Factory closures a growing concern
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Factory closures a growing concern

Kiatnakin Phatra Financial Group (KKP) has expressed growing concern over the weakening of Thailand's manufacturing sector after a surge in factory closures.

According to KKP Research, Thailand's manufacturing production index declined over a 15-month period between December 2022 and March 2024, despite a global trade recovery which began late last year.

The number of factory closures in the country has been rising, particularly since the second half of last year. In 2021, the average number of factory closures per month stood at 57. The average increased to 83 per month in 2022 and surged to 159 per month in the second half of 2023.

"From 2023 through the first quarter of 2024, about 1,700 factories closed, affecting roughly 42,000 workers," said the research house.

Moreover, the rate of new factories opening has lagged behind the rate of closures, leading to a contraction or no growth in new factories. From January 2023 to March 2024, the cumulative number of factories closing exceeded the number of new factory openings.

On average, 150 new factories per month opened from January to July 2023, but from July 2023 to January 2024 the average number of new factories opening fell to around 50 per month.

KKP Research noted that factory closures and openings vary across industries. Sectors such as leather, rubber, agriculture, wood and machinery have faced significant challenges, experiencing both a contraction in manufacturing and higher closure rates.

The research centre said most closures involved large factories, while most openings were small factories. This trend suggests that structural issues are a significant problem rather than just business operations. The closure of large factories underscores the growing challenges facing the country's manufacturing sector.

Additionally, rising bad debt within the manufacturing sector is a critical concern, emphasising structural problems and weakening debt service capabilities. Vulnerable factories that are classified as non-performing loans (NPLs) often eventually close.

"Factories classified as an NPL have continued to increase, indicating that more closures are likely," KKP Research reported.

Amid a global economic and trade recovery, Thai manufacturing products with great potential and competitiveness, accounting for about 47% of total manufacturing value, are expected to benefit. Products offering great potential, which accumulated a relatively high level of inventory during the pandemic, should recover in line with the global rebound.

However, some products, particularly hard disk drives and steel, representing about 35% of the country's manufacturing value, face heightened challenges due to lower competitiveness, even amid the global recovery, the research house said.

Following the US presidential election, KKP Research warned that increased trade tensions between the US and China could further deteriorate Thailand's competitiveness, particularly in the automotive segment, based on the rise of electric vehicles produced by Chinese firms.

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