Thailand
Seeking a new phase of growth
Thailand has earned itself a good standing in Southeast Asia (SEA) as both the second largest economy, after Indonesia, and the second largest petrochemical industry by output, after Malaysia. But its economic performance in recent years has been largely unremarkable. Thailand has been striving to become a high-income country (HIC), defined by the World Bank as a nation with a gross national income (GNI) per capita above US$13,205. At a current GNI per capita of US$7,090, this goal is far from being achieved. Thailand has been caught in the middle-income status for more than a decade, with the last update made in 2011, when it went from a lower-middle income to an upper-middle income economy.
Once a “tiger economy,” with GDP growth hitting 13.8% in the late 1980s and repeatedly exceeding 7% between 2000 and 2012, Thailand has experienced subdued growth over the last 10 years, with annual per-capita income growth falling since 2018, according to the World Bank. The pandemic also caused the economy to contract -6.2% in 2020, primarily due to the halt in tourism. This year, the economy should rebound at +3.6%. To accelerate growth, Thailand has been moving away from its traditional sectors, like agriculture, which now only accounts for about 6% of its GDP (it was 24% in 1979); as a next step, Thailand seeks to also reduce its dependency on the services sector, currently representing 56% of GDP, and focus instead on breathing new life into its industrial sector, which contributes to 35% of its GDP, by boosting exports, investing in digitalization, and prioritizing advanced manufacturing.
“After Thailand established a solid base in heavy industries like petrochemicals, steel mills, and power plants, more than two decades ago, the government prioritized investments in 12 sectors like automation and robotics, aviation and logistics, biofuels and biochemicals, as well as digital, EVs, life sciences, and renewables,” said Kachain Chomchuen, country manager for Buckman Southeast Asia, a leading multinational supplier of water treatment specialty chemicals for the pulp and paper and leather industry in the country.
The Board of Investment (BoI), the main national investment promotion agency, recently approved the 2023-2027 new investment promotion strategy, defining seven core pillars, including upgrading current industries, accelerating the green and smart transition, and promoting Thailand as a business center and an international gateway for the region. Related to the last point, the country has launched the HQ Biz Portal, a consultation service to support companies wanting to establish their international business centers in Thailand. For example, ExxonMobil, which is celebrating 125 years of presence in the country, operates the largest Global Business Center within its network in Bangkok, where it employs over 2,400 people; These provide financial, HR, procurement, and other services to customers in 60 countries. According to BoI, office spaces in Bangkok are nearly half the cost of Ho Chi Minh City, 40% of the cost of Seoul or Singapore, and a quarter of the costs of New Delhi, Tokyo, or Beijing.
Replacing old with new
Within this new approach of modernizing the economy, the old petrochemical industry is to be changed into a technologically and sustainability driven hub for advanced chemical production. Petrochemical manufacturing is concentrated in the Map Ta Phut Industrial complex in the province of Rayong, about two hours south of the capital, Bangkok. The market is highly consolidated, best described as a duopoly between two main Thai players – PTT, with 54% market share, and SCG, with 29% of the market share. The rest of the market is occupied by smaller Thai companies, as well as international multinationals such as Covestro, Evonik, ExxonMobil, and Indorama Ventures (the latter is a Thai-listed company, but its market presence is predominantly international).
Thailand produces about 32 million tons per year (t/y), consisting of upstream (12.4 million t/y), intermediate (7.7 million t/y) and downstream (11.8 million t/y) petrochemicals, according to the most recent data compiled by Krungsri, one of the largest banks in the country. About half of the downstream petrochemical products made in Thailand go to serve the packaging, textile, automobile, electronics, and other domestic sectors. Thanks to the well-integrated nature of the petrochemical sector, with a large basket of downstream chemicals, and a healthy chemicals-consuming indigenous manufacturing industry, the Thai chemical industry is well-positioned to invest in value-added products. "Thailand presented itself as a mature and stable market with a relatively higher demand for intermediates and performance chemicals compared to other ASEAN countries, as well as an early adopter of bio-based chemicals," said Supakrit (Tos) Aungwarapitikorn, the managing director of Helm Thailand, the newest distributor to set up an office in the country.
The transformation of other industrial sectors within Thailand, notably that of automotives, is a catalyst for investments in specialty chemicals. With about 30 large OEMS and more than 1,500 SME part producers, Thailand is the 13th largest automotive parts exporter and the sixth largest commercial car manufacturer in the world, according to ASEAN Briefing. Prominent car brands with manufacturing in the country include Honda, Toyota, Mitsubishi, Nissan, and Isuzu. The Thai government launched a 30:30 electrification policy, aiming for at least 30% of all newly produced vehicles to be zero-emission by 2030. As a result, the Thai EV market is expected to grow at over 22% CAGR between 2022 and 2025, despite relatively sluggish adoption trends, according to YCP Solidiance, a consulting firm.
While the classic combustion engine car industry is transformed into a more sustainable battery-powered one, the Thai natural rubber sector and its affiliated tire manufacturing sector are also presenting opportunities for more advanced materials. For example, Evonik is investing in renewable materials for its precipitated silica, used in tire manufacturing. “Fillers like silica represent about 30% of a tire, being the most important component after rubber itself. Mixed with the rubber, silica determines rolling and braking resistance properties; in this way, we contribute to the manufacturing of ‘green’ tires, optimized for lower rolling resistance and better road holding with the beneficial impact of lower CO₂ emissions,” said Matthias Pascaly, the country head and managing director of Evonik Thailand.
The specialty chemicals leader is concomitantly investing in a plant expansion for fumed aluminum oxide at its Yokkaichi site in Japan, which will be Evonik’s first alumina plant in Asia, producing specialty solutions for lithium-ion batteries for EVs. In this way, Evonik looks at demand from the car industry from both an engine and a tire angle.
Thailand is the largest exporter of rubber in the world, supplying about 35% of the global output, based on a report by Asia Perspective. In 2021, Thailand exported US$5.61 billion worth of rubber, mostly unprocessed or semi-processed upstream products like latex, dry rubber, and cup lump, as well as midstream products like ribbed smoked sheet (RSS), concentrated latex, and compound rubber. Downstream products, like automobile tires, latex gloves, condoms, or rubber bands are not as developed, though the pandemic has encouraged more investments due to the shortages in medical gloves, re-sparking interest in a previously sunsetting industry.
“Thailand is recommended by superior logistics infrastructure compared to Vietnam, the Philippines, or Indonesia, as well as good healthcare facilities, which has led to a rise in medical tourism from neighboring countries, and a very robust tourism sector, with more than 40 million people visiting Thailand every year.”
Kachain Chomchuen, Country Manager, Buckman SouthEast Asia
Meanwhile, the shift from Thailand’s fossil fuel resources is also shaping the chemical industry. The discovery of natural gas in the Gulf of Thailand led to the creation of the Petroleum Authority of Thailand (PTT) and drove the first wave of petrochemical development in the country, lasting between 1980-1989. This was marked by a policy to substitute imports with indigenous natural gas by using gas-based propane and ethane to produce basic commodities like olefins and derivatives. The second petrochemical wave (1989-1995) consisted of a preoccupation with exports and the liberalization of trade, while the third wave, from 2004 onwards, was marked by a focus on asset optimization and competitiveness.
As the natural gas reserves deplete, the country’s petrochemical sector has been gradually adopting naphtha, a petroleum-derived feedstock for chemicals, now accounting for 68% of its feedstock mix. According to OEC, Thailand’s biggest import in 2021 was crude petroleum, costing US$20.1 billion. The shift to liquid feedstocks does not only make the production of commodity grades more expensive due to the high import fees, but it also encourages the diversification to higher grades of intermediates and specialties, since naptha has a different yield, entailing changes in the final product mix.
Whereas the old petrochemical industry tapped into natural resources like gas, the new sector leverages opportunities of abundant biomass feedstocks like cassava and sugarcane to produce value-added, more environmentally friendly products. TotalEnergies Corbion began producing sugar-based polylactic acid (PLA), a bio-based, recyclable, and compostable polymer resin in 2017 in Thailand. Advanced Biochemical, a subsidiary of AGC Vinythai, is producing biobased Epichlorohydrin (ECH) from renewable glycerin, derived from vegetable oils since 2012. Both companies have their manufacturing base in Rayong, even if the first is headquartered in the Netherlands, while the second is Thai based.
The availability of bio feedstocks is also creating opportunities for distributors. German distributor Helm, for instance, sources biobased ECH made in Thailand to export to Europe and the US. “Thailand will be an early adopter of bio-chemicals in Southeast Asia, and one can see large Thai producers moving in that direction. As demand for innovative green products grows in Europe and the US, Helm will be able to help Thai chemical manufacturers bring their products to international markets,” said Supakrit (Tos) Aungwarapitikorn, managing director at Helm Thailand.
An unsteady political landscape
“Going back 30 years, the Thai government had a forward-thinking vision to build the National Petrochemical Complex (NPC) in Rayong province. Here, we have a highly competitive chemical cluster of companies, probably one of the largest in the region, but we lack favorable trade regulations and tariffs that other countries have. This limits Thailand’s export potential and makes the industry overly dependent on the local market,” commented Aloke Lohia, founder and CEO of Indorama Ventures, one of the largest petrochemical producers in the world.
Although Thailand remains a large exporter in the region, the country has suffered from unsteady periods of democratically elected governments alternating with military rule. There were 12 coup d’états since 1932, when the country transitioned from an absolute monarchy to a constitutional one. These cycles of political instability have compromised, at least temporarily, some of the relationships with trading partners. After the last military intervention in 2014, the EU suspended most cooperation with Thailand, but it then fixed ties when Thailand established a civilian government in 2019. Today, the EU is reinstated as Thailand’s fourth-largest trade partner and the second-largest investor in the country after Japan, based on official data from the European Commission.
The May 2023 national elections, the first since 2019, stunned observers with the unlikely win of the Move Forward party, a new pro-democracy camp seeking to mobilize youth. Almost 40 million voters headed to the polls - the most ever. But for the leader of the Move Forward party, Pita Limjaroenrat, to become prime minister, he needs the approval of the National Assembly. His bold agenda, including a reform of the military and amendments to the lèse-majesté laws, which criminalise offences related to the royal family, could impede his political acceptance. The Move Forward party won against former Prime Minister’s United Thai Nation party and the Phew Thai party, represented by former leader Thaksin Shinawatra’s daughter Paetongtarn Shinawatra.
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