News Room - Business/Economics

Posted on 22 Jan 2008

Siam Cement counts on Asean as US faces economic recession

Siam Cement Group (SCG), the country's largest industrial group, is still confident in Asean economies despite the looming recession in the United States triggered by the sub-prime crisis.

President Kan Trakulhoon said yesterday that while the impact from the US slump was inevitable, its intensity would depend on how far it spread.

The overall situation remains challenging for the Thai private sector. Just as the economy is poised for a rebound after being affected by two years of political turmoil, overseas markets, which have always been its second hope, mostly started the year with a mediocre outlook in light of an impending recession in the world's largest economy, he added.

''We may see slower growth due to troubles in the US. Despite a lacklustre economic stimulus programme announced a few days ago [by President Bush], the anticipated decision by the Fed to cut its key interest rate at its meeting at the end of this month should help ease the overall situation a bit.''

Mr Kan still sees bright prospects for Asean and is confident of the key growth engine represented by emerging economies, including China, India, Vietnam, Russia and Brazil.

''Key economic figures last year pointed to a shift of growth to emerging markets, where demand is still strong and development of new products has just begun. So overall, it isn't going to be that bad,'' he noted.

Exports to the US accounted for only 15% of Thailand's total exports in terms of value last year, while those to Asean rose to 25% of the total.

This year, he said, SCG expected to increase its revenue by focusing more on exports, estimated at $1 billion last year, to offset poor domestic sales.

Due to poor hopes for economic recovery last year, the local cement market was believed to have bottomed out, while pulp and paper margins are expected to shrink on the back of surging costs, and the petrochemical industry has entered a downward cycle.

In the first nine months of 2007, SCG's sales remained flat compared to the same period of the previous year at 198 billion baht, with operating profit falling 20% year-on-year to 20 billion baht.

Most analysts are expecting a disappointing result for the whole of 2007, mainly due to rising fuel costs, both for oil and coal. However, Mr Kan said the Thai economy was likely to expand by at least 4.5% this year.

Despite the downward cycle, SCG this year will still count on petrochemical products as its main revenue source, making up around half of total revenue.

Roongrote Rangsiyopash, the group's chief financial officer, said SCG would continue with its ongoing investments worth 60 billion baht through 2010.

Of the total, 80% would be invested in Thailand, mainly in its core chemical business. The balance will be invested overseas, including a paper factory in Vietnam, he said.

''A few more projects are being studied for their feasibility in Vietnam and Indonesia, mainly in the chemical and cement businesses,'' he added.

SCC shares closed yesterday on the SET at 220 baht, down two baht.