Thailand Country Report 2007

Thailand Country Report 2007

Macro economy

Thailand has been run by the military led government again since Sept 19,2006 after the coup took over the power from former Prime Minister Thaksin Shinnawat who failed to gain the trust from public. New constitution was then drafted and recently been approved by public referendum with majority votes in August 2007. The next general election date has been scheduled within 2007

In 2007, the Thai economy is likely to grow 4.0-4.5 %. Export was the main driving force during the first half of 2007.The key factor depressing investment was a low investor confidence on economic opportunity and political uncertainty. The slow down signal was obvious in the third quarter due to the stronger Baht and prevailing of global economic risk. The investor and industrial confidence worsened after the rumor of subprime mortgage crisis in USA. New monetary policies & financial instrument were introduced & announced to dilute the impact from currency appreciation. The situation in the South still makes the daily headlines and unlikely to end in the foreseeable future. Pending FTA negotiation with some countries has been suspended until the new government has been formed. Despite the unstable politics the total export vehicles at end of Aug was increased 20.5 % while the domestic car retail sales dropped 9 %. Total car production increased 2 % respectively

However there was a signal for the economy pick up in the quarter 4 due to the coming election, coming up of construction and high season for tourism industry. The exports to major markets (except USA) namely Japan, ASEAN and Europe performed well.Chemical products, plastic and steel are broadened to China, India, Eastern Europe and Middle East.

Most Thai are looking forward to celebrate the 80th Birthday of our beloved H.M. King Bhumipol. Souvenirs & related eventswill also stimulate up the economy to a certain extent.The economy is expected to improve significantly after the election or until new government is functional.

Table 1 below shows the economy index of 2007 comparing to the past years.

Table 1 Key economic factors

2005 / 2006 / 2007 E
GDP % / 4.5 / 5.0 / 4.3
Inflation % / 4.5 / 4.7 / 2.0
Baht/USD / 39.97 / 37.93 / 34-35
Export ( BB ) / 109 / 128 / N/A
Auto Production (MU) / 1.12 / 1.19 / 1.25

Chemical Industry

Continued increase of oil price is still the major constraint of the industry while FTA & the stronger Baht were more favorable to Chemical Industry due to the fact thatimport value has always been higher than export.

There is an increasing demand of analytical service from laboratories of GLP standard in response to requirement of various international measures & directives.

Most chemical laboratories are located in Bangkok. There are still challenges in the area of international quality control, inter-laboratory calibration, analytical bench marking, proficiency test schemes and external quality assessment. Due to the limitation of sophisticate equipments, a co-operative network of existing laboratories and the concept of facilities sharing are needed for assignment in the area where there is no supporting regional laboratory. Currently Ministries, agencies, universities and other institutes are aware of the demand and many are ready to provide service as demonstrated in Table 3.

Table 2 Import & Export value

Type / Tariff / Export (MB) / Change (%)
2006
(6 months) / 2007
(6 months)
1.Basic Chemical
1.1 Inorganic / 28 / 5,158 / 7,420 / 44
1.2 Organic / 29 / 9,370 / 10,844 / 15
1.3 Miscellaneous / 38 / 6,636 / 7,597 / 14
2. Down stream Chemicals
2.1 Fertilizer / 31 / 1,244 / 869 / -30
2.2 Dyestuff / 32 / 4,409 / 4,526 / -2
2.3 Cosmetic Toiletries / 33 / 14,504 / 15,847 / 9
2.4 Surfactants / 34 / 6,069 / 15,221 / 151
Type / Tariff / Import (MB) / Change (%)
2006 (6 months) / 2007 (6 months)
1.Basic Chemical
1.1 Inorganic / 28 / 20,015 / 21,669 / 8
1.2 Organic / 29 / 44,114 / 45,389 / 2
1.3 Miscellaneous / 38 / 28,967 / 31,148 / 7
2. Down stream Chemicals
2.1 Fertilizer / 31 / 15,517 / 25,149 / 62
2.2 Dyestuff / 32 / 16,571 / 17,308 / 4
2.3 Cosmetic Toiletries / 33 / 8,319 / 9,351 / 12
2.4 Surfactants / 34 / 7,398 / 7,484 / 1

Table 3 Chemical analytical service/Description

Name/Description / Scope / Quality system / Accreditation
Minister of Public Health / Food & beverage
Drugs/Narcotics
Biological products
Cosmetic
Toxicology
Risk assessment / ISO/IEC 17025
ISO 15189
OECD/GLP / NATA Australia
BLQS, Thailand
ChulalongkornUniversity / Health/Drugs/Food
Environment
Pesticides / OECD/GLP
(Partially) / Dr. Nehring Institute
Thai Automotive Institute / Automotive Part / ISO/IEC 17025 / TISI
Thai Textile Association / Chemical trace / ISO/IEC 17025 / TISI
Federation of Thai Industries / Environment
Petroleum
Chemicals / ISO/IEC 17025 / TISI
DIW

Basic Chemicals

Basic chemical industries play the role of fundamental industries serving as raw materials for various industries. There are various basic chemical industries in Thailand such as Chlor-Alkali, Sulfuric acid, Hydrogen peroxide, Hydrochloric acid, Citric acid, Formic acid, Glutamic acid, Stearic acid, Oleic acid, Calcium hydroxide, Silicon dioxide, Alcohol, Glycerine, Potassium carbonate, Potassium dichromate, High strength Hypochlorite, Sodium Hypochlorite, Calcium Hypochlorite, Potassium hydroxide etc. Among these industries, Chlor-Alkali industry and Sulfuric acid industry are very strong to bonding together and versaltile in application varieties and tonnages.

Chlor-alkali Market

Thailand now is a net Caustic Soda exporting country, with the local production capacity of around 785,000 DMT and the demand is around 600,000 DMT. The excess is export in both liquid and solid forms from the two big producers. The main Caustic Soda application is in Rayon, Inorganic chemical, textile, pulp & paper and petrochemical. Normally the growth rate will follow the GDP, therefore, it is anticipated the demand in 2008 will growth by at least 3%.

As Caustic Soda can be easily tradedintra-regionally, therefore the domestic price will be in line with the international price trend. The high demand in the region and the new regulation to lift up the export subsidize from Chinese Government has made the price remain strong at the level of 300 USD and above.

The Chlorine local production is around 700,000 MT whereas the demand of Chlorine and its derivative is around 600,000 MT. To export Chlorine and HCl is quite troublesome and, as a result,most of the plants cannot run at full scale.

Thailand Chlorine derivative biggest proportion is PVC and followed by Poly Carbonate, Epichlorohydrine, Hydrochloric acid, Sodium Hypochlorite and Chlorinated paraffin.

The demand of Chlorine derivative, HCl, is significantly dropping in Mono Sodium Glutamate industry as there are cheap MSG and cheap intermediates,Glutamic Acid, coming from China and Vietnam. Furthermore the economic slowdown seriously affected the construction business and subsequently the steel industry.The HCl demand dropped by at least 15%.

Sulfuric Acid Market in Thailand

The consumption of sulphuric acid Thailand totals as estimated at around 600,000 tons/yr, the vast majority of acid being produced on site for captive use. Sulphuric acid consumption is forecasted to rise by 4-5 % in the next year, the demand from lactic acid sector is expected to rise by 20,000 ton/yr and 30,000 ton/yr in 2009.

The production of sulphuric acid is estimated at around 500,000 ton/yr, around 400,000 tons/yr from sulphur burner and around 100,000 ton/yr as by product from base metal smelters, produced as a means of reducing sulphur dioxide emission.

During last year, base metal smelters produced sulphuric acid at around 130,000 ton/year from both copper and zinc smelting. And produced at around 50,000 ton in the fist haft of this year from only zinc smelting, because of Thai copper Ltd., the biggest sulphuric acid producer in Thailand, has temporarily shut down.

Import of sulphuric acid fell by 80,000-100,000 tons/yr from Korea, Japan, Malaysia, Italy,China and other countries, up to local production capacity. The primary use remains in Textile, Zinc, Carprolactam, Lactic acid, Citric acid, Fertilizer and Aluminium sulphate.

The sulphuric acid market in Thailand has remained tight, especially because of in both competitive pricing and sulphur raw material pricesbeing higher than average level for the past year.

Sulphur spot prices over $200/ton versus $100/ton up on the six months ago; this is the 20 years record peak because of peak requirement in the phosphate fertilizer business of China and India. Di-ammonium phosphate is booming; prices are at an unheard-of $440/ton in major market-- doubling the usual level --and demand remains strong.

As a result, most acid plants currently in operation have to decrease capacity of about 40-50 % and will temporary shut down later.

Paint &Dyestuff

The consumption of overall paint products declinedresulting from many negative factors such cost increases (oil price and raw material costs), suspended projects, lower FDI, lower domestic consumption, etc.It seems to be a prosperous year for wood finish makers who enjoy the business from the significant growth of furniture export.

Automobile industry reported less domestic consumption. Only export is increased as planned.

It is expected that the consumption will be back to normal after return of consumer’s confidence and a new government is fully operational.

The real estate shows signal of some recovery in the 4thquarter.

The continued increase of solvents & pigmentsprices was the major cost up of all paint products.

Dyestuff producers encountered a tough time due to the short supply of raw materials from China as they more focus on producing alternative materials to serve the important event of hosting the Olympic 2008. Many of textile businesses in Thailand shut down.

In response to the higher measures and directives, Paint & Dyestuff makers have been actively involved in GHS training programs incompliance with forthcoming regulations.

Table 4 Paint consumption

Unit in Tons / 2006 / 2007 / change
Decorative / 160,000 / 144,000 / -10 %
Automotive (body) / 22,000 / 21,500 / -2%
Powder Paints / 14,000 / 11,200 / -20%
Wood finish / 36,000 / 45,300 / 25%
Packaging / 13,000 / 12,000 / -8%
Coil Coating / 12,000 / 11,000 / -8%
Thinners / 100,000 / 100,000 / 0%
Others (Flexo,Traffic, Marine, Floor, Roof, etc) / 30,000 / 30,000 / 0 %
Total / 403,500 / 375,000

Table 5 Movement of raw materials for Paints

RM / Tons in 2005 / Change in 2007 / Price change in 2007
TiO2 / 60,000 / -15% / 1-2 %
Alkyd Resin / 50,000 / -10% / 5%
Latex / 32,000 / -10% / 2-5 %
Epoxy Resin / 12,000 / -10% / 10%
Polyester Resin / 3,000 / -10% / 15%
Acrylic Resin / 4,000 / -10% / 10%
Pigments / 3,000 / -15% / -2%
Solvents / 155,000 / -10% / 6%
Additives / 6,000 / -10% / 15%
Extenders / 30,000 / -10% / 0%
Packaging / N/A / -8% / -5%

Coating Care

• New regulations

There are quite some new coming new Acts which have passed or awaiting legislation to be implement soon such as Product Liability Act, Insurance Policy for Hazardous Material transportation.

• GHS Implementation

Paint makers have been actively involved in training programs organized by the Industrial Works Department and chosen as a focus group in pilot program to be fully compliant with the Act as a prototype for other industries.

Soap & Detergent

Soap Market(As of July)

The market size of skin cleansing market (bar and liquid) as of year-to-date July 2007 is 24,482 tons which equal to 3,243 M Baht. Bar soap contributed 18,113 tons (2,094 MB), while Liquid soap contributed 6,369 tons (1,149 MB).

Bar Soap

Comparing YTD this year vs. last year, bar soap market grew by 4.2% in volume and 4.3% in value. Despite low growth (0.5%) in traditional trade, modern trade was the key growth-driver at 8.3%. As of YTD July 2007, bar soap market value is contributed from modern trade 62% and traditional trade 38%.

Three segments in bar soap market are Beauty, Health and Baby, which had market contribution of 52.2%, 39.9%, and 7.9% respectively. Health segment enjoyed the highest value growth at 8.4% this year while Baby segment grew at 5.3%. Beauty segment had moderate growth at 1.2%.

For corporate shares, Unilever was still a market leader with a declining trend. YTD value share decreased -4.7% (from 34.8% to 30.1%). Other key players i.e. Colgate ’s share gained +2.9% which was mainly from Protex brand, and Berli Jucker’s share gained +1.2% mainly from Parrot Botanicals. On the contrary,Cusson’s value share dropped from 7.5% to 7.0%.

Recently, bar soap market had a very intensive promotion from all key players e.g. 4F1, 2For, and price discount to increase purchase volume.

Liquid Soap

Liquid soap market as of YTD July 2007 grew by 8.4% in volume and 6.9% in value. Main growth-driver channel was modern trade in which had value growth at 6.9%, while open trade declined by -9.4%. Contribution of liquid soap to modern trade was 94.5%, while traditional trade accounted for 5.5%.

In liquid soap market, health and baby segments are the platforms which showed double-digit growthsin both segment (14.2% and 13.5% respectively), while beauty segment grew only at 4%.

Unilever still maintained its leadership positioning with 28.7% value share despite share decline by -1.3%. Lion had the second market share at 14.2% (slightly dropped from last year by 0.3%). Colgate, Baby Mild, and Bio gained share this year.

Source:

• AC Neilson Market share data as of YTD July 2007.
• Personal Wash Market Share Analysis (Period end - July 2007), from UTT PW Marketing team.

Detergent Market (As of Aug)

The overall market size for the country’s detergent market as of Aug 2007 is 133,000 tons, equivalent to 8,294 M Baht. Comparing YTD this year vs. last year, growth is relatively flat.Full year 2007 is projected with subtle increases when purchasing is stimulated through 4th quarter promotion activities.

Unilever is, still, the key market driver, stimulating total market growth through its campaigns and product innovations. Its corporate YTD value share is 61.3% (dropped 1.4%) from a year ago. The company continues to be the leader in media spending. The share of voice-media spending, is 18%, 2% top-up on 2006 spending for the same period.

Market dynamic resulted mostly from fierce price competitions and promotion activities from all players. The price competition has resulted in average market price down to 95 Index.

For segment share, conventional powder has continuously declined for 8 consecutive years. From overall portfolio contribution, conventional powder is 48% vs. 50% in 2006. Concentrated powder grows from 42% to 44%, due to the expansion of machine wash and the belief in the product efficacy comparing to conventional powder. Liquid is still a niche market at 7% contribution.

Looking at the market by channel, Modern Trade performs relatively poor in the first half year compared to YTD last year. Indirect trade although to a less degree also shows negative trend at 0.5% decline.

Overall, detergent market is highly competitive. Key players in the market, such as Kao and Sahapat, have increased their budgetsto support product re-launch. With intensive penetration, to survive, the manufacturers cannot just do promotion or pricing, but have to build brand and introduce new innovation or new information to the market with good marketing strategy.

Pesticides & Fertilizer

It is another down turn year for both categories. Not only the oilprice that hurt the

industry.Other key factors which depressed the growth of this sector were as follows:

• Diminished purchasing power due to the discontinued funding policy.
• Bad climate for field crops.
• Lack of advanced technology to improve productivity.
• Limited subsidy from state comparing to other developed countries.
• The farming profit dropped due to the more competitive import.
• Limited competency to do own market development.
• Short of long term plan from government to solve the redundant problems.
• More frequent natural hazards due to the climate change.
• Ineffective support funding due to the corruption.

It is possible that the situation will be better if the new government is serious to deploy professionals to solve the problem honestly.

Outlook of Crop Protection Business

The pesticide market (not included the fumigant product and plant growth regulator) in 2006 is approximately 92,897 metric tons which is 19,907 metric tons over 2005 due to the long drought conditions in 2005. The actual consumption of pesticides in 2006 is estimated only at 5-6 % increased from 2005 due to high inventory carried over into 2007 by retailers. Herbicide remains the largest segment being substitution for lack of labor force.

Table 5 Distribution of the crop protection market

2005 / 2006 / 2007 (Jan-Jul)
Pesticide / Volume (kg) / Value(Baht) / Volume (kg) / Value(Baht) / Volume (kg) / Value(Baht)
Insecticide / 16,401,154.29 / 2,929,675,390.55 / 20,487,097.36 / 3,856,078,592.34 / 12,710,047.58 / 2,308,892,905.98
Fungicide / 7,929,149.65 / 1,579,017,965.08 / 9,380,848.62 / 1,720,357,894.34 / 6,162,769.80 / 1,015,324,122.68
Herbicide / 47,507,410.16 / 5,485,729,778.23 / 62,129,173.45 / 6,820,815,586.46 / 55,176,186.71 / 5,929,161,785.14
Acaricide / 521,103.00 / 132,407,228.03 / 336,625.00 / 96,470,531.08 / 257,420.00 / 64,555,190.00
Mollusicide / 631,245.00 / 96,524,701.00 / 563,605.20 / 61,298,037.00 / 469,005.00 / 30,623,800.44
Total / 72,990,062.10 / 10,223,355,062.89 / 92,897,349.63 / 12,555,020,641.22 / 74,775,429.09 / 9,348,557,804.24

Source: Office of Agricultural Regulation, the Department of Agriculture

In first half-year of 2007, the agricultural business faced the liquidity problems due to the farming sector had been damaged from flooding since quarter 4th of 2006 and its delayed of paddy planting season in 2007 and the significant impact of increasing costs of chemical fertilizers both local and import, while the farm gate price of agricultural product are not favorable to compensate the increased costs. The high cost of fuel and strong currency of Thai Baht were other causes of concern. However, the Jan-July market of herbicide seems to increase comparable to the same period of 2006 due to more regular rain fall. Also, farmers applied early use of herbicide although some area in northeastern was still affected by droughts. Overall, the trend of herbicide use is still increasing whereas insecticide and fungicide uses remain stagnated because of low outbreak of pests when compared to 2006 such as Brown Plant Hopper in paddy, Golden Apple Snail in paddy, red spider mite infestation in fruit crops.

It is expected that the crop protection market of 2007 will be close to that of 2006 but lower stock will be carried over into 2008. Herbicide will retain its highest position while insecticide and fungicide will slightly decline. The trend of pesticide prices is slightly on the increase because of the new taxation policyof production and export goods from China. .

Other Chemicals

Thailand other chemicals consist of various chemicals and related chemical industries such as Polyester, Textile chemical, Nitro cellulose, Alcohol, Glue, Latex, Essential oil, Cosmetic, Food and Pharmaceutical chemical ingredients, Chemical Tank and Cargo, Shipping, Forwarder, and Chemical Trader. Many of outside and inside Thailand negative factors have influence on downsizing industry growth such as increasing of oil price, higher raw material cost. Moreover, especially for Thailand exporter, the appreciation of baht value affected entire industry. We have to also mention Thailand political, coup consecutively affected many projects suspension and pending policy. Therefore, the overall operation and its outcome were declined, only some were stable or had slightly growth for industries. Expecting new government in early next year, by their policy, will make more confidence to Thai industries to moving forward and consumers to starting to have more consumption.