By John Richardson
SO far so good is the interpretation that some petrochemicals industry executives have placed on the long-running political crisis in Thailand.
Despite the local economy being close to a recession after GDP contracted by 2.1% in Q1 of this year, the executives argue that:
- Most of the petrochemicals that Thailand produces are exported directly or end up in exports of finished goods. The point is that even though domestic consumption of polypropylene was about 1.3m tonnes last year out of total production of around 1.7m tonnes, as the chart above illustrates, a lot of this local demand for PP was derived from finished goods - most importantly, autos – that were sold overseas.
- The operation of petrochemicals plants has been unaffected by the political unrest, which is mainly taking place in Bangkok where there are no petrochemicals plants. And, anyway, the demonstrators on both sides have no intention, at the moment at least, of disrupting manufacturing industry.
“What really matters more to the petrochemicals industry in Thailand is therefore what’s happening in China. The slowdown in China is a bigger deal for us than politics at home,” a Thai delegate on the sidelines of last week’s Asia Petrochemicals Industry Conference (APIC) in Pattaya, Thailand, told the blog.
Thus one can argue that the weak export, import and industrial production numbers in March were more to do with external rather than internal factors.
Nevertheless, today’s imposition of martial law is hardly going to do much for a very important purely domestic driver of Thailand’s economy, which is tourism. Tourism accounts for around 6% of China’s GDP – the highest percentage of any Asian country.
And it might further weaken consumer confidence. Consumer confidence in Thailand was at a 12-year-low in March, weaker even than during the country’s bad floods of late 2011, violent political unrest in 2010 and a deadly tsunami in late 2004.
Martial law might, of course, though, improve law and order – but we cannot see how it will bring a political resolution any closer.
And the longer that this latest six-month-old political crisis drags on, the harder it will be for Thailand to realise its ambitions of being the vital spoke in a refining-petrochemicals and downstream manufacturing investment hub spreading from Thailand itself to Vietnam, Myanmar, Laos and Cambodia. Greater land-based trade with southern China is also one of the objectives of creating this hub.
Events are, obviously, moving very rapidly in Thailand and so the blog will post updates later in the week on the implications of this latest development.