Samak signs smelter deal
in China:
15-year project for steel production upgrade
By Jon Fernquest
Prime Minister Samak Sundaravej's recent trip to
China resulted in a business deal important for Thailand's economic
future.
On July 1, Mr Samak signed a contract with Chinese companies for the construction of a new a steel smelter.
Sahaviriya Iron and Steel Co (SIS) manufactures hot rolled steel sheets and coils in Prachuap Khirikan. The company is the Thailand's largest hot-rolled steel coil manufacturer and will be upgrading its facilities with the new smelter.
The site of the new steel smelter will be at Bang Saphan in Prachuap Khiri Khan.
Impact on sales and profit
Full capacity of SSI's smelters is now four million tonnes. The utilisation rate of smelters increased slightly to two million tonnes last year. This means that the utilisation rate is now half the smelter's full capacity.
The initial production capacity of the new smelter will be five million tonnes. Plans are now to run at full capacity when the smelter begins operation. This higher utilisation rate and increased production will allow an increase in sales revenue in the future.
The new smelter will produce materials such as slab, scrap and billet that will no longer need to be imported into Thailand from other countries. This will costs by 35% and improve the company's profit margin.
Environmental impact and investment incentives
In the third quarter of 2008 the company is likely to get approval on environmental assessment, financing and investment privileges.
The environmental impact assessment (EIA) report is currently awaiting approval. The steel smelter has been delayed two years by protests. Local communities and activists have objected that the project will have a negative impact on their neighborhoods.
In the process of
preparing and getting approval for the EIA report, experts and
academics are hired to make sure the impact of the project on local
communities is acceptable.
When the EIA is complete the company will submit an application for
investment privileges to the Board of Investment (BOI).
Financing the project
The original cost of the project was estimated at 500 billion baht. A stronger baht in the future might help to reduce the cost.
Financing deals are ongoing and may be completed soon. The new Chinese contract will likely make it easier to obtain loans from financial institutions in China, both private and government run. SIS hopes to obtain "a syndicated loan covering the total cost of 10 billion renminbi and a seven-year repayment term."
SIS has already spent several billion baht of its own money over the last three years on preliminary engineering work.
Smelter construction
The smelter construction project will have five phases and will take 15 years to complete.
The five-phase project aims to produce 33 million tonnes of steel and is scheduled to be fully completed in 15 years.
On his visit to China Prime Minister Samak secured an equipment and procurement contract (EPC) with a consortium of Chinese companies for the project.
Sino-International Heavy Industry Technology (Sino-HIT) will lead a consortium of Chinese equipment and technology suppliers participating in the project.
The Chinese consortium will provide "turnkey services, from plant construction and equipment procurement to production preparation" which will take 24 months.
Raw materials for the new smelter
Iron ore will have to be purchased for the new steel smelter from world ore exporters.
For its initial production capacity of five million tonnes, SIS would need around eight million tonnes of ore.
Iron ore prices have shot up by 65-80% over the last year, driven by higher oil prices and general inflation.
Higher raw materials costs have driven steel prices up, doubling the price of steel in the first half of 2008. This has helped increase SSI's sales from 30 billion baht last year to 50 billion baht this year.
(Source: Bangkok Post, business, 08-07-08, page B1, temp-link)
Vocabulary:
a smelter, a
steel smelter - an industrial plant that uses a
high-temperature process to separate out a pure metal, usually in a
molten form, from an ore (Source: Nova
Science; See Wikipedia)
โรงหลอมเหล็ก
hot rolling
- a steel manufacturing process used to produce sheet metal and other
intermediate products (See Wikipedia on steel
and hot
rolling) กา่รรีดเหล็ก
hot rolled steel sheets and coils แผ่นเหล็กที่ผ่านการรีดแล้ว
upgrading its
facilities - improving its facilities (factory, machines,
equipment) พัฒนาและปรับปรุงเครื่องไม้เครื่องมือ /อุปกรณ์ของโรงงาน
capacity,
production capacity - the largest amount that can be produced
from a factory or plant ความสามารถ
full capacity, run at full capacity - when the
factory is producing the largest amount that can be produced (given
current facilities, machines, and equipment) เต็มกำลังการผลิต
utilisation rate - the percentage of full capacity
that is used, for a machine, equipment, or a factory อัตรา หรือ
กำลังการผลิต
a slab
- a thick flat piece of metal, concrete, or rock แผ่นเหล็กหนา
scrap - already used and thrown, often has value and
can be reused เศษเหล็ก
billet steel - a small rectangular bar of iron or
steel (at an intermediate stage of manufacture) (See About.com
Metals and photo) ท่อนเหล็กหรือโลหะ
profit margin, a
company's profit margin - the profit of a company expressed
as a percentage of sales ผลกำไรที่ได้รับ
improve the company's profit margin - when a company
becomes more profitable เพิ่มผลกำไรของบริษัท /องค์กร
incentives
- rewards given for behaving in a certain way (See glossary)
ผลตอบแทน
privileges - a right, advantage, or power that few
people have (See glossary)
อภิสิทธิ์
investment privileges - special business
advanatages, such as reduced taxes, that are given to encourage certain
types of businesses beneficial to the economy ข้อได้เปรียบในการลงทุน
environmental impact assessment (EIA) report - a
detailed study to predict the effect of a development project on the
environment, also provides plans to prevent the negative impact
รายงานการประเมิณผลกระทบทางด้านสิ่งแวดล้อม
objected - disagreed ไม่เห็นด้วย
Board of
Investment (BOI) - the Thai government agency responsible for
providing incentives to encourage investment in Thailand (See website)
คณะกรรมการส่งเสริมการลงทุน
a syndicated loan - large loan in which a group of
banks work together to provide funds for a borrower (See Wikipedia)
เงินกู้ยืม
the renminbi - the name of China's currency (See Wikipedia)
สกุลเงินของจีน
preliminary - done before the main activity
เบื้องต้น ขั้นต้น
equipment and procurement contract (EPC) - means a
company is hired to provide engineering, procurement and construction
services (Source: Prodigy
Engineering Group) หมายถึง
บริษัทถูกว่าจ้างให้มาทำหน้าที่จัดซื้อหารอุปกรณ์ก่อสร้างและให้บริการทางด้านวิศวกรรม
a consortium
- a group of companies that have agreed to work together กลุ่มบริษัท
ห้างหุ้นส่วน หรือสหภาพ
turnkey services - building a system designed to be
fully operational at purchase or implementation time and not require
additional modification or investment (think: put the key in the slot
and turn, it works, with no further work needed) (Source: Supply
chain glossary at Bridgefield Group)
procurement - (formal) buying, purchasing การจัดซื้อ
raw materials
- materials before being processed and used in manufacturing (See glossary)
วัตถุดิบ
iron ore - rocks and minerals that contain the metal
iron, a smelter is used to turn ore into steel and iron (See Wikipedia)
เหล็กกล้า