Thailand Petrochemicals Report Q3 2009

The government's THB1.52trn (US$44bn) three-year infrastructural investment programme will help with the revival of the Thai petrochemicals industry, but the pace of recovery will be limited by a continued appreciation of the baht and lingering uncertainties over new pollution regulations in Rayong province, according to BMI's latest Thailand Petrochemicals Report.

Going into 2009, the Thai petrochemicals industry is likely to be one of the main beneficiaries of the massive investment programme in infrastructural developments. BMI believes that as a result the upturn could occur as early as Q409 as the effects of the fiscal stimulus are felt, although this is conditioned by broader economic and political factors. The worst of the downturn is likely to be passed by Q309, although BMI still anticipates a 4.5% contraction in economic growth and a 10.1% contraction in total industrial output, with exports dragging down volumes.

The situation facing the petrochemicals industry is complex, given that the fiscal stimulus is likely to impact more on construction-related products than products intended for consumer use. The country's exports are contracting, although in Q109 there were some positive signs of stabilization in manufacturing and industrial capacity utilisation had improved over Q408. These gains may well be erased in the April figures, which are likely to reflect the political turbulence in that month. BMI believes that any stabilisation in the petrochemicals industry will first be felt in sectors such as PVC and products with industrial applications.

Aside from market performance, there are two main risk factors: the changing regulatory environment and the appreciation of the baht. The investment climate in the Mab Ta Phut industrial zone over the proposals for new pollution control regulations. The National Environment Bureau (NEB) designated Mab Ta Phut and other parts of Rayong province as a pollution control zone on April 30. The NEB was obliged to do so after the Rayong Administrative Court issued its ruling in favour of local communities, who have complained of serious health problems associated with industrial pollution. A new pollution reduction plan, currently under way, is not expected to affect approved projects, according to official reports in April 2009. Petrochemical projects in Rayong that have passed an environmental impact assessment (EIA) can therefore move ahead with their investment. However, projects awaiting EIA approval are facing delays, with investors required to wait until the plan is completed. The baht's appreciation is also a major concern. A strong baht will undermine the competitiveness of petrochemicals on export markets. Since the sector is highly export-oriented, this factor could severely limit the strength of the recovery in the petrochemicals industry.

Despite the likelihood of a fall in petrochemicals output in 2009, the long-term scenario remains very positive and projects continued to receive backing from financial institutions with PTT Asahi Chemical securing a US$400mn loan to build a new 200,000tpa acrylonitrile plant, scheduled to begin commercial operations by end-2010.

Mab Ta Phut will remain the focus of petrochemicals developments. BMI anticipates project completions of up to six months behind schedule in line with average project delays throughout the Asia Pacific region and the Middle East due to credit restraints, lack of engineering expertise and start-up problems. Growth in cracker capacity will help supply feedstock to downstream plants, although planned capacity expansion will also be delayed. Compared to 2008 levels, ethylene capacity in 2013 will be up 80% to 4.47mn tonnes per annum (tpa) with an 80% increase in PE capacity to 4.04mn tpa and a 52% increase in PP to 2.05mn tpa. Investments in new olefins capacity in Thailand are part of the country's master plan to develop its petrochemical industry through 2018, which the government calls the 'third way'. Capacity expansion will be achieved through ending bottlenecks at existing plants, along with the creation of new plants.