Cementhai Chemicals, part of Thailand's Siam Cement Group, is embarking on a $410 million investment plan to expand its petrochemical production capacities in Thailand. The investment forms part of the Thai firm's stepped-up strategy to capitalize on the recent rise in world petrochemical prices, which are expected to peak in 2003, and to become a leading Asia-Pacific chemicals producer. The move is also in line with the group's continuing shift to petrochemicals from a broader business base. It is shedding its paper business and suspending new investments in cement and construction materials.
Cementhai Chemicals' investment will comprise the first major expansion undertaken in Thailand in 3 years. Most petrochemical concerns in the kingdom have been hard hit by the economic crisis that begin in mid-1997. Thai Petrochemical Industry PLC, the country's largest petrochemical firm, was recently ruled insolvent by the Central Bankruptcy Court, as it was unable to repay its $3.5 billion debt.
Cementhai Chemicals Pres. Apiporn Pasawat says the expansion projects planned by the firm's subsidiaries and joint ventures involve seven products: ethylene, high-density polyethylene (HDPE), polypropylene, purified terephthalic acid (PTA), tert-butyl alcohol (TBA), polypropylene (PP) compound, and styrene monomer (SM).
The seven projects are:
� Rayong Olefins Co. Ltd.�Boosting ethylene output to 800,000 tonnes/year in third quarter 2001 from 600,000 tonnes/year.
� Thai Polyethylene Co.�Raising HDPE production to 600,000 tonnes/year in fourth quarter 2001 from 400,000 tonnes/year.
� Thai Polypropylene Co. (two plants)�Increasing combined polypropylene output to 320,000 tonnes/year in fourth quarter 2000 from 260,000 tonnes/year.
� Siam Mitsui PTA Co. �Doubling PTA production to 800,000 tonnes/year in third quarter 2003.
� Thai MMA Co.�Stepping up TBA output to 95,000 tonnes/year in third quarter 2001 from 50,000 tonnes/year.
� Grand Siam Composites�Boosting PP compound production to 19,000 tonnes/year in first quarter 2001 from 11,000 tonnes/year.
� Siam Styrene Monomer Co.�Raising SM output to 300,000 tonnes/year in second quarter 2000 from 240,000 tonnes/year.
The Thai Board of Investment has already granted the PP compound and SM projects certain privileges, including tax holidays and a tax waiver on imported equipment. The other five projects are under consideration by Thai authorities.
Apiporn said the expansions would improve economies of scale and enhance Thailand's petrochemical industry. Most of the increased production will be exported, mainly to Southeast Asia, Japan, and China.
The expansion is expected to boost Cementhai Chemicals' revenue over the next 3 years by at least 10 billion baht ($263 million) to 50 billion baht in 2003 from 40 billion baht anticipated this year.
Sector recovery
The investment is geared towards taking advantage of improvements in petrochemical profitability.
"We foresee that demand for petrochemicals�especially olefins and polyolefins�will catch up with supply by 2002," Apiporn said. "The supply side is expected to begin to tighten by 2003 and then push prices to a peak again in late 2003 or early 2004," he added.
Although global prospects are promising, Apiporn predicts that petrochemical supplies will exceed demand for the next 2 years, as at least four major operators will start production in the last quarter of this year. Those operators include Formosa Plastics group in Taiwan, ExxonMobil Corp.'s in Singapore, and two producers in the Middle East.
According to Apiporn, the price of polyolefins is projected to rise to $1,200/tonne by 2003-04 from the current $660. The price of styrene monomer is expected to triple from the current $400/tonne. And prices for ethylene and propylene are expected to rise from $400/tonne and $700/tonne, respectively, to $1,200 each.
The price upswing will spur another round of investment in the Thai petrochemical sector soon, he noted. In the next few years, producers in Malaysia, Singapore, and the Middle East will be Cementhai Chemicals' main competitors, he says.