Upturn in sector's business cycle is eagerly awaited

Yuthana Praiwan

Long-term prospects for the petrochemical sector are improving with the 12 listed companies making solid headway in restructuring their debts and cutting production bottlenecks.

However, an expected delay of an upturn in the sector's business cycle could hinder prospects in the short and medium terms.

According to the Board of Investment, debts in the sector total about US$4 billion, of which Thai Petrochemical Industry (TPI) owes about $2.9 billion.

Despite the recession and debt woes, some companies in the sector have generated higher than average returns on investment over one to five years.

They include National Petrochemical Plc (NPC), Thai Plastic Plc (TPC) Thai Poly Acrylic Plc (TPA) and Thai Carbon Black Plc (TCB).

Reflecting the recession, the sector's return on investment over the past 10 years was -5.3%, 3.8% over five years, and 50.9% over the past year to the end of June when progress in debt restructuring and rising oil prices improved the books.

Thai Plastic posted the highest return for the past year of 92.2% but just 2% over five years, followed by Univenture Plc (89.6% over the past year and 0% over five years) and Aromatics Thailand Plc (60.9% and -3%). NPC which has the largest market capitalisation of firms in the sector, gave a return of 56.1% over the year to June and 21% over five years.

Thai Plastic's first-half net profit was 1,240 million baht (14.17 baht a share), compared with 516 million baht (5.90 baht) in the same period last year.

NPC's first-half net profit was 600.6 million baht (1.94 baht a share), compared with 931.6 million baht (3.01 baht) in the same period last year.

Virote Mavichak, NPC's president, said the company had strong potential to make a profit as it had low debt and it did not depend on crude oil as its key raw material. Most other operators had to depend on crude oil, which is subject to price volatility. Companies in the sector should register high growth in revenue in the immediate future.

While NPC will make an additional investment of US$70 million for downstream production, Aromatics (Thailand) will pump $80 million into expanding its production capacity.

Both companies, which are affiliates of PTT Plc, need to make the additional investments to resolve bottlenecks and to enable them to have a full range of downstream products.

As a result, the two companies will be among those with the lowest costs in the international market, particularly during 2005-06 when petrochemical prices are expected to peak.

Apiporn Pasawat, the president of Cementhai Chemicals, a petrochemical unit of Siam Cement Group, said the prices would peak in 2006, a few years later than expected earlier, mainly because of a slowdown in the United States economy, the world's biggest consumer of plastics.

Siam Cement has a stake of about 24% in NPC.

Mr Apiporn anticipated an increase in petroleum prices ahead of year-end festivities as plastic producers would build up stocks for making consumer products.

In the long term, Mr Apiporn said he expected the price of plastic pellets, the base raw material for downstream products, could rise to US$1,000 a tonne in 2006 from $600 currently. Last year, the price hit a low of $500 a tonne. _Yuthana Praiwan

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