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20 Dec 2005


Outlook for Cement Industry: Thriving in 2006


The cement industry has exhibited decelerating growth in 2005. Even though demand for cement at home had expanded vigorously during the first half of the year, it slowed steadily during the latter half. This slowdown came mainly from sagging demand as a result of decreases in public works projects in Q3/2005 from that seen in the same period of last year. Worse still, private construction has also seen deceleration in line with the slowing real estate industry, particularly, the housing market.

Kasikorn Research Center (KResearch) forecasts that domestic sales of cement throughout this year, may have reached some 29.7 million tons, a year-on-year increase of 9.2 percent over the 27.2 million tons in 2004, slowing from the growth of 12.2 percent seen in 2004. On the external front, Thailand's exports of cement are expected to reach some 15 million tons, or around USD440 million, this year, representing increases of 26 percent and 41 percent, respectively, from the 11.9 million tons in volume and USD312.1 million in value of 2004. This healthy growth in cement exports can be attributed to surges in demand from key markets, i.e., the US, and Thailand's neighboring countries in ASEAN and South Asia, as well as new market penetration in the Middle East and Latin America.

In the midst of slowdowns in the domestic market, cement output in 2005 is expected to total some 38.5 million tons, an increase of 8.2 percent, year-on-year. Meanwhile, the capacity utilization of the cement industry will likely have reached 67.5 percent, rising over the 62.8 percent in 2004.

Looking ahead into next year, key variables for the cement industry will lie in implementation of public investment projects. This is particularly true for the government's mega-projects that are set to be a major driving force for the construction sector, thus likely boosting demand for cement. At the same time, the private construction is likely to slow modestly, as the housing business may remain plagued with ebbing demand.

Overall, the domestic demand for cement may be higher if the state's mega-projects can progress on schedule. In the base case of assumption, where the state's investments in construction can proceed as planned within the government's and state enterprises' investment budget timeframes for fiscal 2006, KResearch forecasts that domestic demand for cement in 2006 will be 34.1 million tons, growing by 15 percent, which would be higher than the forecast in 2005 that it would grow around 9.2 percent.

However, KResearch has analyzed the outcome if the state's mega-projects are delayed by considering two important factors; the investments in mass transit electrical train systems may be delayed, and/or the state's investments may be cut somewhat if the government lacks sufficient income from state enterprise privatization. KResearch projects that the state sector's investments in construction that may be reduced if these factors come true may lower the domestic demand for cement in 2006 to 32.7 million tons, growing around 10 percent, which is still a higher rate than in 2005.

Cement exports in 2006 are projected to not increase compared to the rather high base of last year. Meanwhile, if the domestic market grows well, entrepreneurs may give lower priority to exports. The export markets are still mainly focused on neighboring countries in Indochina and South Asia.

Overall, it is projected that the production of the cement industry in 2006 will increase to 42.4-43.6 million tons, growing around 10-13 percent, which would be the result of improved domestic demand for cement. This would cause the capacity utilization of the cement industry in 2006 to increase to 75 percent, from the 67.5 percent in 2005.