SCG mulling reduction of revenue goal

SCG mulling reduction of revenue goal

Weak petrochemical business to blame

Siam Cement Group (SCG), Thailand's largest cement maker and industrial conglomerate, is considering cutting its 2019 revenue projection again, blaming weaknesses in its petrochemical business.

The new target is expected to be disclosed next Monday when SCG announces the group's financial performance for the third quarter.

SCG projected its revenue to grow by 5% this year, but the group later cut the target in April to a 5-10% decline because of sluggish prices for global petrochemical products.

"The downcycle trend is caused by volatile pricing of global crude oil, the continuing US-China trade war and widespread political tension in the Middle East. Those factors are building gaps between upstream and downstream supply chains for the global petrochemical sector," said Roongrote Rangsiyopash, president and chief executive.

"SCG forecasts 2019 revenue to decrease further from its current projection."

He said the baht's appreciation is another consideration for the downgrade.

In addition, there are new petrochemical facilities in China, increasing supply in the global market, which pulls down overall prices.

"As a result, SCG's total revenue is likely to miss the target," said Mr Roongrote.

In 2018, SCG's sales revenue increased 6% year-on-year to 478 billion baht. Profit for the year registered 44 billion baht, down 19% year-on-year because of global economic uncertainties driven by the trade war, a volatile oil market and a stronger baht, which affected overall performance.

Its petrochemical business contributed 46% of total revenue. Other business units are cement and building materials, and packaging.

"The cycle of petrochemical prices in the global market is expected to further decline, resulting in a negative impact on SCG's petrochemical sector. The other two business units are also suffering from global economic uncertainties," said Mr Roongrote.

The price gap of high-density polyethylene and naphtha in the second quarter of 2019 fell by 28% year-on-year to US$539 per tonne.

The gap of polypropylene and naphtha dropped by 9% year-on-year to $599 per tonne and the gap for polyvinyl chloride decreased by 16% year-on-year to $335 per tonne.

SCG's petrochemical segment posted revenue of 92.2 billion baht in the second half, a drop of 16% year-on-year.

In 2018, this segment had total revenue of 221 billion baht.

Mr Roongrote said SCG has to focus on innovation and high technology to increase value-added petrochemical products, enabling it to compete in the future.

The company is gearing up for its Long Son petrochemical complex in Vietnam. The project is worth $3.2 billion and has a production capacity of 1.6 million tonnes per year.

Construction started last August with operation scheduled for 2023.

The Long Son complex will bring annual production to 2.3 million tonnes in the future.

The complex is significant for that country as most petrochemical products in Vietnam must be imported.

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