Siam Cement Plc (SCG) is gunning to regain its pre-financial crisis crown of being the region’s largest cement producer, with various projects from Myanmar to Indonesian and a possible acquisition in Vietnam in the near future.
Thailand’s biggest industrial conglomerate, which has announced a greenfield project in Indonesia to produce 1.8 million tonnes of cement annually with an initial outlay of US$356 million, says it is on the lookout for more opportunities including an acquisition in Vietnam which it hopes to conclude soon.
The group now claims a leading position in the region in every segment of the businesses it operates except cement. That title still belongs to Switzerland-based Holcim, which has been buying up assets ever since the onset of the Asian economic crisis in 1997 and today has installed capacity of xx.xx tonnes per year in the region.
Siam Cement has been engaged in Asean since 1995 and today is one of the leading manufacturers of building materials, downstream petrochemicals and paper in Southeast Asia.
To cement its position in the paper business, the company last year acquired a 90% stake in PT Primacorr Mandiri, an Indonesia-based corrugated container manufacturer, tapping into an industry that is witnessing solid growth in this part of the world.
Kan Trakulhoon, president and chief executive officer of SCG, said recently in Jakarta that cement was the one key businesses of the company in which SCG was not the market leader in terms of capacity.
The Thai company is confident that once its new cement plants being built in Myanmar, Indonesia and Cambodia start production, it will overtake Holcim in terms of output.
“However, when considering revenue, we believe that we are the number one in this region because we also export to other Southeast Asian countries,” he said.
The company produces roughly 40 million tonnes of cement a year currently.
SCG has just broken ground on a 1.8million-tonne cement plant in Mawlamyine in Myanmar with the investment value of 12.4 billion baht. The plant is scheduled to start operating in the middle of 2016.
As well, the company broke ground last Friday at another cement plant in Sukabumi, West Java in Indonesia. New unit, PT Semen Jawa, will operate US$356-million plant with annual capacity of 1.8 million tonnes.
In Cambodia, meanwhile, the company is investing 5.5 billion baht in a plant with capacity of 1.1 million tonnes a year.
Mr Kan said SCG was already number one in the building material business in the region. By sub-sector, it is also the largest producer of ceramic tiles. SCG also claims market leadership in downstream petrochemicals.
In the paper business, before the acquisition of the corrugated container maker Primacorr in September 2012, SCG was the leader in kraft paper only but it now leads the entire segment. The 395-million-baht transaction was made through Thai Containers Group (TCG), a joint venture between SCG Paper and Rengo Co Ltd of Japan. SCG Paper holds a 70% stake in TCG.
SCG reorganised its business units this year into three groups: cement and building materials, chemicals, and paper. Previously, it had five: cement, building materials, trading, chemicals, and paper.
Mr Kan said the company could become the market leader in the cement business ahead of the schedule it has set if it can conclude an acquisition in Vietnam next year.
“Vietnam has many cement plants but the locations are scattered. If we can conclude the ongoing deal, we can be a big player,” he said.
SCG first expanded outside its home base in 1995, with Indonesia the first market it entered. Overseas expansion was frozen after the financial crisis in 1997 that started with the floating of the Thai baht.
SCG had to restructure its business by pulling out all of its resources from abroad in order to focus on saving the domestic operation. The mission was successful and by 2004 it was ready to invest outside of Thailand again. Positioning itself as an Asean industrial conglomerate, it set a goal of becoming the market leader in all the sectors in which it operated.
Indonesia is the group’s largest market outside Thailand, and the only one besides Thailand in which it operates all its businesses ranging from cement and building materials to chemicals and paper.
Mr Kan said that the company would keep investing in Asean’s largest economy, by expanding the production capacity of existing plants and acquiring new companies, particularly in building materials.
SCG would like to have two cement production lines with a capacity of 1.8 million tonnes each in Indonesia. Before the first plant starts operation in 2015, the company will decide whether it will increase capacity by adding a second line at the Sukabumi manufacturing facility or build a new one at the PT SCG Readymix Indonesia (Jayamix) plant, another subsidiary that makes ready-mixed concrete.
The company is also in discussions to acquire Indonesian building materials companies as part of its strategy to cover a wide range of construction materials.
PT Chandra Asri Petrochemical, the subsidiary in which SCG has held a 30% stake since 2011, is investing $380 million in a debottlenecking project. The company’s naphtha cracker will increase production capacity of all petrochemical products by 43%.
Ethylene will be increased from 600,000 tonnes per year to 860,000. Production volume of propylene will rise by 150,000 tonnes to 470,000, py-gas by 120,000 tonnes to 400,000, and mixed C4 by 95,000 tonnes to 315,000.
Py-gas is a naphtha-based feedstock that can be used to produce aromatics products such as benzene and toluene, which can further be used for production of synthetic rubber and other products.
Despite the recent cooling of the economy in Indonesia, Mr Kan remains confident in the business opportunities the country presents, saying many infrastructure projects are pending. Cement consumption per capita in Indonesia is 200 kilogrammes a year, much lower than 600 kilogrammes in Thailand.
“There is long way to go for the Indonesian market,” he said. “The development in this country will be similar to that of Thailand as the government will have new infrastructure projects. After cement consumption is built up, building materials demand will follow.”
Current cement demand in Indonesia is 55 million tonnes per year.
Mr Kan said another high-potential country for SCG to operate all business units was Vietnam. The company has paper-related businesses there including corrugated containers and kraft paper. It also operates a polyvinyl chloride (PVC) manufacturing plant through its subsidiary Thai Plastic and Chemicals Plc (TPC).
SCG is in discussions to purchase cement plants and invest in a petrochemical complex in Vietnam.
The current assets of SCG in Asean excluding Thailand are valued at $2.16 billion, including $1.09 billion in Indonesia, the largest in Asean. If the cement plants are included, total assets in the country will be roughly $1.4 billion. The group has 21 companies with 6,500 employees in Indonesia.
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Writer: Nalin Viboonchart