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Cement Industry
Cement industry is one of the important industries to country development in the light of the main important basis for construction industry and also the important indicator showing domestic economic growth. In the past, the domestic demand of cement used to be up to 36 million tons. But, the severely negative effects from economic crisis in 1997 have caused real estate and construction industry subdued; the domestic demand of cement has shrunk and been in oversupply atmosphere. Until 20012003, the government has launched many economic actuating policies. This has made real estate and construction industry recovered and the demand of cement has been increasing gradually from 21 million tons in 2001 to 25 million tons and 26.82 million tons in 2002 and 2003 respectively; and the price level is higher in line with increased production cost. Structure of Cement Industry Entrepreneurs Thai cement industry consists of 8 producers classifying into 5 main producers, namely The Siam Cement Public Company Limited, Siam City Cement Public Company Limited, Chonpratan Cement Public Company Limited, TPI Polyne Public Company Limited, and Asia Cement Company Limited; and 3 minor producers, namely Thai Satapana Company Limited, Cemex (Thailand) Company Limited, and AecAsia Company Limited which have occurred from joint venture of 3 transnational companies namely Holcim, Italcementi, and Cemex which have invested during the economic crisis period. Production Cost The structure of domestic operating costs has consisted of 2 major parts: production cost, and expenditure and administrative costs, which the portion between these two is 67:33. In production cost, there is 45 % from energy cost; therefore, if the oil price and electricity cost are higher, it would negatively affect to the production cost of cements. At present, some manufacturers have used an advanced technology in order to reduce their costs by using more compensated energy from industrial scrap as fuel.

Structure

of

Total Structure of Production Cost of Cost of

Packaging cost

Raw cost

material

Other cost

Expenditurecost Production and 33%

67%

33 %

production

administrative costs

Labor

cost Energy cost

13 % 3%

15 % 45 %

Source: Entrepreneurs
Conditions of the Industry in 2003 Production In 2003, the domestic production of cement, not including cement clinkers, has higher growth; the production volume is approximately 34.52 million tons increased by 3.04 % from the previous year. This is because of the growth of constructional economy resulting from low-interest-rate level and government real-estate-recovery policy. However, the volume of cement clinkers produced, mainly for exporting, is 33.23 million tons decreased by 12.62 % from the previous year because the manufacturers have placed more importance to domestic use.

Table 1: Production Volume of Cement Products 2001 2002 Unit : million tons; Growth rate : % 2003* % 2002 % 2003 compared to compared to 2001 2002 33.23 14.93 -12.62 34.52 11.67 3.04

Cement Clinkers 33.09 38.03 Cement, not including cement 30 33.50 clinkers Total 63.09 71.53 67.75 13.38 -5.28 Source: Industrial Economic Information Center, Office of Industrial Economics Remarks: The figures in 2003 are the estimated figures. Marketing Domestic Market The sales volume of cement in 2003 is 26.82 million tons increased by 6.47 % from 25.19 million tons of 2002; the sales volume has been classified into other cement products (not including cement clinkers) 26.61 million tons increased by 7.17 % from 24.83 million tons of 2002 and cement clinkers 0.21 million tons decreased by 41.67 % from 0.36 million tons of 2002. The increased sales volume has resulted from the government real-estate-stimulating policies both financial and tax policies including low interest rate for housing loan of financial institutes. Table 2: Domestic Sales Volume of Cement Products Cement Clinkers Cement, not including cement clinkers 2001 0.27 20.61

Unit : million tons ; Growth rate : % 2002 2003* % 2002 % 2003 compared compared to 2001 to 2002 0.36 0.21 33.33 -41.67 24.83 26.61 20.48 7.17

Total 20.88 25.19 26.82 20.64 6.47 Source: Industrial Economic Information Center, Office of Industrial Economics Remarks: The figures in 2003 are the estimated figures. International Market The export volume of cement in 2003 is 11.81 million tons as a value of Baht 12,090 million decreased by 32.1 % from volume of 2002 and by 17.99 % from value of 2002. The export volume of cement clinkers is 7.04 million tons as a value of Baht 5,980 million, and mixed cement, Portland cement and other cements are 4.78 million tons as a value of Baht 6,110 million. Since cement is a heavy- weight product; therefore, its transportation cost is high as well and this causes the low profit in export. In addition, the domestic demand of cement has gradually increased, so the entrepreneurs have emphasized more on domestic market. The main export markets are the U.S. of 39 % of all export value, next, Vietnam, Cambodia and Bangladesh. Import

The import volume of cement, mostly from South Korea, in 2003 is 4,120 tons, classified into cement clinkers 34.9 tons and other cement products 4,165 tons as a value of Baht 450,000 million and Baht 78.82 million, respectively. Table 3: Export Volume of Cement Products Cement clinkers (Million Tons) Cement, not including cement clinkers (Million Tons) Total Cement clinkers (Million Baht) Cement, not including cement clinkers (Million Baht) Total 2001 9.98 7.69 17.67 6,876 8,402 15,278 Unit : million tons; Growth rate : % 2002 2003* % 2002 % 2003 compared compared to 2001 to 2002 9.27 7.04 -7.21 -24.01 6.97 4.77 -9.39 -31.43 16.24 7,005 7,737 14,742 11.81 5,980 6,110 12,090 -8.16 1.88 -7.91 -3.51 -32.10 -14.63 -21.03 -17.99

Source: Industrial Economic Information Center, Office of Industrial Economics Remarks: Data in 2003 is the primary data. Table 4: Import Volume of Cement Products Cement clinkers (Million Tons) Cement, not including cement clinkers (Million Tons) Total Cement clinkers (Million Baht) Cement, not including cement clinkers (Million Baht) Total 2001 13.5 3,054 3,067.5 0.19 64.95 65.14 Unit : million tons; Growth rate : % 2002 2003* % 2002 % 2003 compared to compared to 2001 2002 3,029 34.9 22,337.04 -98.85 3,456 6,485 9.3 67.97 77.27 4,165 4,199.9 0.45 78.37 78.82 13.16 111.41 4,794.74 4.65 18.62 20.52 -35.24 -95.16 15.30 2.01

Source: Industrial Economic Information Center, Office of Industrial Economics Remarks: Data in 2003 is the primary data.

Related Government Policies and Procedures In 2003, there are no directly related government policies or procedures concerning cement industry but there is indirect policy about the solution of real estate business by lower-adjusted tax for debt reconstruction and firm reorganization, lower-adjusted special tax collected from real estate entrepreneurs from 3.3 % to 0.11 % in order to encourage the real estate trading and exempting tax for ones who has replaced an old house with the new one. The lower-adjusted business tax policy would be abolished on December 31, 2003, meanwhile it is unclear that the fees for rights registration and mortgage will be extended or not. Summary of Industrial Conditions in 2003 and Trend in 2004 Since the government has launched many real-estate-stimulating policies such as tax policy to motivate people to purchase houses and dwellings, including the lower interest rate. Besides, the commercial banks have been competing to approve the housing loan, so the demand of cement has increased as well. In 2004, the conditions of cement might have constantly improved depending on construction business especially from governmental construction projects such as Suvannabhumi Airport and transportation system as well as the private construction projects. While the real-estate-stimulating policies will not be extended, the special tax policy and the fees for rights registration and mortgage are still ambiguous. However, the conditions of real estate and construction have the reinforcing factors from the economic growth and low level of interest rate which would encourage the real estate business to grow further. For foreign market, the export of cement tends to continually decrease since cement is a heavy weight product; therefore, the transportation cost is high and the export has low profit. In addition, the domestic demand of cement has gradually increased, so the entrepreneurs have emphasized more on domestic market. Problems 1. Higher production cost resulting from fuel cost and higher FT. 2. There is a high competitive price war of cement in domestic market.