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9 Nov 2007

Industry

Petrochemical Industry, 2008: Confronted with Greater Competition and Other Risks (Business Brief No.2066)

The petrochemical industry, regarded as a base industry, has played a crucial role in Thailand's economy. It is closely linked to other industries, i.e., plastics, textiles, auto parts, electrical appliances, construction equipment and fertilizer – one of the agro-industrial products. The petrochemical industry also involves high outlays and is a large employer, both direct and indirect.

The petrochemical industry of Thailand, which enjoyed a boom from 2004 to mid-2006 has been a bearish cycle since the end of 2006. Looking ahead into the year to come, KASIKORN RESEARCH CENTER (KResearch) takes the view that the industry will receive a boost from rising prices of petrochemical products and higher exports to China and Japan, thanks to postponement of several new petrochemical projects in China and the implementation of the Japan-Thailand Economic Partnership Agreement (JTEPA). However, uncertainty about domestic demand that will mainly hinge on the economic situation at home may prove to be a deterrent. Although a less fluid political situation next year after the general elections slated for late this year will help boost demand for petrochemical products, but the new government's stability is something that should be monitored closely. At the same time, domestic demand may be dampened by steep oil prices. Externally, sagging consumption of petrochemical products in the global markets due to the global economic slowdown and surges in petrochemical supplies – buoyed by expanded production in many countries – will prove to be negative factors, as well. Worse, competition is set to heighten at home and abroad due to the rising Baht. To stay afloat, petrochemical manufacturers should earnestly adjust themselves by shifting to integrated refining and marketing systems. This will not only help reduce the costs of production which have advanced in line with increasing prices of raw materials – making up 70 percent of the cost of production, but will also minimize business risks for manufacturers, enabling them to effectively switch to more lucrative products.

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