well into 2006, longer than the earlier forecast of 2005.

Most of the local key players in the industry have completed debottlenecking and upgrading their plants to be better prepared to catch up with the market turnaround. As well, a number of local producers have considered investing in new projects to meet the rising demand for various petrochemical products.

But some experts have urged local manufacturers to be more cautious with their expansion although the industry is expected in remain on the uptrend for the next few years.

"The key factor was what they had learned from the economic crisis.

Some players remain heavily indebted as a result of over-investment during the past cyclical upturn," said Apiporn Pasawat, president of Cementhai Chemicals Co, the petrochemical arm of the Siam Cement Group.

He said, however, that although the Chinese government had implemented measures to slow the country's growth, demand for petrochemical products from the mainland was not expected to fall significantly, thanks to several ongoing infrastructure developments.

Another factor that is threatening to slow the industry's growth is skyrocketing crude prices. Many petrochemical producers use naphtha, a byproduct from oil refining, as raw material, and its price is tied to crude oil prices, he said.

Besides, he said, the strong recovery in Thailand's petrochemical industry had to date been attributed to the efforts of the private sector alone, mostly in debt restructuring and production efficiency improvement.

The government, meanwhile, had paid little attention to supporting petrochemical producers and has introduced no substantive measures to help improve the industry's competitiveness. In contrast, he said, the Singaporean government had spent a large amount of its budget to set up a huge petrochemical complex in a bid to improve the country's competitiveness in terms of new technological developments and economy of scale.

"Although Thailand's petrochemical industry is among the leading players in Southeast Asia, we need to do a lot more to improve ourselves and successfully catch up with other formidable players such as Singapore," said Mr Apiporn.

He suggested that the government pay more attention to help the industry maintain substantial growth. Among other things that the government can do to help the industry is to establish a bigger petrochemical industrial estate, as the current Mab Ta Phut petrochemical complex has become congested. The new complex could help attract more foreign direct investment to the industry.

Currently, all petrochemical producers are looking forward to the third phase of the national strategic petrochemical development plan, which is being drafted by the Petroleum Institute of Thailand and the Energy Ministry, he said.