Thailand Cement Industry Hopes for Recovery in 2008

According to the research report of Thailand's Thai-Chinese Farmers Research Center on November 27, Thailand's cement industry slowed down in 2007 due to weak demand in the real estate market and the lack of government public infrastructure projects. As a result, domestic cement demand has been in a state of contraction during the first nine months of 2007. Taihua Farmers Research Center estimates that the domestic cement sales volume in 2007 will be about 28.3 million tons, a decrease of 2.8% from 29.2 million tons in 2006, making the domestic cement market in a state of depression for two consecutive years after only 0.7% growth in 2006. However, weak domestic demand has prompted cement producers to expand exports to foreign markets. The Thai-Chinese Farmers' Research Center projects that Thailand's cement exports in 2007 will be about 18.5 million tons with an export value of $590 million, up 23% and 14% from 15 million tons and $517 million in 2006, respectively. The reason for the sharp increase in cement exports is that the demand for cement in ASEAN and South Asian countries has increased significantly, and Thailand has opened up new markets such as Middle East countries, Europe, Latin America and African countries, but the appreciation of the Thai baht has led to a decline in export margins. Cement production in 2007 is expected to be about 36.5 million tons, down 7.3% from 39.4 million tons in 2006, driven by a decline in domestic cement sales.

The Thailand Research Center believes that the development of the cement industry in Thailand depends on the investment in public construction projects, especially the government's large-scale projects, which will greatly promote the development of the cement industry.

In 2005, Thailand exported 15 million tons of cement, with sales of US $440 million, up 26% and 41% respectively over the same period last year. In 2004, it exported 11.9 million tons, with an export value of 312.1 million US dollars. The increase in exports is mainly due to demand from cement markets in the United States, Thailand's neighboring Southeast Asian countries, and penetration into the Middle East and Latin American markets.

In 2006, while the domestic market demand was declining, the cement production capacity reached 38.5 million tons, an increase of 8.2% over the same period last year. At the same time, the utilization rate of cement production capacity will rise to 67.5%, slightly higher than previous year's 62.8%.

While Thailand's property market will remain weak last year, with private construction down, the government's big projects are up. Generally speaking, the construction of large-scale national projects has increased the demand for cement in the domestic market. This figure is higher than forecast growth rate of 9.2% in 2005. In 2006, Thailand's cement production capacity increased to 42.4-43.6 million tons, with an increase of 10% -13%. Cement capacity utilization will increase to 75%, higher than utilization rate in 2005.

As for the trend in 2008, the Thai-Chinese Farmers Research Center predicts that after the democratically elected new Thai government comes into power to manage the country, the domestic demand for cement will recover under the impetus of the domestic market demand, especially the government's investment projects will stimulate the expansion of private investment. As for cement exports, Asian developing countries will continue to invest in infrastructure projects to improve their transportation systems and infrastructure, which will help to further expand exports of Thai cement, but at a slower pace than in 2007.

However, the three uncertainties of oil price trend, exchange rate trend and domestic political situation in 2008 will be the main factors affecting the cement industry. After analyzing various support and risk factors, Thai Farmers' Research Center predicts that the cement industry in Thailand is expected to resume growth in 2008, and the output is expected to increase to 37 million to 9 million tons, with an increase of 2 to 7%. The expansion of the range of the increase reflects the uncertainty of the above factors. It is estimated that the domestic cement demand in 2008 will be between 28.9 and 30.3 million tons, with an increase of 2 to 7%, which is higher than expected decrease of 2.8% in 2007.

The risks posed by these uncertainties could make life even more difficult for cement companies, particularly in the face of rising oil prices, as production and transportation costs in the cement industry are closely linked to energy. High oil prices will inevitably become a factor affecting operating costs.

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