News focus: Thailand martial law weighs on petrochemical market sentiment

26 May 2014 00:00 Source:ICIS Chemical Business

Buyers of petrochemicals in Thailand have kept to the sidelines on 20 May following a military declaration of martial law in the country, possibly to quell a possible escalation of months’-long political unrest in the southeast Asian nation, industry ­sources said.

Trades have been minimal in the domestic plastics market, with some producers heard offering slightly higher prices for all grades of polyethylene (PE), they said.

Most buyers were not keen to enter the market as they have sufficient inventories for production, while end-users’ demand has remained weak, market sources said.

Thai army Rex Features

Rex Features

Martial law has been imposed across the country

“With the ongoing political conflict and with no government in place today, this somehow halts the flow of money, at least in the domestic plastic sector,” a stockist said.

“So the end-users are currently short in cash for their orders,” he said.

Thailand’s military surprised with an early-morning declaration of martial law on 20 May, to enforce peace and order in the country grappling with anti-government protests since November 2013.

“There are two theories of why the military declared martial law. The first theory is that groups outside Bangkok were gathering to come into the city and commit violent acts, and the second theory is that the military responded because the interim PM refused to step down last week. The interim PM took office after Yingluck was forced to resign a couple of weeks ago, a Bangkok-based petrochemical industry analyst said.

“This is not going to help to resolve the political crisis,” he said.

Thailand is without a functioning government following the ouster of Yingluck Shinawatra as Prime Minister early this month by a ruling from the Constitutional Court of Thailand.

But anti-government protesters were not appeased by Yingluck’s forced resignation, as her successor as acting PM was her former deputy, who also belongs to the leading Pheu Thai Party. They are demanding the Thai Senate and courts to install a “neutral” prime minister, according to media reports.

The protests, however, have been largely being held in the capital of Bangkok, and have not affected the country’s petrochemical production, which is concentrated at Map Ta Phut in Rayong province – about 200 kilometres away from the capital.

“As [far] as I know, the martial law would not have impact on the production and operation at the industrial zone in Rayong,” said a source from one of the major petrochemical producers in Thailand.

Most of these manufacturers, however, have their headquarters in Bangkok.

“We are still working as normal at the office and [the] outside situation is OK and safe. Anyway, if there will be any serious action we can work at home or move to work at [the] plant in Rayong province,” a source at a rubber producer said.

A sorbitol producer with manufacturing operations located at the border of Bangkok was running its 3,000 tonne/month plant at full capacity.

“There is no impact. Everything is the same. Production is normal,” a source at the producer said.

The immediate industry impact, if there was one, was on market sentiment, said a source from the linear alkyl benzene (LAB) market.

“I think it is impacting people’s minds and thus buying sentiment. Buying sentiment is depressed,” he said.

Thailand’s stock market opened as per usual on 20 May in spite of the martial law declaration. Shares of petrochemical companies listed on the bourse fell.

At the close of trade on 20 May, PTT Global Chemical declined 0.72% and Siam Cement Group fell 1.93%, as the SET index retreated 15.94 points or 1.13% to close at 1,394.69.

Continued political instability in Thailand had seen its economy contract 0.6% year on year in the first quarter, with growing concerns of an eventual recession of the crisis is unabated in the short term.

On a quarter-on-quarter basis, the economy shrank 2.1% , which is “the worst quarterly performance” since the fourth quarter of 2011, according to Singapore-based DBS Bank Research.

“With confidence among consumers and businesses remaining weak, we may see another GDP contraction in 2Q14 [second quarter], dragging the economy to a technical recession,” it said in a note to clients.

Private investment in the country may not rebound in the second half of year, even without a further deterioration in Thailand’s political condition, DBS Bank Research said.

By Pearl Bantillo