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11 Sep 2008


Plastic Product Exports Surge but High Production Costs and Raw Material Shortages still Threaten (Business Brief N0.2283)

Thai plastic product exports during 7M08 totaled THB53.588 billion, increasing 18.4 percent over-year, thanks to increased exports to new markets, such as countries in the Middle East, South Africa and Tanzania.
Higher oil prices have adversely affected the plastic product industry considerably because it relies on plastic pellets as the primary raw material acquired from the upstream petrochemical industry. Shortages of melamine powder in the global market, caused by higher demand in China, have also affected the Thai plastic product industry.
Due to high production costs and a shortage of raw materials, some plastic manufacturers have been reluctant to accept purchase orders. Moreover, they have been unable to raise product prices, though if they do, they can increase prices only slightly because the majority of Thai plastic products have relatively low added value, such as plastic bags. As a result, many cash-strapped small entrepreneurs have been forced to close down. This is contrary to major manufacturers who have the advantages of better financial resources, raw-material supplies and higher technology plus the capacity to produce products with higher value added.
Over the remainder of 2008, there will be some risks that need to be avoided, such as the global economic downturn that might be more severe than 1H08 and tougher competition in the world market because most Thai plastic product makers employ rather labor-intensive manufacturing techniques and our wages are higher than China, the leading plastic product manufacturer. Considering our costs of production, it is expected that continuing declines in oil prices will relieve some pressure on manufacturers, which will help them with reduced prices of plastic pellets, coupled with supplies of plastic pellets in the world market that are increasing.
KASIKORN RESEARCH CENTER (KResearch) expects that the export growth of plastic products over the remainder of 2008 will decelerate to 7.3 percent, against 18.4 percent growth of 7M08. Therefore, plastic product exports in 2008 will likely grow about 12.9 percent, compared to 8.7 percent growth in 2007. The deceleration in plastic product export growth is likely being caused by the decline in import volumes by our trade partners due to flagging economies in those countries.

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