OBG talks to Kan Trakulhoon, President and CEO, SCG

Interview: Kan Trakulhoon

To what extent is Thailand’s economic growth being driven by rising activity in the provinces?

KAN TRAKULHOON: Despite some currency volatility in the first half of the year, 2013 was a year of relative normalisation for the Thai economy as levels of consumption and investment levelled out following the major stimulus measures of 2012. Domestic consumption has experienced moderate growth, especially outside of Bangkok, while key indicators, including cement demand, which improved by around 7% in terms of volume growth year-on-year, showed positive trends through the first three quarters. This has followed a trend of regional areas spurring growth for the country as a whole.

Until recently, cement demand was distributed evenly between the Bangkok metropolitan area and the provinces. Today, this demand differential sits at 75% for the regions and 25% for Bangkok. I expect this to continue, as much of Thailand’s business community seeks to capitalise on populous yet underserved areas.

How would you evaluate the outlook for cement demand in Thailand and the wider ASEAN region?

KAN: Most countries in the ASEAN region will expand their infrastructure over the next few years. Cement demand in Indonesia and Cambodia is forecast to see long-term volume growth of around 6-7%, mirroring the expected trend in Thailand, while Myanmar has seen double-digit growth over the past few years. Looking ahead, SCG is ramping up capacity to handle anticipated demand and growing its business in order to become a sustainable business leader for the ASEAN region.

In what ways do you expect Thailand’s petrochemicals sector to be affected by increasing levels of regional and international competition?

KAN: As Thailand’s supply of gas is diminishing, naphtha crackers are being pursued as the logical investment choice for the sector. These facilities produce a large number of heavy molecular by-products which can be developed into higher value-added products.

However, there may be longer-term pressures from countries such as the US, where the abundance of cheap gas is leading to a petrochemicals boom, as well as from the Gulf countries, which also have access to cheap domestic gas. Thailand is well placed in regional terms as, alongside Singapore, it has six active naphtha crackers. This expertise should help the domestic industry expand abroad into countries such as Indonesia and the Philippines, which only have one cracker each, and Vietnam, which has none.

There are approximately 600m people living in the ASEAN region, which is experiencing a rapidly increasing demand for energy. Thailand’s proximity to this market should be seen as an advantage for the domestic petrochemicals sector. The key for competing in this tough international environment will be the ability of petrochemicals facilities to receive flexible feeds. For example, in Thailand, SCG can swing to light feed up to a ratio of 30%, while for our new cracker in Vietnam, which is under development, it will be up to 70%.

What kinds of action are Thai businesses taking to put into place energy reduction techniques in their longer-term plans for strategic development?

KAN: Increasing energy efficiency has become a major priority for both the public and private sector, particularly as prices become more volatile and energy scarcity is identified as a threat to the economy. In the past five years, SCG has spent BT17bn ($556m) on energy projects, including conservation and use reduction.

As a result, we have managed to introduce BT5.7bn ($186m) of cost savings per year, so the return on our initial investment has been significant. Specific consumption of energy per kilo of cement is much lower thanks to our investment. Indeed, many of Thailand’s major private sector groups have introduced biomass or biogas facilities, along with solar technology, to promote more efficient ways of using energy. In particular, rooftop solar panels are likely to comprise the next step in the ongoing evolution of the energy sector.