Thailand’s low-carbon transition

Thailand’s plan to accelerate state investment despite high debt levels is expected to result in favourable construction growth. Meanwhile, the country’s cement industry is in the midst of transforming itself into low-carbon production base using decarbonisation tools already available to the sector as well as exploring emerging solutions.

Thailand, southeast Asia’s second-largest economy, has shown a gradual recovery from the COVID-19 shock. In 2020 the country registered negative economic growth for the first time since 1998 due to the effects of the pandemic, falling from 2.1 per cent in 2019 to -6.1 per cent in 2020. Growth subsequently recovered to 1.5 per cent in 2021 and 2.6 per cent in 2022.

Positive economic momentum was witnessed in the 1H23, despite domestic political uncertainty. GDP advanced by 2.2 per cent underpinned by rapid growth in private consumption and helped by surging tourism arrivals. However, government consumption fell by 5.3 per cent YoY.

More recent data shows that 2Q23 growth was much slower than expected at 1.5 per cent, burdened by declining exports and government spending. Thailand’s manufacturing industry, the largest component of GDP, has been weak and weakened further during the three-month period. Continued solid private consumption and a recovery in the tourism sector prevented a more disastrous result. However, signs of improvement were starting to be seen in the 4Q23 and the state planning agency has predicted stronger growth next year with more stimulus measures on the cards. Overall, for 2023, the IMF expects GDP growth of 2.7 per cent.

In September 2023 Thailand’s new cabinet officially took office as Srettha Thavisin of the populist Pheu Thai party won the backing of parliament to become the country’s new prime minister. The result paved the way for a new coalition government and putting an end to the political impasse that followed the country’s May 2023 elections. The government is now looking to spend its way out of difficulties despite having high debt. In October 2023 it approved a higher budget spending of THB3.48trn (US$97.64bn) for fiscal year 2024, along with a larger budget deficit of THB693bn.

Public investment push and housing drivers

Public investment is projected to remain a key driver, increasing over the next few years in line with the government’s infrastructure plans to attract private investment and a continued improvement of the tourism sector.

The most critical infrastructure projects include the Highways Department’s construction of new highways and the Royal Irrigation Department’s development of new water source areas, plus the construction of embankments along the country’s main rivers.

Leading mega projects include the U-Tapao Airport project, map Ta Phut Port Phase 3 and Laem Chabang Port Phase 3. There is also the continued construction of the Thai-Chinese high-speed train project and the MRT Purple Line project that began in the 2H22. BMI Industry Research (part of Fitch Solutions) forecasts that Thailand’s construction industry will expand by four per cent in 2023, followed by an average growth of 4.3 per cent in the 2024-27 period.

In terms of housing construction, Krungsri Research forecasts growth of 6.5 per cent, or by 19,000-23,000 units, per year up to 2025. Growth is still expected to remain below the high of 36,000 new units of low and high-rise housing set in 2018-19. Approximately 40 per cent of housing permits for new construction are for the Bangkok Metropolitan Region (BMR) which includes Bangkok and the five adjacent provinces of Nakhon Pathom, Pathum Thani, Nonthaburi, Samut Prakan and Samut Sakhon. In 2022, ~46,868 land allotment permits were granted in the BMR compared to 31,997 in 2021. Up-country (ie, areas outside of the Bangkok area) permits for land allotments were 31,137 in 2022, down from 37,093 in 2021.

High-rise developments in the provinces are heavily dependent on tourism and are focussed in the areas of Chonburi, Chiang Mai and Phuket. In the up-country segment, six provinces have increased in importance for housing projects, namely Chiang Mai, Chonburi, Rayong, Nakhon Ratchasima, Khon Kaen and Phuket. Projects in these provinces account for 22 per cent of nationwide construction permits and 34 per cent of up-country construction permits.

Consumption weakens

Due to the pandemic, in 2020 cement consumption in Thailand fell by 5.9 per cent YoY to 27.994Mt, according to The Global Cement Report XV Edition (GCR15). Demand contracted by a further 2.4 per cent in 2021 and 1.6 per cent in 2022, when it reached 26.881Mt.

According to industry commentary, as at the end of 2022, the residential, commercial and infrastructural sectors had still not yet returned to pre-pandemic levels.

The government continued to be the main driver of domestic cement demand, while the residential and commercial sectors were expected to slowly improve. Retail demand also tapered off due to pressure on household budgets and flooding in up-country areas.

Domestic production base

Thailand’s grey cement manufacturing base comprises seven producers with a total of 12 integrated plants and one grinding unit. Domestic clinker and cement capacity stands at ~52Mta and ~60Mta, respectively (see Table 1).

Thai conglomerate SCG is the country’s largest producer with five integrated plants and a combined cement capacity of 23.23Mta. The largest plant is the Saraburi-based Kaeng Khoi works (7.30Mta of cement capacity), followed by Thung Son (6.91Mta), Khao Wong (3.84Mta), Ta Luang (3.07Mta) and Lampang (2.11Mta).

In 2022 revenue from SCG’s Cement and Building Materials segment increased by 12 per cent YoY to THB204, 594m, but EBITDA was down seven per cent YoY to THB17,540m and profit contracted by 11 per cent YoY to THB3789m. SCG reported that the business was affected by higher energy costs, leading to an adjustment in selling prices, but during which time household purchasing power was still slow. The segment adapted to the challenging operating environment through cost reduction measures, including alternative fuel (AF) and renewable energy usage.

Siam City Cement (also known as INSEE) has 15.63Mta of cement capacity from its main plant in Saraburi (14.78Mta) and Globe Cement Co’s (0.85Mta). The Saraburi site, located approximately 135km northeast of Bangkok, includes three independent cement plants each with two lines. In 2022 the company said that despite volumes being up by seven per cent YoY, the pricing levels needed to offset massively increased input costs were not reached and profit margins eroded.

TPI Polene ranks third in terms of local capacity and operates the largest single-site plant in the country, giving it large cost advantages due to the scale of operations. Situated in Saraburi, the plant’s  four production lines contribute to a total clinker and cement capacity of 10.96Mta and 13.50Mta, respectively, Clinker production in 2022 amounted to 9.45Mt and is expected to have reached 9.5Mt in 2023. In 2022 sales revenue generated from TPI Polene’s construction materials business increased by 35.5 per cent YoY due to increased volumes and clinker prices, together with an increase in the ASP of domestic cement and a recovery in ready-mixed concrete prices.

Heidelberg Materials has been present in Thailand since 2016 following the acquistion of the Italcementi Group. Asia Cement (in which Heidelberg Materials owns a 39.53 per cent stake) has 4.99Mta of cement capacity from its integrated Pukrang plant in Saraburi. In 2022, although company revenue increased by 18 per cent YoY to THB10,718m, net profit fell by 50 per cent to THB142m.

Meanwhile, Heidelberg Materials also has a 35.12 per cent shareholding in Jalaprathan Cement. Its two plants in Cha-Am (Phetchaburi province) and Takli (Nakhon Sawan province) each have capacities of 1.17Mta, giving Jalaprathan Cement a total domestic cement capacity of 2.34Mta. The company’s 2022 revenue increased by 19 per cent YoY to THB2704m and recorded a net loss of THB52m.

Two small players complete the Thai cement sector. Thai Pride Cement Co, has a 0.96Mta integrated plant in Saraburi, and Sumukee Cement Co with its 0.12Mta grinding works in Nakhon Ratchasima province.

‘Mission 2023’ and the shift from OPC

Continuing on from its first achievement to reduce 300,000t of CO2 in 2021, the Thailand Cement Manufacturers Association (TCMA) has joined forces with the government, professional, industrial, and academic sectors, with the support of six ministries to further reduce GHG emissions from clinker substitution by implementing low-carbon hydraulic cement in all construction nationwide. The so-called ‘Mission 2023’, is aimed at helping increase the country’s potential to reduce GHG emissions by 1Mt of CO2 in 2023. The TCMA has committed to phasing out ordinary Portland cement (OPC) from the market by 2025 and push for the broader acceptance of blended, green cements.

Between 2020 and the 1Q23, SCG increased its replacement of OPC from 15 per cent to 51 per cent. The growth in the company’s “hybrid” cements with lower carbon, based on TIS 2594-2556, the first hydraulic cement standard in Thailand, has grown to be the lead cement product covering 51 per cent of production.
In the 1Q23 SCG’s hybrid cement saw its share in total sales revenue increase further to 54 per cent to THB69bn, and the group is targeting 67 per cent of total sales revenues in cement from this product by 2030. All OPC bags will eventually be replaced by hybrid cement and this green cement will replace bulk OPC deliveries as well as penetrating the ready-mix cement market.

Meanwhile, INSEE has launced its hydraulic Petch Plus cement for the bagged segment and INSEE Petch Easy Flow, a low-carbon hydraulic cement tailored for ready-mixed concrete applications (see p71).
TPI Polene’s ConsMat division launched its Green Cement & Building Products in June 2023, helping to increase the company’s EBITDA margin to the highest in its last five years.

Further environmental endeavours

In terms of other environnmental endeavours by Thailand’s main production base, in 2022 SCG achieved 34 per cent AF usage, up from 26 per cent in 2021. By the 1Q23 usage had risen to 40 per cent. The target for the full year was 40-50 per cent. CO₂ emissions reduction amounted to 0.1 per cent in 2020, 0.15 per cent in 2021, 0.25 per cent in 2022 and by 0.09 per cent in the 1Q23. SCG is looking to increase its self-generated power, with an additional 60MW of renewable energy completed in 2022.  

Moreover, SCG has also signed a Memorandum of Understanding to explore  carbon capture and utilisation technlogy with Thai Nippon Steel Engineering and Construction Corporation, and Nippon Steel Engineering Co. SCG  will jointly study the feasibility of an in-house developed chemical absorbent capture system called ESCAP™ to capture CO2 from exhaust gases emitted from its cement plants in Saraburi province.

Initially, SCG plans to set up a demonstration plant in 2024, in which feasibility findings of the technology will be used to design and eventually install in the commercial plant.

INSEE’s  thermal substitution rate (TSR) has increased from 11.1 per cent in 2020 to 16.4 per cent in 2022 and to 20.5 per cent by June 2023. Increased TSR has been due to usage of refuse-derived fuel (RDF) and biomass. Furthermore, the company reduced its CO2 by 260,000t in the last year by lowering its clinker factor (five per cent reduction at Saraburi), lowering energy consumption and incorporating waste materials in production.

INSEE is also actively pursuing opportunities to establish solar farms in Thailand to decrease its reliance on AF and to promote sustainable energy alternatives. Saraburi already has its own dedicated Ecocycle fuel preparation plant.

Asia Cement is continuing to invest in future clean energy initiatives such as the ongoing 20MW solar power plant which will reduce energy costs along with CO₂ emissions. Meanwhile, Jalaprathan Cement’s Cha-Am plant replaces five per cent of coal usage with rice husk alternative fuel.

Coal price movement

The 16 per cent drop in the average price of imported coal from January to September 2023 is expected to underpin movement in cement margins for Thai producers, even though local coal volume demand has been lacklustre. From January to August coal imports fell 1.16 per cent YoY to 22,950,323t.

Cement prices

Thailand’s cement producers have been driving up cement prices to reflect mounting cost pressures. Current cement prices are recorded at around THB1900-2100/t, according t o the GCR15.

Trade

In Thailand the cement industry had addressed its domestic surplus by building a strong export market, but recent trends show exports weakening. Total exports were down from 10.79Mt in 2021 to 6.91Mt in 2022.

Clinker makes up the largest share, accounting for almost 70 per cent of exports in 2022. During the year, clinker export volumes were down by 34.5 per cent YoY to 4.79Mt. The main clinker markets in 2022 were Bangladesh (3.104Mt) and Australia (1.24Mt), followed by Vietnam, Sri Lanka, Taiwan, the Philippines and Malaysia.

Cement exports have also been declining, in part due to the build-up of capacity in key export destinations. Cement exports in 2022 fell by 39 per cent YoY to 2.12Mt. The main cement export markets in 2022 were overland to neighbouring Myanmar (0.92Mt), Cambodia (0.5Mt) and Laos (0.23Mt), with smaller volumes exported to the USA, Australia, Samoa and Malaysia.

Imports are minimal and fairly stable in recent years, averaging 0.1Mt. The majority of these imports are sourced from Laos.

Summary

For 2024 and 2025, the IMF expects Thailand’s economy to grow by 3.2 and 3.1 per cent. Cement demand is hovering between 26-27Mt and is expected to fall by a further one per cent in 2023, before a recovery begins in 2024.

In the meantime, domestic cement producers are transitioning towards a new low-carbon future. The focus is on decarbonisation-related investments using tools already available to the cement sector while exploring carbon capture potential.

This article was first published in International Cement Review in January 2024.