THAILAND: Moderate growth likely in cement demand next year

Fitch Ratings says demand for cement and building materials in Thailand will accelerate with government's planned infrastructure investments over the near term. However, a slow recovery of demand from the residential segment should soften the pace of overall demand growth in 2016.

The infrastructure investments will continue to be a key driver for cement and building materials over the next few years. The accelerated project implementation in rails, roads, harbours, and airports is worth around Bt1.8trillion from late-2015 through 2021. Fitch expects cement, which holds the largest share of structural building materials in terms of sales value, to recover with a demand growth of 3 to 5 per cent in 2016. 

Overall demand for cement declined in the second half of last year and continued to ease in the first nine months of this year, even though the demand from government projects grew at about 10 per cent year-on-year in the first nine months of this year. The pull-back was felt mainly in the residential segment, which has the highest contribution - of about 50 per cent - in the cement market. The effectiveness of government spending to stimulate demand in late-2015 should be largely offset by weak residential and commercial segments.

Fitch expects demand for cement from government projects to grow at a faster pace next year while that for residential construction should show merely a slight improvement, despite the recent government stimulus scheme for residential properties last month. The measures would rather encourage sales of property developers' inventories than new construction - and, more importantly, the remaining weak purchasing power should outweigh the benefits from the schemes.

The leading cement producers in Thailand - The Siam Cement Plc (A(tha)/Stable), Siam City Cement Plc ( A(tha)/Stable), and TPI Polene Plc (TPIPL, not rated) - should receive the windfall from government projects and be able to enhance their operating performance in 2016. 

These firms reported lower revenue and EBITDA from cement and building materials in the first nine months of this year. Fitch believes the expected rise in domestic demand next year should also partially absorb new capacity from TPIPL's expansion of about four million tonnes per annum.