Members of the Thai Plastic Industries Association have agreed to an across-the-board price hike of 10-15 percent for all plastics products in the wake of currency turmoil in Southeast Asia that included a 25 percent devaluation of Thailand's baht.
The Thai government also granted the firms' permission to change large-volume sales contracts to reflect higher operating costs, subject to mutual agreement, and Thailand's Board of Investment lifted import duties on machinery and equipment used by local industries.
On July 2, the country's mounting currency woes led the Bank of Thailand to devalue the baht, which since has slumped in value against the U.S. dollar. As a result, local companies have had to fork out more baht to service greenback-denominated debts and import costs of raw materials.
``Everybody is raising their prices, from compounders to converters ... but the whole group can understand the situation and we have all come to a compromise,'' said a Bangkok-based manager with Siam Cement Petrochemicals Group, which has accumulated a US$4 billion foreign debt due to higher interest rates for baht-based loans.
Siam Cement President Chumpol Na Lamlieng said its polyolefin product prices will rise 5-10 percent in about a month, but other company sources said a hike of 10-15 percent is more likely.
Although most plastics firms have one to two months' worth of inventory on hand, most of those are unable to use that as a buffer due to advance orders.
``We have some inventory, but that has already been committed to convertors before the baht devaluation,'' said the unnamed Siam Cement source.
Most industry experts agree that Thailand's currency storm has cleared to a drizzle since the government, in late July, agreed to a rescue package to be administered by the International Monetary Fund.
Nevertheless, the baht crisis underscores the problem of hefty debt-to-equity ratios, which are further exacerbated by excess capacity in the local plastics industry, analysts say.
Gordon Kwan, a Hong Kong-based equity analyst with Daiwa Securities (Hong Kong) Ltd., does not believe there is much upside left in Thailand's petrochemical and plastics industry.
``The long-term outlook is not wildly exciting,'' he said. ``It's going to take at least three years to soak up all the regional surplus of petrochemical capacity. Prices will remain depressed. I don't see any light at the end of the tunnel.''
The looming supply glut, coupled with the baht crisis, recently prompted some Thai petrochemical firms to put off their plans to build large petrochemical plants.
This leaves Thailand with just one major ethylene project expected to come on stream before the turn of the century — Siam Cement's plant at Map-Ta-Phut.
Meanwhile, Thailand's plastics companies remain huddled together, hoping for additional lifelines from the government.
``If no measures are launched by the government to help encourage the plastic industry, problems will become worse and negatively affect export-related revenue, national unemployment, and a pile of industries will disappear,'' said Pradit Hiranpradit, president of the Thai Plastic Industries Association.