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22 Dec 2008

Industry

Petrochemical Industry, 2009: Downward Cycle, Adjustment Urgently Needed (Business Brief No.2384)

The upcoming 2009 might be a difficult year for Thailand's petrochemical industry due to steadily declines in sales volume and exports of petrochemical products since 2008. KASIKORN RESEACH CENTER holds the view that in 2009, the Thai petrochemical industry will enter into a cyclical downturn due to contracting demand in tandem with the global recession. Meanwhile, the inventories of petrochemical products in global markets are increasing dramatically, particularly supplies in the Middle East and China. These negative factors will pressure prices to fall. As a result, Thai petrochemical exports will likely encounter heightened competition next year. Although the rapid fall in crude oil prices has helped reduce production costs for naphtha –base raw material used by many producers – producers may incur losses on their stockpiles of this petro-product as petrochemical prices fall.
Amid a gloomy trend expected in 2009, Thai entrepreneurs may adjust themselves by maintaining their existing customer bases via cooperation with customers to create innovations that are more favorable and beneficial to consumers, as well as finding new markets to reduce risks from contracting exports to major markets. They need to also adjust production, fully integrating vertical and horizontal production supply chain operations to reduce the risk of lost sales due to differing prices and demand in each period. In addition, entrepreneurs should enhance the value for their products, such as developing medical use-grade plastic pellets or ‘green' grade pellets to differentiate themselves in quality and reduce the intensity of competition in general-use petrochemical products. In addition, petrochemical product producers might reduce output to lower production costs. The crisis can be turned into opportunity by revising and adjusting their production plan during period of glut, and lowering the prices of their products, as well as improving and maintaining their factories to enhance the efficiency of their machinery. This could also boost future production efficiency overall.

Adjustments being made by entrepreneurs seem to not be timely enough. The government should support this industry, which is one of our key industries that can produce high income at nearly 6 percent of our GDP. Mega-projects must be urgently expedited to draw investment that would help spur demand for petrochemical products accordingly.

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