Petrochemicals

Over the past 15 years, Thailand's petrochemical industry has earned a place as one of the most newsworthy sectors of the Southeast Asian business community. The industry' history follows an interesting series of ups, downs and plot twists, which generally traced the industrialization and economic development of Thailand over the same period of time.

Thailand's petrochemical industry began in the early 1950's with the establishment of processing manufacturers depending primarily on imported raw materials for their operations. The development and progress over the first 20 years of existence was quite slow as Thailand's domestic demand for advanced plastic processing was minimal.

A key event in the development of Thailand's petrochemical industry occurred in 1981, when large reserves of natural gas were found in the eastern part of the Gulf of Thailand. In response, the government launched the Eastern Seaboard Project to maximize the economic utility of the natural gas. Massive amounts state and private investment poured into heavy industry in the region, including numerous petrochemical, steel, power generation and cement ventures along with the necessary supporting infrastructure.

The government's earliest petrochemical strategy, pursued in the 1980's, segregated the production of upstream and downstream products. Initial policy left the upstream sector of the industry firmly in the hands of the government, operating predominantly through the National Petrochemical Corporation (NPC) and the Petroleum Authority of Thailand (PTT). Established petrochemical firms quickly developed ambitious plans for expansion in the downstream market, with Thailand's large industrial conglomerates, including the Siam Cement Group, Thai Petrochemical Industry Group (TPI), the CP Group and the Bangkok Bank also entering the fray.

The later half of the1980's found manufacturers in Thailand gearing up for large-scale petrochemical production. At the same time local demand for processed plastic products was expanding rapidly, largely because of the emergence of the domestic automotive and electronics industries.

NPC-I became Thailand's first petrochemical complex, beginning operations in 1990 producing ethylene and propylene used for feedstock by four downstream companies producing plastic materials. Rapid growth in plastic consumption stimulated by Thailand's booming economy led to the establishment of Thailand's second petrochemical complex. NPC-II was constructed and became fully operational by 1997, consisting of upstream olefin and aromatics production facilities, along with three intermediate industries and eight downstream units producing plastics and synthetics. To protect the petrochemical industries early development, the government erected high tariffs on imported petrochemical products, effectively forcing downstream producers to purchase upstream products their public companies.

Due to continued rapid growth of the Thai economy in the early 1990's, demand for upstream products quickly outstripped the output of the government plants. Prices for upstream petrochemical products on the world market dropped significantly lower than those being paid by downstream producers in the protected Thai market. By 1994, downstream producers began to pressure the government to remove protection from the upstream plants and allow the private sector to invest there as well.

Under pressure the government agreed to lift the restrictions in 1997, and massive expansion in the upstream and downstream sectors began, led by TPI, Siam Cements and the Bangkok Bank Group. Foreign investment in the petrochemical sector also arrived, with Esso, Chevron, Dow and Mitsubishi all recently becoming involved in independent or joint venture projects.

Thailand's petrochemical industry suffered extensively during the regional crisis beginning in mid 1997. The float of the baht, and its subsequent rapid devaluation greatly increased the debt burden of local petrochemical manufacturers, who had been dependant on foreign funds for their expansion. Expansion plans were put on hold, while domestic firms experienced significant losses and struggled to restructure debt and find strategic co-investment partners. TPI was declared insolvent in a landmark court decision handed down in early 2000, effectively giving creditors control over the rehabilitation and restructuring of the firm. Consolidation within the industry is now in progress, with proposals to further vertically integrate upstream and downstream facilities, as well as bringing foreign partners into upstream production being considered.

Thailand's petrochemical industry has been experiencing great success in the export of downstream and upstream products recently, registering sales of US$ 1.2 billion in 1999, with the largest markets being Hong Kong, China and Japan. Exports climbed by 34 and 25% in 1998 and 1999 respectively and are up 55% over the first eight months of 2000, on pace to US$ 1.8 billion.

Despite current challenges, Thailand's petrochemical industry looks set to build upon its solid foundation. The industry is struggling to restructure its heavy debt load, while the government is working to further liberalize the sector by reducing import tariffs in line with the AFTA agreement and reduce its direct participation in the industry. The recent participation of foreign firms through joint ventures and direct investments has been a healthy development, as it has lessoned the debt burden while upgrading the technology and operational efficiency of local petrochemical producers, which bodes well for the long-term viability and competitiveness for the industry in Thailand.

Thailand’s Petrochemical Exports

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