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Cementhai Adding Value to Existing Products to Maintain Margins

Posted on: Wednesday, 10 May 2006, 18:07 CDT

By Busrin Treerapongpichit, Bangkok Post, Thailand

May 10--Cementhai Chemicals (CCC), the petrochemical arm of the Siam Cement Group, is developing value-added products to maintain its margins, which have contracted as the industry enters a downward cycle.

Like other SCC core businesses, CCC is also being financed by the group to develop innovative products.

CCC has successfully developed products including a new polymer formula that will help plastic-bag manufacturers increase their capacities without the need to invest more, according to president Cholanat Yarnaranop.

"The strategy will help increase the values for our products amid the strong competition and downward cycle in the industry," he said.

He said the company's spread margin from naphtha to finished products had narrowed since the fourth quarter of last year. The reason is that supply and demand were coming into balance as new supplies from the Middle East would gradually enter the market by the end of this year until early next year.

"This year will be the beginning of the downward cycle but I am confident that it will be one that will land softly," he said.

He predicted that the global industry would bottom out in 2009.

The key engine is the healthy growth of Asian economies, including China, which grew by 9.5 percent in the first quarter despite rising oil prices.

As a result, the company expected its average margin this year would be kept at around US$520 per tonne, dropping $40 from an average margin of $560 per tonne last year.

CCC's average spread margin for the first quarter dropped to around $560 per tonne from $610 in the same period last year.

Despite its margin decline, sales revenue would definitely rise, fuelled by the exploitation of full production capacity for the whole year and the extra gains of Thai Plastic and Chemicals, which was consolidated with CCC this year.

He also said high oil prices had pushed its naphtha costs and the prices of its finished products up rapidly, resulting in increasing sales value.

So far, naphtha prices have stood at over $600 per tonne while its product prices have ranged between $1,100 and $1,200 or more per tonne.

Its olefins plant in Indonesia will generate income this year after restarting in March, he said. However, it would take 4-6 months for it to run at full capacity.

In addition to helping CCC realise a divestment gain of 560 million baht, the Indonesia plant will help secure the naphtha source of around one million tonnes per year for its new ethylene cracker which will begin operating in 2010.

SCC's petrochemical business reported strong sales growth of 30 percent, or 29.4 billion baht, in the first quarter this year.

SCC shares closed yesterday at 234 baht, down two baht, in trade worth 229.32 million baht.

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Copyright (c) 2006, Bangkok Post, Thailand

Distributed by Knight Ridder/Tribune Business News.

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SCVPF,

Source: Bangkok Post

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