Siam Cement's Iran project gets a green light
By Jon Fernquest[Introduction | Vocabulary | Article | Reading Questions | Answers]
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Siam Cement's petrochemical project in Iran has been given the go ahead after a long delay due to the the US-Iran nuclear controversy.
MIGA, an agency of the World Bank Group, has provided political risk insurance for the project, essentially insurance against adverse political events that might affect the project and cause partners like Siam Cement to lose money.
Read a Bangkok Post article from June that covered early developments in this story.
Reading Questions
Here are some questions to guide your reading (See answers at end):1. Why was Siam Cement's petrochemical project in Iran delayed?
2. How long was the project delayed?
3. What is the name of Siam Cement's petrochemical subsidiary?
4. How has the risk involved in moving money in and out of Iran been reduced?
5. What percentage ownership in the Iran petrochemical project does Siam Cement have?
6. What other countries are involved in the project?
7. Did the United States want a Thai company to participate in the project?
8. How has Siam Cement's chemical business been doing recently?
9. How are the prices of ethylene expected to compare for 2005, 2006, and 2007?
10. How important is the petrochemical business to Siam Cement?
11. Why is there a slowdown in the petrochemical industry this year?
12. Is petrochemical production capacity projected to keep pace with demand?
Bangkok Post Article: November 4, 2006
SCC's Iran chemical venture back on track
Nuclear dispute eases, financing shored up BUSRIN TREERAPONGPICHITSiam Cement Plc's $225-million petrochemical project in Iran is back on track after a delay caused by conflict over Teheran's nuclear programme.
"The recent conflict has resulted in the operation beginning one year behind the original schedule,'' said Cholanut Yanaranop, president of Cementhai Chemicals Co, the petrochemical flagship of Siam Cement.
He said the project was originally planned to come online in early 2008 but would now begin late the same year.
The launch of construction follows an easing of the nuclear dispute between the United States and Iran and a solution to minimise the risk of moving money in and out of the Muslim country.
"We (the project operator) have opened an escrow account offshore and use it as a tool to move the money facilitating the project,'' said Mr Cholanut.
Siam Cement, Thailand's largest industrial conglomerate, holds a 38% stake in the $225-million Mehr petrochemical project in Iran. It is intended to produce high-density polyethylene (HDPE), with a capacity of 300,000 tonnes per year.
Other shareholders in the venture are National Petrochemical Co of Iran with 40%, Itochu Corporation of Japan (12%) and Thailand's PTT Chemical Plc (10%).
Earlier, the project came under pressure when Washington reportedly lobbied for operations to halt because of the dispute over Iran's nuclear programme.
Mr Cholanut said Siam Cement projected a slowdown in its chemical business, which had become a major money spinner over the past two years.
He said earnings before interest, taxes, depreciation and amortisation (EBITDA) in the fourth quarter this year would decline from a peak in the third quarter.
In the third quarter, the company posted revenue of 32.7 billion baht and EBITDA of around seven billion baht.
Its average sales margin in the fourth quarter of this year is estimated at US$700 per tonne of ethylene, down from $730 in the previous quarter. However, the margin would still be higher than in the second quarter which was $580, and $560 in the first, according to Mr Cholanut.
The average sales margin for the full year is estimated at $650 per tonne compared to $570 last year.
"Next year's margin and revenue are expected to decline from this year to similar levels as those recorded in 2005,'' he said.
Currently, the petrochemical business contributes 40-50% of the net profit of Siam Cement, Mr Cholanut said.
Siam Cement's petrochemical business reported total sales of 86.08 billion baht last year, up 15% from the previous year, given growing global demand as well as supply delays from China and Iran.
Mr Cholanut said the slowdown this year was due mainly to the decrease in petroleum prices and more balanced supply and demand in the market.
He said global demand for ethylene in Asia was expected to increase by six million tonnes, nearing the new production capacity of 5.8 million tonnes.
Global capacity of ethylene production next year is projected to reach 120 million tonnes, slightly outpacing the demand of 105-110 million tonnes.
Vocabulary
US-Iran nuclear controversy - the long-standing controversy between the US and Iran over Iran's development of nuclear capabilities (See Wikipedia on Nuclear program of Iran (Iran's side) and Iran and Weapons of mass destruction (US side))
on track - progress is being made and things are going according to plan and expectations
back on track - again making progress, after not making progress
shore up - make a weak thing stronger
petrochemical - chemicals made from oil and natural gas
behind schedule - delayed
flagship - the most important subsidiary company that a company owns
Siam Cement - a large conglomerate founded in 1913 with businesses in the petrochemicals, paper and packaging, cement, building products and distribution, 30% owned by the Crown Property Bureau (See website and Wikipedia)
to come online - to start operating and producing
escrow - money or property given to someone, but kept by another person until the first person meets requirements or does some required task
offshore - located in another country
facilitating - helping to do
a conglomerate - a company that owns other companies (often doing completely unrelated businesses)
high-density polyethylene (HDPE) - a hard plastic that can resist high temperatures and chemicals, used for plastic containers, even fuel tanks for cars, pipes, and insulators (See Wikipedia)
Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) - measures a company's earnings without capital expeditures, useful in some valuations of a business (See Wikipedia)
ethylene - a petrochemical used in the production of polyethylene, the world's most widely used plastic
outpacing - doing better than, going faster than
Answer Key:
1. Why was Siam Cement's petrochemical project in Iran delayed?
Because the conflict between the US and Iran over its nuclear programme.
2. How long was the project delayed?
One year.
3. What is the name of Siam Cement's petrochemical subsidiary?
Cementhai Chemicals Co.
4. How has the risk involved in moving money in and out of Iran been reduced?
A bank account has been set up in another country to get the investment money to Iran.
("We (the project operator) have opened an escrow account offshore and use it as a tool to move the money facilitating the project")
5. What percentage ownership in the Iran petrochemical project does Siam Cement have?
A 38% stake slightly less than the Iran partner (40%).
6. What other countries are involved in the project?
Japan.
7. Did the United States want a Thai company to participate in the project?
No, the US "lobbied for operations to halt because of the dispute over Iran's nuclear programme."
8. How has Siam Cement's chemical business been doing recently?
It has slowed down compared to the previous two years.
9. How are the prices of ethylene expected to compare for 2005, 2006, and 2007?
2005 and 2007 will be about the same.
2006 will be a lot higher, probably because of the spike in oil prices this year.
10. How important is the petrochemical business to Siam Cement?
It accounts for 40-50% of the company's net profit, so it is very important.
11. Why is there a slowdown in the petrochemical industry this year?
Because of the decrease in oil prices.
12. Is petrochemical production capacity projected to keep pace with demand?
Yes, it is project to stay slightly ahead of demand.
("Global capacity of ethylene production next year is projected to reach 120 million tonnes, slightly outpacing the demand of 105-110 million tonnes.")
