2024-2026 Outlook

• Outputs of fresh cassava are expected to contract by between -1.0 and -2.0% annually as the effects of the El Niño on access to water worsen over 2024 and 2025 and outbreaks of cassava mosaic disease continue to occur. However, volumes of domestic consumption of cassava product should increase by 3.0-5.0% per year on: (i) the boost given to food processors by general economic growth; and (ii) stronger demand for ethanol as the domestic transport and tourism sectors strengthen and spending on infrastructure increases. On the other hand, although demand from Chinese manufacturers of pharmaceuticals, cosmetics, food, paper, sweeteners, and textiles will increase, annual export volumes will slip by an average of -3.0% to -4.0% because the impacts of drought, disease, and the switch by farmers to growing other crops will extend supply shortage problem. This will cause business to face difficulties due to a shortage of raw materials for production to deliver to trading partners. In addition, prices for cassava products will track the higher price of inputs, and so buyers in export markets will tend to switch to alternative products. Given this, annual export volumes are expected to fall by -3.0% to -4.0% for cassava chip (to 4.3-4.5m tonnes), by -10.0% to -11.0% for cassava pellets (to 0.07-0.08m tonnes), by -3.0% to -4.0% for native starch (to 2.4-2.5m tonnes), and by -2.5% to -3.5% for modified starch (to 0.8-0.9m tonnes).

Sugar and molasses

Situation in 2023

• The quantity of sugarcane being pressed during the 2022/23 season rose 2.0% to 93.9m tonnes, and this then produced 11.1m tonnes of sugar (+8.9%). Growth was supported by: (i) favorable weather and access to irrigation water during the growing season; and (ii) a high minimum price for sales to sugar mills and the rising prices set on global markets, which then encouraged growers to expand the area under cultivation. However, although high prices incentivized farmers to continue with the widespread planting of sugarcane, the emergence of the El Niño and the resulting decline in rainfall and increase in drought conditions means that for the 2023/24 growing season, the quantity of sugarcane being pressed is expected to decline by -7.5% to -8.5%, which will then produce 10.1-10.2 million tonnes of sugar. In addition, the expenses incurred for power, fertilizer, pesticides and labor for harvesting (especially for fresh sugarcane) remain elevated and this is putting downward pressure on farmer’s profits.

• 9M23 exports of sugar and molasses rose 3.6% YoY to 6.0m tonnes, split between 3.6m tonnes of raw sugar (+4.5% YoY), 2.3 million tonnes of granulated sugar (+2.4% YoY), and 0.14m tonnes of molasses (+0.2% YoY). Exports were lifted by: (i) growth in global demand for sugar (up 1.0-2.0% annually), now that the pandemic is easing and economic life has returned to normal; (ii) fears over the impacts of the El Niño on food security; and (iii) the easing of supply shortages, which has allowed exports to rise. Export prices climbed by 8.4% YoY, and so export value is up 12.3% YoY to USD 3.1bn.

• For all of 2023, export volume should rise by 18.0-22.0%. Sales into overseas markets will benefit from strong demand in downstream industries and rising worries over food security, especially following India’s decision to reduce or halt exports of sugar in October 2023. As a result of Thailand’s reopening and the return to normal service for businesses, and in particular for restaurants, domestic demand should also increase 6.0-7.0% this year, or to 2.60-2.62m tonnes.

2024-2026 Outlook

• Outputs will tend to decline as a result of: (i) the intensification of the El Niño, which will lead to drier weather and reduced access to irrigation water; and (ii) continuing high production costs. As a result, some farmers will switch to growing alternative crops (e.g., cassava and corn), though ongoing supply shortages will lift global prices for sugar and so some farmers will in fact expand the area under cultivation as they look to meet demand from sugar mills. Average outputs should thus fall to 75-85m tonnes of sugarcane, which will then produce 8.2-9.6m tonnes of sugar annually (a fall of -6.5% to -7.5%).

• Exports of sugar and molasses will drop by between -10.0% and -11.0% to 6.0-8.0m tonnes annually.  Overseas sales will slow under the impact of: (i) restricted access to sugarcane for pressing; and (ii) reserves of supply to serve rising domestic consumption following domestic economic recovery. However, Thai players will benefit from the decision by the Brazilian and Indian governments to promote the domestic consumption of ethanol, thus reducing sugar exports to world markets coming from these major producers. Domestic consumption is forecast to rise by 3.5-4.5% per year to 2.7-2.9m tonnes thanks to an uptick in economic activity and the rebound in the tourism sector, which will then spur additional demand from downstream industrial consumers. Nevertheless, the increase in the sugar tax on beverages will restrict growth in domestic demand.

  

Oil Palm

Situation in 2023

• Over 9M23, outputs of oil palm used to produce crude palm oil edged up 2.9% YoY to 14.1m tonnes thanks to: (i) sufficient rainfall in 1H23 and favorable weather, most notably in the South; and (ii) high prices that incentivized growers to maximize their harvest. Output of crude palm oil (CPO) thus rose 5.2% YoY to 2.6m tonnes, while the domestic sales of CPO is growing rapidly at 18.5% YoY (to 1.9m tonnes). This has led to an increase in the production of refined palm oil, reaching 1.1m tonnes (+20.2% YoY), as a result of the country reopening and the tourism industry rebounding, demand from restaurants, hotels and nightspots has strengthened. The market also benefited from greater demand for diesel from the transport sector and the decision to increase the standard diesel mix from B5 to B7 from October 2022 onwards, and this then lifted sales of biodiesel (B100) by 16.1% YoY to 0.8m tonnes. However, the price of Thai CPO is more expensive than average price in global markets and so exports contracted -0.7% YoY to 0.71m tonnes as buyers in major overseas markets (e.g., India and Malaysia) switched to alternative vegetable oils somewhat.

• Although the El Niño will undercut outputs through the rest of 2023, better weather in 1H23 and the ongoing effect of high prices will boost 2023 outputs of oil palm used to make CPO by 0.5-1.5%, or to 19.1-19.3m tonnes, and this will then be converted into 3.4-3.5m tonnes of crude palm oil (+0.5-3.5%). Strong demand from the food processing, oleochemical, and transport industries will accelerate domestic sales of CPO by 20.0-23.0% (in terms of quantity), but softening markets in India and Malaysia will contribute to a -14.0% to -16.0% slump in exports. Year-end stocks of CPO are thus expected to run to 0.31-0.33m tonnes, but because this is above the target range of 0.20-0.25m tonnes, this will put downward pressure on prices. Prices for fresh palm fruits will thus average THB 4.8-5.2/kg, down from THB 7.7/kg a year earlier, while domestic prices for CPO and export prices for palm oil products will slip by between -27.0% and -36.0% and by between -28.0% and -32.0% respectively.

2024-2026 Outlook

• Output of fresh palm fruit and CPO will likely trend downwards by between -1.0% and -2.0% annually as the effects of the El Niño intensifies through 2024 and 2025 and per-unit yields suffer, though continuing high prices will encourage some growers to replant rubber stands with palm and this will partly offset the negative impacts of unfavorable weather. Ongoing domestic economic growth will strengthen demand for CPO from downstream consumers, especially the food processing, oleochemicals, and transport industries, and as such, this will expand by 3.0-5.0% per year (in terms of quantity). Nevertheless, declining supply and the diversion of this to the domestic market will mean that export volume will crash by -20.0% to -25.0% annually.

  • Growers: Income should strengthen on rising domestic demand and government help for the industry that will keep profits positive. However, farmers will be exposed to risk arising from the threat of drought and the impact of this on yields, global prices that will fluctuate with world demand, and the rising cost of fertilizer.

  • Crude palm oil mills: Turnover will tend to improve thanks to the increasing number of tourist arrivals, growth in commercial transport, and government measures that will boost consumption of biodiesel. Nevertheless, the market is affected by an oversupply of production capacity and by stiff competition for access to inputs, which is then adding to CPO production costs. This may put pressure on profits and some players may have to shoulder stock losses.

Chilled, Frozen and Processed Chicken

Situation in 2023

• Production of chilled, frozen, and processed chicken expanded 10.8% YoY to 2.4m tonnes across 9M23 as a result of: (i) stronger demand on domestic and international markets; and (ii) an average increase in selling prices at 44.6 Baht per kilogram (+2.4% YoY) that motivated production expansion. Domestic distribution  volume expanded 10.2% YoY, helped by the rebound in the tourism sector, growth in the economy, and recovering purchasing power that then fed through into higher demand from restaurants and the food processing industry. At the same time, exports volume expanded 6.2% YoY thanks to: (i) increased demand in the major markets of China and Japan following their reopening; (ii) the easing of restrictions on imports into China and the waiving of import tariffs on chicken products by South Korea through to the end of 2023; and (iii) outbreaks of bird flu in poultry in important importing nations (e.g., Japan and the EU) that cut yields and diverted demand to Thailand.

• These factors will continue to support strong demand in domestic and overseas as the year closes, though their impact on output will be partly offset by the high cost of animal feed and the easing of bird flu outbreaks in important export markets. For all of 2023, industry output should therefore rise by 5.0-7.0% on increases of respectively 6.0-8.0% and 4.0-5.0% in the quantity of goods distributed to domestic and overseas markets.

 

2024-2026 Outlook

• Total output of chicken products will expand 3.0-4.0% annually over the next 3 years to around 3.2-3.4m tonnes/year as producers move to meet ongoing growth in domestic demand and export markets. Domestic distribution is forecast to rise by 3.5-4.5% per year, helped by the positive outlook for the economy, and in particular by growth in the tourism, hotel, and restaurant industries, as well as by increasing consumer concern with personal health that is encouraging a switch to low-fat chicken products. The annual expansion in overseas sales will expand 2.0-3.0%, though growth will continue to be supported by: (i) strengthening consumer purchasing power; (ii) chicken’s low price relative to other meats; and (iii) Thailand’s improving trade relations with the Middle East, in particular with Saudi Arabia, where Thai producers’ adherence to halal standards is increasingly recognized.

• Headwinds challenging the industry will include: (i) thanks to advances with vaccinations and closed housing systems, the likely easing of bird flu outbreaks in export markets, thus reducing the need to buy from Thai suppliers and/or allowing buyers to source from elsewhere; (ii) the rising cost of animal feed, while strong supply will put downward pressure on prices; (iii) a broadening range of alternatives now that pork and beef prices are falling, resulting from respectively the clearing of ASF infections and the signing of the ASEAN-Australia-New Zealand FTA; and (iv) rising non-tariff barriers to trade, especially as a result of ESG-related concerns connected to animal welfare.

Canned Fish

Situation in 2023

• Output slipped -15.2% YoY in 9M23, split between declines of -17.7% YoY for canned tuna and -4.6% YoY for canned sardines. Weaker conditions were a result of falling yields, which were themselves a consequence of higher ocean temperatures, and this added to the cost of inputs. Tuna prices therefore climbed 12.9% YoY, while the cost of sardines was up 3.8% YoY. Domestic consumption volume of canned seafood edged up 1.2% YoY over the first 9 months of the year. In detail, sales volume of canned tuna jumped 37.8% YoY on the release of new product lines and stronger demand for healthier foods, especially among mid- to upper-income shoppers. However, the easing of the pandemic and reducing need to store food at home meant that consumers could eat out instead, and so sales volume of canned sardines fell -12.9% YoY. In the period, exports volume also suffered, dropping -15.4% YoY to 343.5m tonnes, with income from this down -10.2% YoY to USD 1.5bn. (i) Receipts from the sale of canned tuna contracted -16.8% YoY on higher production costs that then lifted export prices by 7.4% YoY to USD 4,649/tonne. Exports thus fell -16.6% YoY to the US, -20.1% YoY to Australia, and -77.2% YoY to Egypt. (ii) Export prices for canned sardines also edged up, rising 1.1% YoY to USD 2,626/tonne and thereby pulling down exports by -3.6% YoY, with declines of respectively -13.1% YoY and -8.9% YoY seen in the important markets of South Africa and the US.

• These factors will affect the market through the remainder of the year, and so 2023 production is expected to drop by between -12.0% and -14.0%. For producers of canned tuna, the emergence of an El Niño will continue to raise water temperatures and undercut the size of the catch, while for manufacturers of canned sardines, demand for food to stock at home has crashed, including the inventory level that remains high. Given this, domestic consumption volume will edge up by just 1.0-2.0%, helped by the development of new product lines that aim to meet the needs of both consumers looking for easy-to-prepare foods and those shopping for healthier products. Exports volume will continue to be squeezed by weak purchasing power in important markets and the switch by some consumers to fresh foods, and so overseas sales will shrink by between -14.0% and -16.0%.

2024-2026 Outlook

• Over the next 3 years, the domestic production of canned fish is expected to remain stable or increase by up to 1.0% annually. Growth will be constrained by the El Niño and the resulting warmer oceans, which will continue to limit the size of the catch, as well as by the high cost of imports, especially of tuna. However, annual growth in domestic consumption will run to 4.0-6.0% as the economy expands and spending power recovers, though demand will be especially strong from urban consumers looking for foods that are easy to prepare. Overseas sales will rise, strengthening by 1.0-3.0% per year as economies in export markets expand, but the effects of this will be limited by: (i) weaker demand now that the pandemic has passed and the need to stock food at home has receded; (ii) the signing of an FTA between China and Ecuador, one of Thailand’s competitors, which will now face lower costs when exporting into China; and (iii) the possible impacts of a Middle East war on the cost of packaging and fuel, which would add to overall business overheads.

 

FOOD & BEVERAGES

Ready-to-eat food

Situation in 2023

Domestic distribution will contract by between -1.0% and -2.0% by quantity in 2023 following the ending of the pandemic and with this, the decline in the need to store food at home and the return of diners to normal eat-in service in restaurants. Exports will edge up 1.5-2.0% because although competition is stiff and the cost of inputs has risen, players continue to benefit from: (i) confidence in the quality of Thai products and the popularity of their flavors; and (ii) worries over food security resulting from geopolitical tensions and possible declines in agricultural outputs.

• Instant noodles: The quantity of domestic distribution is expected to be down by -1.5% to -2.5% in 2023 (following a decline of -1.3% in 2022). Costs have risen but because prices are controlled by the government, manufacturers have responded by shifting their focus from domestic to overseas markets. Having slipped -3.6% in 2022, 2023 exports will thus climb by 6.0-7.0%, helped by the popularity of Thai products’ flavors as well as their low cost.

• Ready-to-eat meals: The quantity of domestic distribution is forecast to slip by -1.0% to -2.0% (this grew 3.6% in 2022) thanks to the return of consumers to eating out as normal and growth in the range of food delivery platforms from which to choose. Likewise, because the cost of inputs has risen and ready-to-eat products remain a second-choice preference relative to freshly prepared meals, exports have gone from growth of 2.6% in 2022 to a contraction of between -3.0% and -4.0% in 2023.

• Cereals: The quantity of goods distributed domestically should rise by 3.0-4.0% (+3.5% in 2022) on growing interest in personal health and ongoing urbanization, which is adding to demand for easy-to-eat foods. However, supply to world markets has risen and overseas consumers have access to a wider range of choices, so having jumped 11.5% in 2022, 2023 exports will be up by 1.0-2.0%.

• ​Soup: Consumer preference for fresh foods and increasing worries over personal health that have cut demand for salt-rich products will feed through into a -2.0% to -3.0% fall in domestic distribution quantity (growth was flat in 2022). These factors are also affecting overseas markets and so having slipped -7.3% in 2022, exports quantity will slump by another -12.5% to -13.5%. ​

2024-2026 Outlook

• Over the next 3 years, the overall quantity of goods distributed to the domestic market will rise by 3.0-4.0% annually on: (i) rising consumer spending power as a result of economic growth; (ii) expansion in distribution through modern retail outlets; (iii) the development of new product lines, especially of health foods; and (iv) increasing demand for easily prepared foods as economic activity bounces back. Exports will also expand, rising by some 5.0-6.0% per year. Overseas markets will be helped by: (i) a pick-up in economic activity; (ii) low prices, which will be especially attractive against the backdrop of the rising cost of living; and (iii) ongoing urbanization and the increasing access to these products (both online and offline) that this will bring.

• Risks facing the industry will include: (i) disruption to weather patterns that may affect supply chains and add to the cost of inputs; (ii) potential government action to place taxes on high-sodium foods; (iii) the imposition of NTBs (especially relating to environmental issues) that will push manufacturers to adjust their production processes and switch to different packaging, thus adding to costs; and (iv) higher transportation and packaging costs as a result of war and other geopolitical tensions.

​Beverages

Situation in 2023

• Output slipped -3.8% YoY over 9M23 following the introduction of stage 3 of the sugar tax in April 2023, which encouraged producers of non-alcoholic drinks to cut back on output and instead to run down inventories. At the same time, production by brewers and distillers was hit by the rising cost of inputs (prices for malt and unmilled rice were up by respectively 33.4% and 17.7% YoY). Domestic distribution by quantity rose 6.7% YoY on a 9.8% YoY increase in sales of non-alcoholic drinks that was driven by: (i) the summer heatwave; and (ii) the improving outlook for the restaurant, hotel, and tourism industries. However, increasing concerns with personal health and the run-up in the cost of living, which encouraged some consumers to cut back on unnecessary spending, meant that demand for alcoholic drinks fell -2.9% YoY. Exports volume also edged down -1.6% YoY as a result of: (i) weakening consumer purchasing power in overseas markets, especially in Cambodia and Myanmar; (ii) the neighboring country's currency has depreciated, leading to increased costs for imports; and (iii) the imposition of barriers to the import of some beverages from Thailand.

• For all of 2023, output will decline by -3.5% to -4.0% due to consistently high prices of raw materials such as rice (+17.7% YoY) and sugarcane (+6.6% YoY). Additionally, there is an accumulation of high inventory levels (+16.3% YoY). Domestic distribution quantity to increase of 4.0-6.0% in domestic distribution. However, as a result of continuing blocks from major traders on imports volume from Thailand, exports will be down by between -0.5% and -1.5%.

2024-2026 Outlook

• Output is expected to expand by 1.5-2.5% per year over the next three years, lifted by accelerating economic activity and the development of new product lines, in particular drinks targeting more health-conscious consumers. Domestic demand volume should strengthen by 3.0-4.0% annually on: (i) the hotter weather that the current El Niño will bring; (ii) the continuing rebound in industries connected to tourism, eating out, and nightlife; (iii) growth in modern trade, which will increase consumer access to manufacturers’ product lines; and (iv) strengthening consumer spending power, which will track growth in the economy. Exports volume will expand by 1.5-2.5% per year thanks to the expected opening up of border crossings linking to neighboring countries. Non-alcoholic drinks remain popular in overseas markets, but sales of alcoholic drinks will come under pressure from weak purchasing power, and as consumers cut back on purchases of these, exports will decline.

• Risks facing the industry will include: (i) higher costs as a result of El Niño-induced reductions to crop yields; (ii) the sugar tax; (iii) rising concerns with personal health and prohibitions on advertising alcoholic drinks; (iv) stiffening competition in the beer market due to the entrance of new players; and (v) the potential impact of war on the cost of packaging and of oil.

ENERGY & UTILITIES

Power Generation

Situation in 2023

• Over 9M23, demand for electricity rose 2.6% YoY. Compared to 9M22, demand from households (28.6% of all demand) was up 6.2% following hotter than normal weather, while the rebound in the tourism sector meant that demand from businesses (24.5% of the total) jumped 8.4%. However, consumption of electricity by industry (42.1% of the total) fell -3.4% following the -3.4% contraction in the export sector. Demand was also affected by the need to raise tariffs to reflect higher energy costs (gas prices were up by an average of 20.6% YoY), and the Ft charge also rose to THB 2.471 per unit for business and industrial buyers. Peak demand hit 34,130.50 MW in May, a 5.8% increase from 2022’s maximum.
  
  Electricity consumption will continue to strengthen through the rest of 2023. Demand will be lifted by the return to growth of the export sector (exports continued to expand as the 3rd consecutive month in October 2023), the end of year celebrations, and government help with electricity bills (tariffs are now down to THB 3.99/unit from an average of THB 4.86/unit in 1H23). Given this, overall demand is expected to increase by 3.0-3.5% this year, compared to growth of 3.6% in 2022. 

​

 

• Total electricity generation increased 2.9% YoY in 9M23, compared to 9M22. Production by EGAT (32.0% of the total) rose 8.8% (this came from natural gas and large scale-hydro power, while for IPPs (25.1% of the total), SPPs (23.4%) and VSPPs (5.5%), increases of respectively 8.2%, 2.6% and 2.3% were reported. However, imports of electricity (14.1% of the total) slipped -14.6%. The most widely used fuel was natural gas (responsible for 58.0% of power generation), usage of which jumped 12.4% YoY, partly due to new power stations coming online. Production from renewables (10.4% of the total) also rose 6.5% YoY.

• As of 1H23 (the latest data available), contracts to supply the grid showed that total installed renewables capacity came to 9,946 MW, up 2.1% from the end of 2022, with supply from biomass and solar increasing by respectively 2.8% and 3.2%. Actual supply to the grid stood at 37.2% of the 26,491 MW target set out in the AEDP for 2037, though for biomass, installed capacity was 66.9% of the 5,790 MW target.

2024-2026 Outlook

• Business conditions will continue to improve, and electricity consumption is expected to rise by an average of 4.0-5.0% annually. Demand will be boosted by ongoing domestic economic growth. Installed capacity will rise with the implementation of the PDP and ADEP, and this will then support an expansion in private-sectors investment and generating capacity. Trends for investment and income for individual segments are described below.

  • IPPs: Income will improve as operators invest in new gas-fired power plants in the Northeast and South that will replace 6,969 MW of supply for which supply contracts are expiring over 2030-2037. Players will also benefit from investments in renewables and hydrogen-based power generation.

  • SPPs: Income will gradually strengthen on: (i) investment in new natural gas cogeneration plants to replace power plants coming to the end of their life in 2025; (ii) costs for power generation by SPP hybrid firms that will run to just THB 1.89/unit compared to expected tariffs of THB 4.0/unit; and (iii) investment in new power plants in the EEC.

  • VSPPs: Income and investment should become more predictable thanks to: (i) government plans to increase purchases of power from renewables to 11,095 MW by 2030; and (ii) the enforcement of net zero policies through BOI investment support schemes, which will offer tax waivers to electricity producers exploiting sources of clean energy.

 

Oil Refineries
 

Situation in 2023

• A 2.1% expansion in demand for refined products supported an improving outlook for refineries over 9M23. Demand was boosted by recovery in the tourism sector and the resulting uptick in activity in the transport industry, which then contributed to increases of respectively 4.9% and 65.2% YoY in consumption of gasoline and jet fuel. However, exports contracted -3.4% YoY, undercutting demand from industry and reducing consumption of diesel and fuel oil by -4.5% and -11.4% YoY. At the same time, Thai gross refinery margins (GRMs) tightened on sluggishness in the global economy and falling crude prices (Brent prices were down -20.7% YoY in the period). These thus moved in line with Singapore GRMs, which narrowed from USD 14.7/bbl in 1H22 to an average of USD 6.1/bbl in 1H23.

• Through the latter half of 2023, GRMs should widen slightly relative to their level in 1H23 due to elevated oil prices. OPEC+ cuts to production quotas and the fighting between Hamas and Israel will tend to keep crude prices high, and so for all of 2023, Dubai crude is forecast to average USD 83/bbl (-13.8% YoY). The market will also be affected by the New Year celebrations, and so overall domestic demand for refined products for the whole year should be up by 2.0-2.5%, while GRMs will average USD 6.0-6.5/bbl, down from USD 11.1/bbl in 2022.

2024-2026 Outlook

Krungsri Research sees Dubai crude prices averaging USD 87/bbl across 2024 on a combination of OPEC+ production cuts that aim to keep supply tight and prices high, and geopolitical risks arising from the ongoing Ukraine-Russia war and the fighting in the Middle East, which will periodically add to market worries. Crude prices will thus remain volatile and elevated in 2024, but these are expected to slip back to USD 80/bbl and USD 76/bbl in 2025 and 2026 as fighting subsides, though prices are unlikely to return to their pre-Covid level. Details of the market outlook are given below.

• Domestic demand for refined products will expand by some 3.0-3.5% per year, tracking an uptick in economic activity that will support growth in the economy of 3.0-3.4% annually. Growth will come in particular from the rebound in the tourism sector, with tourist arrivals now expected to return to their pre-Covid level by 2025, as well as from anticipated 3.0-4.0% annual growth in sales of new autos. Overall demand will thus increase from both the industrial sector and the transport industry.

• Domestic pump prices will rise in 2024 on higher crude prices before easing back somewhat in the subsequent two years. Prices for gasoline are therefore expected to increase to THB 46/liter in 2024 but then to fall to THB 44/liter and THB 42/liter in each of 2025 and 2026. Over the same 3 years, diesel prices are forecast to average THB 33.5/liter, THB 32.5/liter, and THB 31.5/liter.

• GRMs are expected to be in the range of USD 6-7/bbl, which is higher than USD 5/bbl observed during the pre-COVID period from 2012-2019. Thanks to ongoing economic growth and rising demand, capacity utilization is also expected to be in the range of to 85-90 %.

Ethanol

Situation in 2023

• Demand for ethanol contracted -8.7% YoY to an average of 3.6m liters/day over 9M23. Declines were driven partly by EVs’ increasing market penetration, and partly by the -80.5% YoY crash in demand for E85 gasohol. The latter was a consequence of the Oil Fund ending its price support, which then encouraged consumers to switch to lower-priced E10 (95) (58% of gasohol sales) and E20 (19.1% of sales), leaving E85 with just a 0.6% market share, down from 3.1% in 9M22. Demand for ethanol should pick up through the remainder of 2023 as the tourism industry moves into the high season (October 2023-March 2024) and the country celebrates New Year, and this will then help to limit annual declines to -6.7%. 2023 daily consumption should average 3.6m liters/day, down from 3.9m liters/day in 2022.

• Over 9M23, output averaged 3.8m liters/day (-8.9% YoY). Molasses-based production averaged 2.35m liters/day (-6.9% YoY), cassava-based production came to 1.2m liters/day (-15.3% YoY), and production from sugarcane totaled 0.2m liters/day (+12.4% YoY). Output should increase over Q4 on stronger demand, and so for 2023, production is forecast to decline by between -2% and -3% YoY. Capacity utilization will also slip from 2022’s 59.5% to 58.0%.

• The high cost of inputs has squeezed margins. In particular, cassava shortages have increased pressure on supplies from other industries, including producers of animal feed, and this then pushed up the cost of fresh cassava by 17% YoY to an average of THB 2.9/kg. As such, the cost of producing ethanol from fresh cassava rose 11.2% YoY to THB 26.2/liter, while prices for cassava chip climbed 6.4% YoY to an average of THB 7.2/kg, lifting the cost of using this to produce ethanol to THB 27/liter (+4.4% YoY). Likewise, weak domestic sugarcane yields in 2022 kept prices elevated into 2023, although these dropped -36.8% YoY to THB 5.3/kg, undercutting prices for ethanol production by -30.3% YoY to THB 29.7/liter.

 

2024-2026 Outlook

• Over the next 3 years, demand for ethanol is forecast to strengthen by 2.0-2.5% annually to around 3.5-3.8m liters/day. Tailwinds supporting the market will include the following:

  • Demand for transport fuels will rise on an improving outlook for the transport sector and for the economy overall. Domestic tourism will return to its 2019 pre-Covid level in 2023, while international tourists are expected to increase to levels seen in 2019 within the year 2025.

  • The authorities plan to make E20 the standard gasohol mix. This will thus be priced THB 3 cheaper than gasohol 95, and E10 (91) and E85 will gradually be withdrawn from sale.

  • The number of vehicles on Thai roads running on gasohol is forecast to grow by 1.5-2.5% per year, and all new models will be capable of running on E20.

  • In addition to its other uses as a source of alcohol and as a fuel, the authorities are promoting ethanol as an input into the production of bioplastics. Thai and overseas players have thus engaged in joint ventures to manufacture bio-polyethylene using ethanol as a feedstock.

Biodiesel

Situation in 2023

• 9M23 production of biodiesel surged 25.3% YoY to an average of 4.5m liters/day on an increase in economic activity, which was driven in particular by the rebound in the tourism sector, and as Thai and international tourist numbers rose, demand for travel services climbed. In addition, demand was boosted by the government decision to increase the standard diesel mix from 5% (B5) to 7% (B7) biodiesel. This aimed to: (i) support domestic prices for crude palm oil (CPO) following the return of Indonesian exporters to global markets, which added to global yields and undercut prices; and (ii) alleviate the cost-of-living crisis by reducing diesel pump prices (biodiesel prices crashed -31.2% YoY over 9M23). As a result, consumption of B100 biodiesel jumped 21.1% YoY to a daily average of 4.35m liters.

• Demand will continue to strengthen across Q4 due to the decision to extend the use of B7 as the standard diesel mix through to the end of 2023 (to firm up softening CPO prices) and the additional demand triggered by the year-end celebrations. Average daily output and consumption of biodiesel in 2023 is expected to come to respectively 4.6m liters (up 20% YoY) and 4.4m liters (up 16.3% YoY). Capacity utilization will rise to 44.6% from 37.1% last year.

• The biodiesel reference price slumped -31.2% YoY to THB 33.9/liter, or THB 39.2/kilogram. Prices were driven down by the increase of domestic supply, which at 0.285m tonnes/month was ahead of average demand of 0.206m tonnes/month, and as such, domestic CPO inventories swelled. Global yields of palm oil rose, and so Thai exports underwent a significant contraction. The net result of this is that domestic prices for CPO and palm stearin slumped -34.0% YoY and -33.9% YoY to THB 31.2/kg and THB 31.8/kg. Alongside this, the CPO-biodiesel spread also narrowed from THB 9.6/kg in 9M22 to an average of THB 8.0/kg in 9M23.

2024-2026 Outlook

• Conditions will remain positive for the biodiesel industry through the next 3 years, with demand likely to expand by 5.0-6.0% per year to an average of 4.5-5.0m liters/day. Positive factors affecting the market will include the following.

  • Demand for diesel-powered transport will strengthen on: (i) predicted economic growth together with the revival of the tourism industry (arrivals should hit 43m by 2026); (ii) ongoing expansion of the e-commerce sector, which will boost demand for commercial transportation services, especially for delivery by pick-ups; and (iii) an average annual increase of 3.0-4.0% in the number of diesel-powered vehicles on Thai roads.

  • The government will aim to balance the market for palm oil by promoting consumption of biodiesel. This will involve absorbing additional supply and placing a floor under prices by increasing the proportion of B100 biodiesel included in the regular diesel mix, better managing palm oil stocks, and extending the timeframe for making subsidies to fuels that include biofuels until 24 September 2024.

  • Auto manufacturers are developing diesel engines that can run on much higher biodiesel mixes in large commercial vehicles, pickups, SUVs, and trucks.

 

PETROCHEMICALS

Petrochemicals

Situation in 2023

• Domestic demand for petrochemical products fell -20.9% YoY over 9M23 on the -3.4% YoY contraction in the export value, which then weighed on sales into downstream industries using petrochemicals as an input. However, the reopening of China, Thai players’ primary overseas market, lifted the volume of Petrochemical exports by 34.9% YoY, though weak demand from industrial consumers fed into a drop in prices for some product groups. At the same time, strength in oil markets (prices for Brent averaged USD 82/bbl) meant that the cost of precursors remained high, and so for many products, spreads tightened. Continuing growth in the tourism sector and traditional New Year celebrations will boost consumption through the rest of the year, helping to hold the decline in demand across 2023 to somewhere between -10.0% and -15.0% YoY, while exports will be up by 35.0-40.0% YoY.​

  • Naphtha: Prices averaged USD 649.8/tonne (-19.9% YoY) in 8M23 due to the high cost of oil (prices remained significantly above 2019’s USD 530.8/tonne). For all of 2023, naphtha prices should average USD 650/tonne.

  • Upstream petrochemicals: Over 8M23, spreads averaged USD 247.4/tonne (-23.8% YoY) for ethylene and USD 250.4/tonne (+8.2% YoY) for propylene. For the year, these should remain roughly unchanged at USD 247/tonne and USD 250/tonne respectively.

  • Downstream petrochemicals: 8M23 spreads averaged USD 112.8/tonne (+70.0% YoY) for HDPE and USD 87.1/tonne (-78.6% YoY) for polypropylene, while for all of 2023, spreads will run to USD 112/tonne and USD 87/tonne respectively.

2024-2026 Outlook

• Demand will rise over the next 3 years as the global economy strengthens (the IMF expects global GDP to expand by 2.9-3.2% in the period), lifting consumer purchasing power and adding to demand for petrochemicals from downstream industries. However, the impact of these tailwinds will be limited by bans on the distribution of single-use plastics and the promotion of low-carbon, environmentally friendly alternatives. Supply will also be affected by an expansion in production capacity coming in particular from new facilities in China and the Middle East, and this will then put downward pressure on prices for some products. As such, demand on domestic and export markets is forecast to expand at average annual rates of 2.0-2.5% and 0.5-1.0%.

• In the coming period, players will tend to overhaul production lines as they switch to the manufacture of specialty products such as ABS because by responding better to the needs of S-curve industries (e.g., manufacturers of EV auto parts, batteries, and medical devices), they will be well placed to add additional value to their product lines. Players will also adapt to deepening environmental concerns by placing a greater emphasis on the production of biodegradable, recycled and food grade plastics.

CHEMICAL

Pharmaceuticals

Situation in 2023

• Demand has continued to rise on: (i) the ending of the pandemic and the return of life to normal, which has increased rates of illness; (ii) improved access to medications via the extension of the universal healthcare scheme; (iii) the rebound in the market for health tourism (total tourist arrivals should be back to 27.7m this year, up from 11.2m in 2022); and (iv) an increase in the quantity of treatments distributed through hospitals to elderly patients and those suffering from non-communicable diseases (especially for hypertension and diabetes). Pharmacies have also benefited from the switch to distributing medicines through these (part of the Gold Card scheme), and so for all of 2023, the value of the pharmaceuticals market is forecast to grow by 5.5-6.0%, mirroring 2022’s growth of 5.7%. For 9M23, the situation was as follows.

  • Domestic production and consumption of pharmaceuticals^1/ was lifted by the return of patients to hospitals for the treatment of general conditions and of the spread of seasonal diseases. Data for 9M23 show that infections with notifiable diseases jumped 96.6% YoY, with cases of influenza up 517.5% YoY, and dengue fever up 261.8% YoY. Sales rose 2.0% YoY for tablets (47.6% of the market), +5.9% YoY for solutions (22.9% of the market), +12.5% YoY for injectables (8.5% of the market), +8.1% YoY for capsules (7.9% of the market), +20.0% YoY for creams (7.8% of the market), and +7.3% YoY for powders (5.3% of the market). However, capacity utilization slipped from 61.5% in 2022 to 59.5%. 

  • Exports of medicines and medical supplies inched down -0.9% YoY to THB 12.2bn on a -29.5% YoY slump in demand for vaccines (6.4% of total pharmaceutical export value), although treatments for diseases and ‘other’ products (93.6% of the total) increased by 2.0% YoY. Thai exporters’ main market is the CLMV nations (50.6% of the total), though sales into these declined -9.9% YoY, while combined exports to Hong Kong, Japan, and the Philippines (19.5% of the total) climbed +27.6% YoY. At the same time, exports of vaccines increased to Hong Kong (+206.2% YoY), Cambodia (+10.6% YoY) and Myanmar (+8.9% YoY). In the period, imports of pharmaceuticals contracted -12.5% YoY to THB 76.5bn on an increase in the domestic production of some products. Thus, imports including vaccines fell -31.1% YoY from Germany, -30.1% YoY from the US, and -13.4% YoY from India. Imports of vaccines (29.2% of total pharmaceutical import value) crashed -43.9% YoY on the effective ending of the Covid-19 pandemic, with demand for Moderna and Pfizer products thus suffering.

2024-2026 Outlook

• Distribution to the domestic market is forecast to expand by 5.5-6.5% annually, helped by: (i) the rising number of individuals affected by ill health, in particular by non-communicable diseases (due to increasing urbanization and the aging of Thai society); (ii) the emergence of new diseases2/; (iii) expanded universal health coverage (especially via the Gold Card scheme), which will increase access to pharmaceuticals distributed through hospitals and pharmacies; (iv) greater concern with personal health and preventative healthcare, which is increasing demand for products to boost immunity and to prevent infections; and (v) technological developments and the spread of online platforms that will integrate pharmaceutical supply chains from manufacturers through to patients, thereby increasing access to medicines.

• Challenges facing the industry will include: (i) the increasing number of importers active in the market, which will expose domestic producers to challenges from more competitive suppliers based overseas; and (ii) rising production costs, a result of the need to adapt production to the GMP-PIC/S standards and of more expensive imports of active ingredients.
   

Chemical Fertilizers

Situation in 2023

• The fertilizer market strengthened through 9M23 on: (i) rising farmgate prices, especially for the major fertilizer-hungry crops of rice (up 27.7% YoY) and sugarcane (+7.6% YoY), as well as for cassava (+16.2% YoY) and maize (+9.6 % YoY); and (ii) the falling global cost of energy (Brent Crude dropped -20.7% YoY), which then reduced pressure on fertilizer prices. Domestic fertilizer prices thus softened on cheaper inputs, especially of urea (-20.4% YoY), and this then encouraged farmers to expand the area under cultivation, with the result that yields edged up 1.6% YoY. Favorable weather and continuing access to irrigation water will sustain demand for fertilizer through the remainder of the year and, so for 2023 overall, demand for fertilizer should be up 2.2% to 5.52m tonnes. Details of market conditions follow:

  • Imports of straight fertilizer (69.8% of fertilizer imports by volume) and mixed fertilizer (30.2% of imports) were up 12.9% YoY to 4.1m tonnes, though the cost of these contracted -31.9% YoY to THB 63bn. Increases in imports were most pronounced from Saudia Arabia (22.2% of imports), for which these were up 33.0% YoY, China (16.9% of imports, up 16.3% YoY) and Malaysia (10.6% of imports, up 27.5% YoY), though supply from Russia (7.9% of imports) was down -5.1% YoY. Imports should continue to increase through to the end of the year, partly to build stocks to protect against possible future shortages. 2023 imports are thus expected to rise 13.0% YoY to 4.77m tonnes.

  • Exports edged up 3.3% YoY to 0.39m tonnes (5.0% of total Thai production), generating receipts of THB 6.7bn (-17.5% YoY). Improvements were seen in sales into Cambodia (35.4% of exports, up 13.5% YoY) and Lao PDR (24.7% of exports, up 23.1% YoY). Across 2023, overseas sales are expected to rise 3.5% YoY to 0.47m tonnes.

  • The cost of imports tracked prices on global markets, crashing -39.7% YoY in the period. These thus averaged THB 13,799/tonne (-42.7% YoY) for straight fertilizer and THB 19,157/tonne (-34.4% YoY) for mixed fertilizer. However, suppliers continued to hold inventory bought when prices were elevated and so domestic wholesale and retail prices slipped only slightly. Average prices for straight and mixed fertilizer therefore came to THB 22,945/tonne (-3.1% YoY) and THB 23,028/tonne (+5.9% YoY).

2024-2026 Outlook

• The market will continue to grow over the next few years at a rate of 2.0-3.0% annually. Demand will be boosted by: (i) steady expansion in the Thai economy, which will then increase demand for food crops; (ii) stronger international demand for food that will push up prices, especially for crops such as sugarcane, rice, and cassava (the World Bank sees the global Food Price Index averaging 126.9 over 2024 and 2025, compared to just 89.2 in 2017-2019), while in addition, many countries will try to improve food security and hedge against shortages by building stocks; and (iii) with prices rising, Thai farmers will tend to expand the area under cultivation. Nevertheless, the emergence of an El Niño has significantly raised the risk of severe drought in 2024 and 2025, which would then result in a drop in yields. Demand may be further undercut by the switch by some farmers to the use of organic fertilizers as they respond to increased interest in environmental and health issues. Alongside this, the falling cost of inputs will be reflected in steadily weakening domestic prices.

• Operators will tend to extend and strengthen income streams by expanding the range of distribution channels that they use. This will include adding value to their products by producing bespoke fertilizers, exploiting online channels to extend their reach, and expanding into high-potential markets in the CLMV nations.

AUTOMOTIVE & PARTS

Automobiles​

Automakers​

Situation in 2023

• Auto production expanded 1.6% YoY over 9M23 to a total of 1,385,971 units. Assembly lines began to flow more freely once supply chain disruptions had begun to clear, although the industry continued to be troubled by the ongoing US-China tech war and the resulting periodic shortages of some advanced chips. In the period, production of PHEV and HEV cars jumped by respectively 62.6% and 64.4%, dramatically ahead of the 6.2% increase in output of ICE-powered cars.

• 9M23 domestic distribution contracted -7.4% YoY to 586,870 vehicles on a -20.2% YoY slump in demand for pick-ups, as lenders tightened loan conditions in the face of rising NPLs. This was a result of weakening purchasing power, rising cost of living, higher interest rates, and escalating household debt, particularly affecting the agricultural household. As a result, lower-middle income earners tended to postpone auto purchases, although a revival in economic activity and the rebound in the tourism sector fed a 15.6% YoY rise in sales of passenger cars.

• 9M23 exports increased 16.3% YoY to 821,899 vehicles. Sales figures benefited from comparison with 9M22, when severe semiconductor shortages handicapped production, and so this year, exports have accelerated to make up for 2022’s shortfalls. Export growth was especially noticeable in Saudi Arabia (+64.9% YoY), the ASEAN region (+29.5% YoY), Australia (+8.3% YoY) and Japan (+10.0% YoY).

• As a result of these factors, production and exports are forecast to expand by respectively 1.0-2.0% and 11.0-12.0% across the year as a whole, although distribution to the domestic market will be down by between -4.0% and -5.0%.

2024-2026 Outlook

• Auto output will increase as investments by major manufacturers in new chip fabs pay off and supply to world markets improves. The implementation of government measures to support EV production over 2024 and 2025 together with the requirement to increase domestic production of EVs to compensate for earlier imports will mean that the share of these in total industry output will rise rapidly.

• Domestic orders will tend to increase on an uptick in economic activity and the continuing rebound in the tourism sector, which will add to demand for passenger vehicles. Accelerating government spending on infrastructure will also drive additional demand for delivery trucks, though the El Niño will likely cut crop output, and this will eat into sales of commercial vehicles in the provinces.

• Exports will continue to strengthen, helped by a combination of economic growth in overseas markets and the release of pent-up demand now that chip supplies have improved and manufacturers are able to tackle the backlog of orders.

• Given the impact of these factors, output and domestic and international sales should all strengthen by 3.0-4.0% annually.

Situation in 2023

• Over 10M23, the number of new electric vehicle (xEV) registrations in Thailand increased sharply in all product categories, rising 96.1% YoY for passenger vehicles/cars (to 139,435 vehicles), 187.6% YoY for buses (to 1,211 vehicles), and 797.7% YoY for pickups and trucks (to 395 vehicles). Sales were lifted by: (i) government support in the form of both subsidies and cuts to excise duties; (ii) the broadening range of models now on sale (as of July, 2023, 37 EV models produced under 21 marques were available to the public); and (iii) continuing improvements to EV efficiency (as of 2023, BEVs in the THB 0.8-1.0 m band had an average single-charge range of over 400km, as per the UN Worldwide Harmonised Light Vehicle Test Procedures (WLTP).

• xEV accounted for respectively 23.9% and 17.3% of all new registrations of passenger cars and buses in the period, although for pickups and trucks, EVs represented just 0.19% of new registrations. Sales of the latter have suffered from their restricted operating range, the lack of charging stations upcountry, and their relative unaffordability. In addition, while EV cars have benefitted from their phased introduction to the market, from HEVs to PHEVs and then BEVs, the market for EV buses and commercial vehicles has transitioned straight from ICE-powered vehicles to BEVs, and adaptation to this change will take some time.

• Sales are expected to accelerate through the remainder of 2023, helped by: (i) the need to meet the conditions set out in the government’s EV3.0 support scheme by the end of 2023, which should particularly impact the number of EVs sold at the December Motor Show; and (ii) the increasing use of private EV buses in Bangkok. For all of 2023, new registrations of xEV cars, buses, and commercial vehicles should thus come to approximately 170,000, 1,500 and 500 vehicles, respectively.​

 

2024-2026 Outlook

• Registrations of new xEV cars, buses and commercial vehicles are expected to increase by an annual average of 270,000, 2,500 and 1,000 vehicles each over the next 3 years, benefit from: (i) the government’s EV3.5 support scheme (2024-2027), which will subsidize purchases of EVs by THB 50,000-100,000 per vehicle over 2024-2027; (ii) falling prices as more models become available and more manufacturers begin EV production; (iii) expanding domestic BEV car production over the next 4 years aligned with BOI’s incentive packages to produce for import compensation; (iv) a hike in excise rates in 2026 that will pull demand forward; and (v) increasing usage of public and private EV buses (e.g., plans for the EEC see the number of EV buses on the road there increasing to 6,000 by 2028).

• However, the market will have to contend with several headwinds, including: (i) the likely insufficient increase in the number of charging stations; (ii) restrictions on approvals for EV car loans; (iii) all EV buses domestically produced are air-conditioned, while the Department of Land Transport still restricts the proportion of air-conditioned buses to control transportation costs for the lower- to mid-income consumers; and (iv) the continuing limited range of EVs, which restricts their use in inter-province transportation.

 

Motorcycles

Situation in 2023

• Stronger domestic and export markets supported an 11.1% YoY rise in output of motorcycles over 9M23, which then rose to 1,638,051 vehicles.

• The number of motorcycles distributed to the domestic market climbed 6.2% to 1,446,338 vehicles in the period. Demand benefited from recovery in the tourism sector and transport and delivery industry, especially for food delivery and e-commerce services. Growth should continue through Q4, helped further by higher prices for crops including rice, cassava, sugarcane, corn, and oil palm, and the increases in agricultural incomes that this will bring. However, the run-up in the cost of living and continuing problems with high levels of household debt are feeding a rise in NPLs, and with lenders responding to this by tightening credit conditions, growth has slowed through the second half of the year (down from +9.6% YoY over 6M23).

• Exports bounced back to a total of 351,548 vehicles in 9M23 (up 22.8% YoY, though this was in comparison to a low 2022 baseline). As elsewhere, the clearing of problems with chip supplies allowed manufacturers to catch up with the backlog of unfilled export orders, especially for big bikes since production of these is much more chip-intensive. In addition, the reopening of countries also allowed for the release of pent-up demand in export markets.

• For all of 2023, output and distribution to domestic and export markets is expected to rise by respectively 5.0-6.0%, 4.0-5.0%, and 9.0-10.0%.

2024-2026 Outlook

• The number of motorcycles coming off Thai production lines should expand by 3.0-4.0% annually over the next 3 years thanks to stronger demand and an uninterrupted supply of semiconductors.

• Domestic distribution is expected to strengthen by some 4.0-5.0% per year. Sales will benefit from strong growth for last-mile delivery services for both food and goods in urban areas, as well as from ongoing recovery in the tourism sector, though local tourism in the provinces will be an especially important driver of increased demand for motorcycles. Nevertheless, high levels of household debt will encourage lenders to keep a tight control on the release of new credit, and this will limit the rate at which sales expand.

• Exports will expand by 3.0-4.0% per year, although the growth will be at a slower pace from its 2023, supported by i) the reopening of neighboring countries and the rebound in pent-up demand, and ii) the easing of supply chain disruption that then allowed manufacturers to make up for unfilled orders, especially for exports of modern motorcycles and chip-hungry big bikes. However, global markets are swiftly transitioning to a much greater focus on electric motorcycles, but at present, Thai exporters are highly dependent on sales of ICE-powered vehicles, and so manufacturers will need to adapt to rapidly changing conditions.

 

Auto parts

Situation in 2023

• Output of auto parts contracted over 9M23, with the industry’s MPI falling by -8.0% YoY in the period. Production was undercut by periodic chip shortages that slashed production of electronic parts by -18.0% YoY, while the accelerating switch to EVs reduced output of engines for ICE-powered vehicles by -1.9%. Alongside this, weakening domestic auto sales (-7.4% YoY) and an only slight increase in overall auto output meant that domestic demand for auto parts remained soft. Likewise, exports slipped -2.0% YoY. In particular, overseas sales of tires were impacted by US anti-dumping measures that have been in effect since May 2021 and that have eroded Thai exporters’ competitiveness relative to those from countries such as India, Indonesia, and Japan. Similarly, the sharp increase in worldwide sales of EVs has also impacted demand for internal combustion engines.

• Both output and domestic demand for auto parts should strengthen in the remainder of 2023. Firmer demand will come from the OEM market, which will be lifted by anticipated growth in production of autos and motorcycles of respectively 1.0-2.0% and 5.0-6.0% in 2023. The REM market may also expand slightly on a possible increase in demand for spares and replacements for vehicles over 5 years old as some consumers who would like to buy an EV have postponed their purchases waiting for further technology development and the increase in the number of charging stations, and these will thus need to maintain aging vehicles in the meantime. However, the market will continue to be affected by high interest rates and weakness in the global economy that will drag on exports. For all of 2023, the value of auto parts production and of exports of these will contract by respectively -4.0% to -5.0% and -1.0% to -2.0%.
   

2024-2026 Outlook

• Production of auto parts will expand by 3.0-4.0% annually over the next 3 years as investments in new production facilities ensure that problems with chip shortages will ease. Domestic demand will also be boosted by: (i) ongoing economic growth and rapid recovery in the tourism sector; (ii) government spending on infrastructure megaprojects; (iii) continuing growth in e-commerce and delivery services that will then lift demand from the OEM market; and (iv) an average 2.0-3.0% annual expansion in the number of vehicles over 5 years old, which will add to demand from the REM market. An improving economic outlook in overseas markets will boost exports by 2.0-3.0% annually, while growing global output of EVs will accelerate production of parts including battery management systems, traction electric motors, drive control units, cabling, connector blocks, plastic and rubber parts, and bodywork. However, parts used in ICE-powered vehicles (e.g., engines, transmission units, gears, radiators, and exhaust systems) will see their export value decline.

 

ELECTRONICS & ELECTRICAL APPLIANCES

 

Electronics

Hard Disk Drives (HDD)

Situation in 2023

• Over 9M23, the HDD MPI contracted -17.8% YoY alongside a -35.3% YoY slump in the value of exports (Thai players’ main market) that was driven by: (i) weakening demand from data centers and IT consumers following the pandemic-era bulge in orders and disruption to manufacturing supply chains; (ii) the rising cost of living and weaker economic conditions in overseas markets, which helped to feed a -22.0% YoY drop in global computer sales; and (iii) the increasing displacement of HDDs by faster and less energy-hungry solid state drives (SSDs).

• Through the rest of 2023, these factors will continue to undercut the production and export of HDDs, and so for all of 2023, output volume and export value will contract by respectively -16.0% to -17.0% and -30.0% to -35.0% YoY.

2024-2026 Outlook

• Sales of HDDs will continue to soften on falling global demand for IT equipment, although Thailand will retain its position as one of the world’s major producers and exporters of HDDs. Over the short term, demand will be lifted by upgrades to Windows 11 and the post-Covid surge in purchases of new PCs, which will rise by 4.9% globally in 2024 (source: Gartner), but through 2024-2026, output and exports of HDDs will contract by respectively -14.0% to -15.0% and -30.0% to -35.0% annually.

 

Integrated Circuits (IC)

Situation in 2023

• The IC MPI edged down -2.8% YoY over 9M23, with growth in export value slowing from 14.2% pa over 2021-2022 to 6.4% YoY on a drop in sales of semiconductors and PCs of respectively -18.8% and -9.0% YoY. This was caused by: (i) high inflation and sluggishness in the world economy that undercut spending power; and (ii) the impacts of the US-China tech war on supply chains, especially as a result of restrictions on the export of semiconductors and minerals used in chip production.

• Overall global demand for semiconductors will be lifted through Q4 by: (i) a new round of PC upgrades driven by the switch to Windows 11, which Gartner expects will support stronger global demand for PCs as the year ends to lift 2023 sales by 4.9% YoY; and (ii) demand for chips to use in EV production that is increasing worldwide. These factors will help support improvement of MPI to decline at a slower pace between -1.0% and -2.0%, while exports of ICs will rise by 5.0-6.0% in 2023.

2024-2026 Outlook

• Global semiconductor sales will strengthen on several positive trends. (i) Demand for AI chips for use in AI-based applications will increase (e.g., in data centers, edge infrastructure, and endpoint devices). Gartner thus estimates that sales of AI chips will jump 25.6% in 2024. (ii) Demand for use in EVs will continue to rise especially with increasing progress on EV full driving automation (the IEA sees global EV sales surging by 18.9% annually over 2023-2030). (iii) A round of PC upgrades is expected in 2024. Stronger global sales and increased investment by overseas players in Thailand-based electronics manufacturing will further support expansion in both domestic production and exports. Over 2024-2026, the production and export are therefore expected to expand by respectively 2.0-3.0% and 4.0-5.0% per year.
  ​

Electrical Appliances

 

Situation in 2023

• Production slipped -6.0% YoY to 38.38m units in 9M23, in accordance with a -5.9% YoY contraction in domestic sales to 10.86m units as rising inflation and high levels of household debt eroded consumer spending power and the housing market remained sluggish (-19.9% YoY decrease in units sold), though the rebound in the tourism sector and hotter than normal weather boosted sales of air-conditioning units by 5.1% YoY. Comparison with the 2021-2022 high baseline together with the ending of lockdowns and the return of life to normal in overseas markets also meant that export value fell -1.2% YoY.

• These factors, especially the continuing sluggishness of overall housing market, will continue to drag on the market through Q4, and although government measures to stimulate the tourism sector (especially, allowing visa-free travel for tourists from major markets) may encourage hotels and some businesses in other tourism-related parts of the economy to spend on new appliances in response to increasing arrivals, these measures are only temporary and so their effects will be limited. For all of 2023, domestic production and distribution will therefore slip by between -4.0% and -5.0% YoY, while sales into export markets will be down by between -1.0% and -2.0% YoY.

2024-2026 Outlook

• Production should expand in the coming period, helped by increased access to chips and the clearing of supply chain bottlenecks, and indeed, approvals for investment support for inflows into the electronics and electrical appliance industry increased 211.8% to a total of THB 163bn over 9M23. Sales in domestic market tends to increase on a strengthening economy, a better outlook for the residential property market, and continuing growth in the tourism sector. Exports will also expand, helped by cooling inflation and the acceleration in the global economy, as well as by the need to replace appliances again following the bulge in sales during the pandemic. These tailwinds will then lift the production and domestic sales to grow at a similar rate of  1.5 - 2.5% annually and boost export value by 2.0-3.0% per year.​

 

OTHER INDUSTRIES

 

Medical Devices

Situation in 2023

• The market for medical devices has continued to expand with the easing of the pandemic and the return of hospital services to normal. As worries over infection with Covid-19 have ended, individuals have become more relaxed about wearing masks and maintaining social distancing measures, and this has fed an increase in the spread of communicable diseases (e.g., in 9M23, flu cases exploded 517.5% YoY), while Covid-19 cases continue to be reported. Given this, demand for PPE (e.g., masks and latex/surgical gloves) and related types of medical equipment (e.g., diagnostic solutions and vaccination equipment) has remained strong. Demand has also proven resilient in Thai manufacturers’ main overseas markets. As such, the value of goods distributed to the domestic market in 2023 should rise 5.0-6.0% YoY, while exports are expected to increase by 5.5-6.0%. The situation for 9M23 was as follows.

  • Output slowed from a year earlier, and this was reflected in the softening of the industry’s MPI from 105.4 in 9M22 to 101.2 in 9M23. Likewise, capacity utilization slipped from 69.1% to an average of 65.9%. This decline was partly attributable to the rush to step up output a year earlier, particularly of PPE, and thus output of latex surgical gloves (around 90% of all output by the medical devices industry) declined -4.2% YoY.

  • Export value edged up 2.5% YoY to THB 89bn in the period. Export value of single-use devices (87.2% of exports of medical devices by value) rose 4.1% YoY, and so having crashed -74.1% in 9M22, receipts from sales of latex gloves rose 0.9% YoY thanks to the resumption of imports into the US (+26.8% YoY). Sales of ophthalmic equipment were also up 6.8% YoY. Income from durables (10.6% of the total) dropped -9.8% YoY but receipts from sales of reagents & test kits (2.2% of the total) rose 5.3% YoY. The most significant increases in income were seen in sales into Japan (+19.1% YoY) and France (+17.9% YoY).

  • Imports contracted -6.3% YoY to a total value of THB 68bn. For reagents & test kits (20.57% of imports of medical devices by value), imports dropped -43.2% YoY on the -43.0% YoY decline in purchases of blood tests. However, imports of single-use devices (44.7% of the total) and durables (34.6%) rose by respectively +13.8% YoY and +11.2% YoY. Increases were particularly noticeable for ophthalmic supplies (+11.3% YoY) and electro-diagnostic equipment (+13.0% YoY). In terms of originating countries, declines were strongest in China (down -46.7% YoY) due to the strength of orders a year earlier, while increases were most pronounced in imports from the US (+8.3% YoY), Germany (+28.9% YoY), and Japan (+3.7% YoY).

2024-2026 Outlook

• Sales of medical devices will continue to rise, and the value of goods distributed to the domestic and export markets is forecast to expand by respectively 6.0-7.0% and 6.5-7.5% annually. This outlook is supported by: (i) increasing rates of illness as a result of the aging of society, together with the likely emergence of new diseases; (ii) growth in the market for medical tourism, which will be helped by Thai hospitals’ high standards and low costs; (iii) rising interest in preventative healthcare, particularly in the wake of the Covid-19 pandemic; (iv) ongoing economic growth in overseas markets; and (v) government policy that aims to promote Thailand as a hub for international healthcare and as a center for the production of medical devices in the ASEAN zone, which is then pulling in additional investment from Thai and overseas sources.

 

 

CONSTRUCTION & CONSTRUCTION MATERIALS

 

Construction Contractors

Situation in 2023

• Overall spending on construction rose 3.0% YoY through 9M23 to a total of THB 1.1trn. The majority of this came from the public sector, which rose 2.5% YoY to THB 645bn. 81% of the latter was for investments in infrastructure projects, a rise of  1.5% YoY, though this went only to ongoing works and ground was not broken on any new megaprojects in the period. Private-sector spending on construction increased 3.6% YoY to THB 453bn on a rise in investment in non-residential accommodation which expanded 3.9% YoY (47% of all private-sector spending on construction) thanks to construction of factories, office buildings, and commercial building which would facilitate potential investment expansion. Construction of residential real estate grew 3.4% YoY following investment plans, especially locations in which are adjacent to mass transit lines.

• For the rest of 2023, growth in spending on construction is likely to slow. Although overall construction investment will continue to grow, the growth would be limited by (i) waiting for clearer policy on the budgets for public construction investment that may cause some infrastructure projects to be delayed; (ii) the high cost of oil which pushed up construction material prices and transportation costs; (iii) labor shortages which continued to delay completion or abandonment of some projects; and (iv) an unclear path to recovery of residential projects and construction. Therefore, for all of 2023, total spending is expected to edge up by just 2.0-3.0%, rising 1.5-2.5% for the public sector and 2.5-3.5% for private sector. 

2024-2026 Outlook

• Overall spending on construction should grow by 3.0-4.0% annually, helped by an acceleration in work on government megaprojects, in particular those connected to the development of the EEC.

  • Public-sector spending on construction is expected to rise by 3.5-4.0% per year over 2024-2026 on an increase in budget allocations made to both ongoing and new infrastructure megaprojects, as per the 2023-2027 action plan. This will include a pick-up in the pace of work on phases 1 and 2 of the twin-track railway and on new sections connecting to industrial estates and border regions. However, work on many EEC projects is behind schedule, including phase 3 of the Laem Chabang Port development (40% behind schedule as of April 2023) and the high-speed rail-link connecting the 3 airports, for which work should begin in 2024. Progress is most advanced on phase 3 of the Map Ta Phut Port development (60% complete as of August 2023), which should be operational by 2027 as planned.

  • The value of private-sector construction is forecast to expand by 3.0-3.5% per year. Activity will be lifted by greater investment in new factories on EEC industrial estates and in new hotels, which will be built to meet rising tourist numbers. Supply gluts will also clear and so the residential segment will rebound, especially in the EEC and in important provincial centers

  • Large contractors will maintain their advantages over SMEs thanks to their ability to engage in competitive bidding on contracts and to negotiate from a position of strength when dealing with suppliers. By contrast, SMEs will continue to be dependent on sub-contracting for large players, and so their income will be highly uncertain. To increase their chances of winning public sector and large private-sector contracts, operators, and in particular large contractors, will work hard to cut costs and to speed up project completion times, though players will continue to be troubled by labor shortages and the high cost of materials.

 

Construction Materials

Situation in 2023

• For most product groups, production and domestic sales of construction materials fell through 9M23. Thus, with purchasing power yet to recover fully, the market for repairs and renovation remained weak, especially at the mid to lower end of the market and as a result, the quantity of cement, tiles, and sanitarywares sold within Thailand slipped by respectively  -1.5% YoY, -4.5% YoY and -2.1% YoY. Only in the construction steel (bar and section) segment did growth remain positive, and so in the period, production and domestic sales rose by respectively 6.9% YoY and 14.2% YoY. This was driven largely by increases of 2.5% YoY and 3.6% YoY respectively in 1H23 spending on public- and private-sector construction. The lack of work on major public projects and the decision by residential property developers to instead run down their backlog of unsold stock rather than open up sales of new properties means that demand for construction  materials will likely weaken further in Q4. As such, with the exception of steel products, production and sales of construction materials will remain flat or possibly contract slightly across all of 2023.

• Sluggishness in overseas markets weighed on exports in 9M23. Declines of respectively -11.2% YoY and -38.2% YoY in sales into Myanmar and Cambodia fed into a -25.0% YoY slump in cement exports, this then falling to 1.3m tonnes. Likewise, export of construction steel slipped -6.8% YoY on weakness in the main markets of Malaysia, the Philippines, and Canada. As a result of the glut of unsold real estate, imports of tiles and sanitarywares were also weak, though imports of construction steel jumped by an average of 15.7% YoY on strength in the construction sector. For all of 2023, overall imports and exports of construction materials will therefore likely be down from their 2022 level.

• The Construction Materials Price Index edged up just 0.2% YoY in 9M23. Prices for steel and steel products tracked declines in world markets and so these fell -3.9% YoY, but high costs, in particular for energy, pushed up prices for cement by 2.5% YoY. For the rest of 2023, prices are likely to soften slightly on the easing of cost pressures (i.e., for crude and electricity following government action to address the high price of these). Prices for steel will also slide in line with trends on global markets, and so for 2023, the price index is expected to decline relative to a year earlier

2024-2026 Outlook

• Domestic sales will be buoyed by the following factors.

  • Spending on construction by the public sector should strengthen by 3.5-4.0% annually as work accelerates on both new and ongoing megaprojects. In line with the 2023-2027 action plan, efforts will focus in particular on communications and logistics networks that connect to the EEC, as well as transportation infrastructure linking regions and neighboring countries.

  • Private-sector investment in construction is forecast to expand by 3.0-3.5% per year thanks to: (i) the crowding-in effects of infrastructure investment; (ii) a pick-up in work on the construction of factories as investment inflows increase and the travel industry rebounds, especially on EEC industrial estates and hotels in tourism areas; and (iii) the return of foreign investors to Thailand and the recovery in the economy, which will lift purchasing power and revive the residential housing market, especially in regional centers and the EEC.

• Exports will tend to improve as neighboring countries (Thailand’s main export markets) reopen, and as governments increase spending on infrastructure, sales of cement and construction steel will rise. Exports of tiles and sanitarywares will benefit from revival in the real estate market, and in particular by increased demand from Chinese buyers for residential and commercial properties in neighboring countries.

• Prices for construction materials will tend to strengthen on: (i) greater demand from the construction industry, especially for use in residential developments; (ii) price rallies on global markets that will lift the cost of imports (e.g., of scrap and billet); and (iii) higher energy costs.

• Traders:

  • Modern trade outlets should see gradual growth in income, helped by the rising consumer preference for retailers that offer a comprehensive range of products. In the coming period, players will secure their market position by adjusting their business strategies, in particular by: (i) opening smaller outlets that will allow retailers to distribute into individual communities more effectively; (ii) partnering with manufacturers to open new types of outlet that target particular consumer groups more tightly; (iii) increasing the share of own-brand product lines, which will then cut costs and increase margins; (iv) exploiting new technology more effectively, for example making greater use of robotics for inventory management and better meeting consumer needs by developing new distribution channels that extend players’ online presence and use of mobile applications; and (v) investing in new branches in second-tier secondary provinces and, to meet anticipated growth in demand, across the ASEAN region.

  • Traditional outlets will have to face conditions that will remain depressed, and overall business growth will be very limited. (i) For wholesalers, the market will remain flat or perhaps expand slightly, though players will have to contend with escalating competition from both modern trade operators and manufacturers that are distributing directly to contractors. (ii) retailers are overwhelmingly small operations, of which there is a large number, and these face limitations in terms of their access to capital. As such, stock displays are typically unappealing, old-fashioned, and limited in scope compared to modern trade outlets, which now pose a significant threat. Traditional retailers are also hampered by their reliance on lower-income customers, who have been disproportionately affected by recent turbulence in the economy (i.e., rising unemployment, and wage and salary cuts). Given this, the outlook is for conditions to remain unfavorable.

 

Steel

HRC (Hot-rolled coil)

Situation in 2023

• Production of hot-rolled coil crashed -20.2% YoY over 9M23 to 1.4m tonnes. Demand from both domestic and export markets was depressed through the period, while imports also stole market share from Thai manufacturers. Thus, overall imports of hot-rolled coil were up 9.8% YoY, and while imports from Japan inched up 2.5% YoY, those from China jumped 76.0% YoY. For the year, output of hot-rolled coil is expected to be down by between -17.0% and -19.0%.

• Demand slipped -2.0% YoY to 4.3m tonnes in 9M23. Declines were driven by a slowdown in automobile production, and with chip shortages periodically disrupting production and credit terms tightening (thereby impacting sales of pickup truck) output inched up by just 1.6% YoY, down substantially from 2022’s growth of 11.7%. Demand was also undercut by sluggish markets for electrical appliances and metal tins/cans, for which MPIs contracted by respectively -6.7% YoY and -19.5% YoY. Total 2023 consumption of hot-rolled coil will therefore remain flat or contract slightly by 0 to -1.0%.

• Exports slumped -45.9% YoY to just 23,000 tonnes on a poorer economic outlook in Vietnam and Myanmar, responsible for respectively 35% and 5% of all exports.

• Prices averaged THB 26,911/tonne in the period, down -18.1% YoY due to weak demand on global markets that was then mirrored domestically in 9M23. For all of 2023, prices are expected to be down by between -14.0% and -16.0% relative to the 2022 average of THB 31,550/tonne, though they should remain in the range of THB 26,000-28,000/tonne

2024-2026 Outlook

• Production is expected to stay level or expand at a slow pace of 0.0-1.0% annually (after a contraction in 2023). Although demand is anticipated to improve, manufacturers will continue to feel pressure from an expansion in the volume of imports. This is because Thailand lacks upstream iron and steel production, which then adds to domestic production costs and increases the risk that Thai manufacturers will lose market share to overseas suppliers. Chinese imports pose a particular problem since recent improvements to production processes have increased the quality of low-cost products.

• Demand is forecast to strengthen by 4.0-5.0% per year to around 6m tonnes annually. Manufacturers of electrical appliances and automobile assemblers will remain the main drivers of demand, and as the economy grows and purchasing power strengthens, these will enjoy an improving outlook, with knock-on consequences for manufacturers of hot-rolled coil. In addition, supply chain disruptions in the automobile industry will be loosen, further lifting demand. Exports will also grow, albeit slowly, on firmer demand from downstream industries in overseas markets.

• Prices will likely soften further under the influence of global markets, although declines will be limited and prices will remain high. Global steel prices may also be affected by additional cost pressure arising from the need to adapt to the CBAM measures and to reduce steel products’ embodied carbon. This will then influence prices on the domestic market.

 

Steel Bar and Section

Situation in 2023

• Output rose 6.9% YoY to 2.9m tonnes over 9M23 on an increase in work on construction projects, the main market for steel bar and section, and for the year as a whole, combined production of both types of steel is forecast to expand by 5.5-6.5%.

• Demand for bar and section jumped 14.2% YoY to 3.1m tonnes through the same period. The market was boosted by an uptick in activity in the construction sector, especially by the 9M23 2.5% YoY increase in spending on public-sector construction, most of which went to ongoing projects that are major consumers of steel. However, demand for bar and section will likely soften in the remainder of 2023 as growth in spending on construction by both the private and public sectors slows, especially for some infrastructure projects that may be delayed due to awaiting clearer government budget policy. Overall 2023 demand is thus expected to increase by 10.0-12.0% to 4.0m tonnes.

• 9M23 exports of steel bar slipped -6.8% YoY to 0.16m tonnes on weakness in major overseas markets, in particular in Canada (Thai exporters’ 4th most important export target), where a -86.6% YoY as Thailand lost market share to other competitors e.g. UAE, Brazil, and India, from where Canada imports increased by 69.1% YoY, 122.8% YoY, and 140.7% YoY respectively. Exports of steel section also did badly, and the -21.2% YoY and -52.2% YoY decline in distribution to respectively Myanmar and the Philippines pulled total exports down by -29.0% YoY to 0.23m tonnes. However, an increase in domestic construction supported jumps of 10.6% YoY and 20.8% YoY in imports of steel bar and steel section, respectively.

• Average domestic prices for bar and steel declined -14.1% YoY to THB 24,346/tonne in 9M23, moving with world prices that were affected by global uncertainty and depressed conditions in the Chinese real estate market. Prices will likely continue to soften through the rest of 2023 and so for the year overall, these are expected to drop by between -13.0% and -14.0%.

​


 

2024-2026 Outlook

• Over the next 3 years, production is forecast to expand by 4.0-5.0% annually. This will bring output to 4.0-4.3m tonnes per year, in line with anticipated growth in annual demand of 5.0-6.0% (or to 4.0-4.5m tonnes). The market will be lifted by: (i) an acceleration in work on new and ongoing government megaprojects (in line with the 2023-2027 action plan); (ii) recovery in private sector real estate construction, now that purchasing power is recovering and the supply glut is beginning to clear; (iii) an increase in work on industrial estates in the EEC that will be driven by an expansion in investments in the area; and (iv) the rebound in the tourism sector and the resulting need to renovate existing hotels and to construct new premises. Nevertheless, strong competition from low-cost imports from China will restrict growth in production and sales.

• Domestic prices for steel bar and section will tend to soften on the falling cost of inputs, in particular of scrap (down -19.6% YoY in 9M23). However, declines will be limited by increasing geopolitical risk in the Middle East and the imposition of the CBAM measures, which will require manufacturers to reduce the carbon intensity of their products, thereby adding to costs.

 

 

REAL ESTATE

 

Housing in BMR

Situation in 2023

• The housing market^1/ came under pressure through 9M23 from a combination of the impact of economic sluggishness on purchasing power, rising interest rates, and the increase in household debt to a 15-year high of 90.6% of GDP. As a result, the purchasing power for residential properties decreased, reflected in sales of new units slumping -44.3% YoY to 15,758 units. The total sales (new + existing units) also fell -19.9% YoY to 43,192 units (over 1H23), while the number of new housing units was down -14.4% YoY to 62,219 units. As a result of the large expansion in supply in 1H22, the number of new townhouses and condominiums contracted by respectively -18.6% YoY and -17.2% YoY, though for detached houses, the supply of new units increased 3.1% YoY.

• Demand is expected to firm up in the remainder of the year, helped by the continuing strength of real demand from owner-occupiers with strong purchasing power and the termination at the end of 2023 of cuts to the fees for registering mortgages and transferring ownership. In addition, demand will be lifted further by the onset of the travel high season and the New Year celebrations, which will boost the tourism sector (7-8m foreign tourists are expected in Q4, or a third of all 2023 arrivals) and add to demand from overseas buyers. Developers are focusing on launching properties at the upper end of the market for revenue recognition, but for all of 2023, the total sales will fall by -12.0% YoY, while the number of new units coming up for sale will contract by -8.5% YoY.

• House prices^2/ rose through 9M23, the index of condominium prices climbed 4.8% YoY. For detached houses and townhouse, the index rose by 4.1% and 4.0% YoY, respectively. For the year, prices will continue to increase, driven by rising land prices and development costs (i.e., construction materials and labor), and this will push up property prices by 5-10% YoY.

1/ Total housing projects include detached houses, townhouse, condominium.
2/ The housing price index is constructed from the prices for detached houses, townhouses and condominiums, for which data are collected from information on housing loans provided by 17 lenders active in the Bangkok Metropolitan Region.

 

2024-2026 Outlook

• Sales will gradually pick up by 2.0-3.0% per year on: (i) ongoing government spending on infrastructure, especially in transportation infrastructure, will increase the demand for  housing along metro lines and in areas accessible by metro lines; and (ii) recovery in the tourism industry (arrivals are forecast to return to their pre-Covid level by 2025), which will boost demand from overseas buyers. On the supply side, the number of new units will grow by 3.0-4.0% per year, most of this will come from major developers that are on a strong financial footing and will be in projects with a limited number of units. The outlook for the main market segments is given below.

  • Low-rise housing (detached housing and townhouses): The sales of detached houses continue to strengthen, especially at the upper end of the market for properties in areas close to international schools or that are in the north and east of Bangkok (near New Krungthep-Kreetha Road). For townhouse, sales are showing a stable trend due to a relatively high remaining supply, while buyers are typically mid- to lower-income earners, and these have been more seriously affected by rising interest rates and the high debt burden. These thus have lower purchasing power, and although large developers will be able to maintain growth momentum, SME developers will have to contend with intense competition on the costs of both construction and financing.

  • Condominiums: Supply will respond to stronger demand from long-term investors since, as a result of rising oil prices and the overall increase in the cost of living, renters are increasingly favoring condominiums. Demand from non-Thai buyers looking to acquire a second home as a personal hedge against rising geopolitical tensions will also add to demand for units in downtown locations. However, the demand for condominiums in suburban areas continues to lag behind low-rise developments, while in some locations (e.g., Phet Kasem, Chaeng Watthana, Nonthaburi, and Bang Na), the market is still struggling under a supply glut.

• Challenges to the market that will need to be tracked closely will include: (i) the high level of household debt, which will likely remain elevated, encouraging lenders to tighten credit conditions; and (ii) the only slow recovery in purchasing power for low- to middle-income buyers, which has resulted in a significant oversupply of properties in some areas. In addition, as Thailand transitions to an aged society, demand will likely weaken further, while younger buyers (especially gen Z) tend to prefer renting to buying^3/.

        3/ Source: “ttb analytics assessment of the contracting market for condominiums in the BMR”, ttb analytics.

 

Housing in Upcountry (6 major provinces^1/)

 

Situation in 2023

• The housing market battled through sluggish conditions in 1H23, and sales struggled against the weight of only patchy and incomplete domestic economic recovery, the run-up in interest rates, and the rise in household indebtedness of over 90% of GDP. This then drained purchasing power from the market, and as such, sales slumped -28.8% YoY, split between declines of -35.2% YoY for low-rise units and-13.4% YoY for condominiums. Nevertheless, the supply of new housing units jumped 28.4% YoY. Growth in supply was led by condominiums, which surged 135.0% YoY. This was largely a result of the rebound in the tourism sector and the influx of foreign buyers, and so new units were concentrated especially in Phuket and Chonburi, while the supply of new low-rise were down -8.2% YoY. Transfers of ownership were also up 4.9% YoY by unit and 16.3% YoY by value. The market benefited from spending by wealthier overseas buyers looking to invest in Thai property or to purchase second homes. Again, by both number and value. Around 40% of these transfers were made in Chonburi, which benefits from being a center of both tourism and business/ industry and has strong purchasing power.

• Demand will strengthen slightly through 2H23 on ongoing growth in the tourism sector and the expiry at the end of the year of cuts to the fees charged for registering mortgages and transferring ownership.  For the year as a whole, sales will thus be down by some -25.0%, though the supply of new units should increase by 4.2%.

2024-2026 Outlook

• Sales will rise by 3.0-5.0% annually, helped in general by these provinces with potential in various aspects, such as tourist destinations, industrial hubs and regional centers. Markets will be lifted by: (i) domestic economic growth of 3.0-4.0% that will then add to buyers’ purchasing power; (ii) government spending on infrastructure, e.g., the high-speed rail-link connecting Bangkok’s 3 airports; (iii) the rebound in the tourism sector (arrivals are expected to hit 43m by 2026), which will bring additional foreign buyers into the market; and (iv) less intense competition than in Bangkok and nearby areas, greater access to land for development, and lower prices for this^2/.

• Developers will continue to bring new projects to market.

  • Low-rise housing: The new housing units will expand at an average annual rate of 5.0% as developers look to meet rising demand from real demand group and buyers hunting for second homes, who are typically mid- to upper-income earners. However, major developers will increasingly switch their attention to regional markets, and as competition intensifies, local SMEs will see profitability come under pressure

  • Condominiums: Growth will lag behind that of the low-rise market. However, condominiums continue to remain a favorite of investors and overseas buyers, who see the market for provincial condominiums providing good value and solid returns. The supply of new units should expand by around 4.0% per year.

1/ ​The 6 provinces are Chiang Mai, Chonburi, Khon Kaen, Nakhon Ratchasima, Phuket, and Rayong.
2/ Real Estate Information Center (REIC)

 

Commercial Buildings in BMR

Office Buildings

  Situation in 2023

• The supply of new office space grew by 134,750 sq.m. in 1H23, bringing overall supply to 9.4m sq.m.^1/, and of this, the total occupied space came to 7.9m sq.m. The net take-up rate^2/ improved in Q2, with Q1’s contraction of -5,961 sq.m. turning into growth of +13,568 sq.m. Tenants have typically been businesses connected to consumer goods, co-working spaces, and online marketing operations, and these have taken on leases for space in and near to the CBD that is easily accessible but where rents are not excessive. In the period, the occupancy rate slipped to 84.3%, down from 86.7% in 1H22.

• Domestic economic growth will support a positive outlook for office space for rent through 2H23. For all of 2023, new supply is expected to come to 270,000 sq.m. as new projects are completed, especially in the CBD, but the continuation of hybrid working patterns will mean that demand will expand by just 66,000 sq.m. The occupancy rate will therefore slide, and this is expected to drop from 85% in 2022 to 83% in 2023. Moreover, as the excess supply of office space builds, rents will tend to soften slightly, though this will particularly affect grade-A office building over 15 years old.

2024-2026 Outlook

• Demand for office space for rent will rise by 1.5-2.0% per year over the next 3 years, down slightly from the 2.5% average growth seen over pre-Covid period, 2015-2019, a steady expansion in the economy will support an uptick in business activity and stronger demand for office space. Tenants, and especially overseas companies, are increasingly in the market for ‘green offices’ that have been built in accordance with the renter’s ESG goals or in line with international standards (e.g., the LEED standards, other certifications that affirm that the building meets energy-saving and other environmental or health benchmarks, or that it is fully digitally connected). This allows developers to set higher rental rates and provides the opportunity a more rapid return on investment compared to regular offices. Therefore, it is expected that the demand for rental offices will continue to increase consistently to accommodate the recovering business needs in the future. The new office supply is projected to increase by an average of 2.6% per year, or about 800,000 square meters. Meanwhile, the occupancy rate will slip to 82%, which may create pressure on rents in some locations as tenants gain more negotiation power, limiting the potential for rent increases.

• Income growth will depend on location, as follows.

  • Office space in the CBD: Income will continue to rise, especially for A-Grade buildings due to modern design, advanced technological systems, and effective management systems. This leads to steady demand, even with higher rental prices compared to other areas.

  • Office space in non-CBD areas or locations near Bangkok: Income will remain flat or slightly decrease due to a relatively high supply, mainly consisting of Grade B buildings, leading to intense competition. Therefore, there is limited potential to increase rental prices significantly.
     

1/ CBRE Research adjusted its database in Q1 of 2023 to exclude home offices and  buildings owned by government. This adjustment may result in discrepancies when comparing data with the same period of the previous year.
2/ The net take-up represents the difference between new occupied space and rented space that the tenants terminated in that year (square meters).

 

 

Retail Space

 

Situation in 2023

• Over 1H23, the recovery in the tourism sector provided a boost to retail business. This resulted in the demand for retail space reaching 6.4m sq.m., an increase of 1.7% from the end of 2022, while the total supply of retail space rose 1.9% YTD to 6.8m sq.m., partly as a result of renovated space returning to the market. In particular, the supply of supporting retail space jumped 16.8% YTD, and the slight discrepancy between growth in supply and demand pulled the occupancy rate down from 95.5% at the close of 2022 to 95.3% at the end of June 2023.

• Demand for retail space will continue to strengthen through 2H23, driven by the purchasing power of international tourists (expected to be around 14.8m). This will be particularly important for sites in the CBD, most of which are in large shopping malls. Meanwhile, domestic purchasing power is recovering within limitations. Developers will also likely move forward with expansion plans, and so across 2023, the supply of new retail space will expand by approximately 0.3m sq.m. (up 4.8% YoY), while demand will likely increase by 4.0% to around 0.25m sq.m. The occupancy rate is expected to stabilize at 94.7%
  ​

2024-2026 Outlook

• The outlook will remain positive for retail space in the coming period, with demand expanding at an average annual rate of 2.4-3.6% thanks to: (i) private sector consumption expanding with the economic recovery; (ii) government spending on transportation infrastructure that will trigger an expansion in urban communities, thus attracting investment in new retail space; and (iii) a return to the purchasing power of overseas tourists to its pre-Covid level by 2025. Alongside this, developers will continue to invest in both the renovation of existing sites and the construction of new space, although work on some projects has run behind schedule (especially for larger shopping malls). The supply of new retail space is therefore expected to increase by 3.7% annually, which would bring the occupancy rate down to an average of 93.3%.

  • Enclosed malls: Income will continue to strengthen, especially in CBD that are favored by major Thai and international brands. Supply will tend to expand in both downtown and suburban areas, driven by the expansion of residential areas (e.g., in Rangsit and Bang Na). The majority of new investment will be in large shopping centers, and this will push up rents, in particular for sites in the CBD.

  • Community malls: Income will likely remain flat given expanding supply. New developments do not carry prohibitively high price tags and it is relatively easy to find sites suitable for development, especially in areas further out from the city center such as Rangsit, Chaeng Watthana, and Lat Krabang. However, community malls generally target mid- and lower-income consumers whose spending power is expanding slowly, and so growth in demand will lag behind that of supply. It will thus be difficult for operators to raise rents.

  • Supporting retail: Income growth will remain flat due to the large expansion in supply, especially in downtown areas where many mixed-use projects will be completed. This will happen alongside growth in demand that emphasize modern designs and convenient transportation. As a result, rental prices are expected to stabilize with a slight increase.

 

Industrial Estate

Situation in 2023

• New sales and leases of land on industrial estates surged 210.4% YoY to 1,844 rai in 1H23 as the pandemic eased and global investment flows came back to life, though in the eastern region (responsible for 87% of all new sales and leases), the market expanded by a full 334.2% YoY to 1,598 rai. The largest source of international investment was Japan (31% of the total), followed by China (12%) and Singapore (8%), while by industrial activity, the most important areas were autos and transportation, steel and metal products, rubber and plastics products. 

• One new industrial estate was established in 1H23, the 1,547 rai Nong Lalok Industrial Estate in Rayong Province. This reflects the continuing potential of the EEC to attract new investment inflows, and in fact, the value of applications and approvals for BOI investment support for projects in the EEC increased by respectively 64.1% YoY and 87.8% YoY in the period. This then brought the total number of industrial estates to 68 (as of 1H23). These are spread across 16 provinces and cover a total area of 172,000 rai. These are most heavily concentrated in the East, which is home to 78.0% of the total. At present, 76.9% of the space on Thailand’s industrial estates (132,000 rai) has been leased or sold.

• Demand for land to lease and sales on industrial estates will be boosted through 2H23 by expansion of investment, and so for all of 2023, new sales and leases are expected to increase by 32.2% to 4,500 rai.

2024-2026 Outlook

Over the next three years, annual sales and leases are predicted to expand by 10.0-15.0% per year to 5,000-7,000 rai. The market will be boosted by: (i) a stronger global economy and improving sentiment among foreign investors, which will help to lift Thai exports even as these come under pressure from potentially worsening geopolitical tensions; (ii) the tendency among leading global manufacturers to reduce risk by dispersing their production bases, and because Thailand is one of the ASEAN zone’s leading targets for this, the country will likely benefit from additional FDI; and (iii) government spending on new infrastructure, especially in the EEC, where progress will accelerate. Operators of industrial estates will tend to develop ‘smart parks’ that are equipped with new manufacturing technologies and modern transport, communications and energy systems. In addition, players will respond to government efforts to shift to the bio-circular-green (BCG) economy and to meet rising demand from new target industries by developing environmentally friendly industrial estates.

• Eastern region: Demand for space on these will expand rapidly thanks to government spending on new infrastructure in the EEC, and so income will increase more rapidly than in other parts of the country. However, rising land prices and limited access to suitable plots will mean that growth in supply (in both new and existing sites) will be only limited.

• Central region: Industrial estates in the central region will continue to benefit from their access to communication networks, and so demand will strengthen further. Income will thus rise, especially from leases and the provision of utilities.

• Other regions: Demand for space to buy or lease will remain weak since industrial estates outside the eastern and central regions are still waiting for the government to take action to stimulate investment by the private sector. This applies in particular to investment in the special economic zones in the North, Northeast, Centre/West, and South (these cover 16 provinces) and in large-scale projects to connect communication networks to the major economic areas. Given this, income for operators in these areas will only grow slowly.

 

HOSPITALITY

 

Hotels

Situation in 2023

• 20.0m foreign arrivals were recorded in 9M23, up from 5.7m in 9M22. This growth was helped by: (i) the move by the Chinese authorities to relax controls on outbound tourism from the start of the year; and (ii) the rebound in the Malaysian market, which benefited from Thailand’s low costs relative to other destinations. However, arrivals are still only 67% of their 9M19 level of 29.5m. The most important source of arrivals was Malaysia, with 3.3m tourists (111% of 9M19 arrivals), followed by China with 2.5m tourists (29% of the 9M19 level), and South Korea with 1.2m arrivals (86%). Through the same period, the large number of 3-day holidays and phase 5 of the We Travel Together program (from March 7 to April 30, 2023) helped to stimulate the domestic market, and so in 9M23, Thai tourists made a total of 128.2m domestic trips (up 23.3% YoY).

• Occupancy rates rose from 43.1% in 9M22 to 67.8% in 9M23, though this was still below 9M19’s 71.2%. Room rates also jumped 44.4% YoY, pushing up RevPAR by 127.9% YoY to THB 973, compared to THB 1,224 in 9M19.

• Over 7M23, nationwide applications for permits for the construction of new hotels contracted -22.2% YoY to a total of 0.59m sq.m., though in Bangkok (17% of all applications made nationwide), the decline was -77.6% YoY. However, in Chonburi, applications increased 22.6% YoY as hoteliers planned for an expected additional demand from both the industrial and tourism sectors in EEC.

• For the remainder of 2023, foreign arrivals should continue to strengthen, helped by the introduction of visa-free travel for: (i) Chinese and Kazakh Arrivals between 25 September 2023, and 29 February 2024; and (ii) Indian and Taiwanese arrivals between 10 November 2023, and 10 May 2024. However, the Chinese economy remains troubled and so the impact of these measures may be limited, while growth will also be constrained by the fact that there are still fewer flights from China to Thailand than in 2019. Over the short term, the market will also be disrupted by the short-term impact from mass shooting in a Bangkok shopping center on 3 October. For all of 2023, a total of 27.7m foreign arrivals is expected (+148.4%), while Thai travelers are forecast to make 175m domestic trips (+16.2%). This will then lift the occupancy rate from 2022’s 47.9% to 68.5%.

 

2024-2026 Outlook

• Conditions will continue to improve thanks to growth in foreign arrivals that is expected to hit 35.6m, 40m, and 43m over each of the next three years. While geopolitical tensions will weigh on the market (most recently with fighting in the Gaza Strip), growth will be supported by: (i) gradual strengthening in the main markets, although in the case of China, unfavorable economic conditions will convince many potential tourists to travel domestically; (ii) the return of flight schedules to normal; and (iii) ongoing efforts by the government to promote tourism, for example by extending visa-free travel for Russian arrivals from 30 to 90 days (from 1 Nov.2023, to 30 April 2024). Likewise, the number of domestic trips should rise to 185m in 2024, 200m in 2025, and 220m in 2026, partly due to ongoing government measures to stimulate the market. Given this, the hotel occupancy rate is expected to rise to 70% in 2024, 72.0% in 2025, and 73.5% in 2026.

  • Hotels in major tourist destinations (Bangkok, Pattaya, and Phuket):  Income will rise rapidly with the overall growth in the market, and given increasing arrivals, average occupancy rates may reach 80%.

  • Hotels in tourist destinations and regional centers: Income will steadily strengthen as the market expands and the government rolls out stimulus packages targeting the tourism industry.

  • Hotels in other provinces: Income will likely remain flat and occupancy rates will stay relatively low since these hotels generally serve as stop-offs for visitors en route to tourist areas or regional centers.

 

Private Hospitals

Situation in 2023

• Income continued to grow over 9M23 thanks to a range of factors. (i) The number of patients seeking treatment for general conditions increased, Covid-19 continues to be a problem, and rates of infection with seasonal illnesses (e.g., influenza and dengue fever) jumped by more than 90% YoY. (ii) Foreign patients have been returning to Thai hospitals in greater numbers, including in particular those coming from the Middle East and new markets in Saudi Arabia and Libya, medical tourists (foreign arrivals hit almost 20m), and Chinese patients seeking IVF treatment (payment for this is now covered by China’s basic insurance). (iii) Social security payments have been increased from THB 1,640 to THB 1,808 per person per year.

• For the remaining period of the year, it is expected that consumer purchasing power will continue to recover, driven by the growth momentum from the tourism sector, while the number of foreign patients will climb with the increase in arrivals to 7-8m over the period. For 2023, income for the industry should thus be up by 8.0-10.0% from its 2022 level.​

2024-2026 Outlook

The income of private hospital businesses will continue to trend upwards by 9.0-10.0% annually over the next three years.

• Demand for hospital services will strengthen on the following:

  • The share of the elderly in the Thai population (i.e., those aged 60 or over) will increase from 20.2% to 22.4% (source: NESDC), adding to demand, especially for more involved treatments and procedures.

  • Rates of non-communicable diseases (these account for around 75% of all deaths) will increase. The number of foreign patients will also rise, with demand coming in particular from patients from the Middle East and the CLMV countries, while general growth in the tourism sector will also lift the number of medical tourists.

  • Hospitals will tend to expand existing sites and/or open new branches. They will also move into offering services such as telemedicine, and will focus more on health and wellness services, in line with emerging global megatrends.

  • Major corporations: These hospitals will see their income base broaden thanks to their ability to meet a wide range of needs and to offer advanced treatments in specialist centers. These also benefit from being part of extended commercial groups that are supported by a wide range of business partnerships.

  • SMEs: Meeting demand from patients paying through social security will help to stabilize income, but competition will be stiff and hospitals that are not part of wider commercial groups will face a challenging business environment.

 

RETAIL TRADE

 

Modern Trade
 

Situation in 2023

• During 9M23, retail sales improved steadily thanks to: (i) the economic growth, and especially the rapid rebound in the tourism sector, boosting more spending in modern trade; and (ii) ongoing government stimulus measures, including the Shop and Refund scheme (January and February) and phase 5 of the We Travel Together promotion (March and April), as well as additional spending during the general election. As a result, consumer confidence has rallied, and in September this touched the 42-month high of 58.7. However, retailers remain concerned about the only limited recovery in spending power and the upward pressure on costs, and this is reflected in weakness in the Retailer Sentiment Index, which in July slipped to a 19-month low.

• The outlook will continue to improve through the rest of 2023. Spending will increase with the year-end celebrations, while the introduction of visa-free travel for visitors from China and Kazakstan (September 25, 2023, to February 29, 2024), and Indian and Taiwanese (November 10, 2023, to May 10, 2024) should help to lift arrivals to 7-8m (almost a third of the year’s total), thereby boosting spending in tourist areas. For the year overall, sales are thus expected to grow by 4.5-5.0%, matching 2022’s growth of 4.5%.

2024-2026 Outlook  

• Income is forecast to rise at an average annual rate of 5.0-5.5% on: (i) domestic economic growth of 3.0-4.0% per year and the effects of this on consumer spending power; (ii) the increase in foreign tourist arrivals to 43m by 2026, adding further to purchasing power, especially in the major tourist areas; (iii) ongoing growth in               e-commerce (Euromonitor sees Thai retail e-commerce expanding by 15.4% CAGR over 2024-2027); (iv) progress on the buildout of government infrastructure megaprojects, thus boosting employment and incomes and encouraging investment in new modern trade branches in areas where residential communities are expanding; and (v) growth in neighboring countries (the IMF sees the CLMV countries enjoying annual growth of 2.6-6.8%) that will lift retail sales in border regions. Players will also continue to expand their branch networks, develop their online presence, and diversify their business models as they build new income streams and target diverse consumer groups more precisely.

• The outlook for individual segments is as follows.

  • Department stores: Income will rise by 4.0-5.0% per year (+3.6% in 2023), as department store customers are mid to upper-income earners with stable spending power. Players will develop omnichannel platforms, improve the shopping experience by exploiting new digital technologies (e.g., AR), and open new outlets in high-potential areas (including in neighboring countries).  

  • Discount stores: Income will rise by 3.0-4.0% per year (+2.0% in 2023) on mid- to lower-income consumers’ gradually strengthening purchasing power. Players will also develop premium branches to attract wealthier customers.

  • Supermarkets: Income is up 6.0% in 2023, and because they appeal to consumers with strong purchasing power, supermarket income will rise by another 6.5-7.0% pa over 2024-2026. Operators will try to expand their market share by modernizing their branches and focusing more on high-end products (e.g., premium, health, and organic produce).

  • Convenience stores: Income growth will continue from 2023’s 5.0% at a rate of 4.5-5.5% annually over 2024-2026. Players will benefit from their branch networks’ almost complete national coverage and their move to develop online and delivery services, as well as the shift to selling a broader range of beverages and fresh food.

 

FINANCIAL SERVICES

 

Credit Card

Situation in 2023

• Over 9M23, spending on credit cards jumped 19.1% YoY to THB 1.92 trillion, with outstanding balances up 29.5% YoY and the number of credit cards in use also rising 3.6% YoY. The ending of the pandemic allowed economic and social life to return to normal, and with consumer confidence touching a 42-month high in September, spending bounced back from its Covid-era lows. Credit card issuers have also tried to maintain high levels of spending by targeting their marketing at high-income earners.

• Spending on credit cards will continue to rise with Q4 year-end celebrations, while recovery in the tourism sector and related industries will pull in a greater number of foreign arrivals. This will then give an additional boost to labor markets and income growth, thereby further lifting credit card use. However, household debt passed 90% of GDP in Q2, and this will limit growth in expenditure, and so for 2023 overall, credit card spending is expected to rise by 20.0-22.0% from its level a year earlier.

2024-2026 Outlook

• Over the next 3 years, spending on credit cards will climb at an average rate of 14.0-15.0% per year. Economic growth will stimulate greater business investment and consumer spending, with this benefiting further from the continuing recovery of the tourism sector and shifting consumer behaviors that are increasingly favoring electronic payment systems.

• Issuers will be careful about expanding their customer base, and these will focus on attracting higher income consumers and those that have the potential to increase their spending. At the same time, credit card issuers will try to reduce their exposure to risk, in particular from low-income customers or those whose income is growing only slowly and who are thus at an elevated risk of generating NPLs. Credit card companies will also release new products that target the needs of particular consumer groups, for example for spending on travel, health, or beauty.

• Competition will tend to intensify in the coming period, coming in particular from rapid, easy-to-use payment options such as mobile banking, QR codes, and e-wallets, as well as from the ‘buy now, pay later’ schemes popular on e-commerce platforms. Credit card companies will thus need to adapt rapidly to a changing environment by using modern technology (e.g., AI) to build competitive advantage and to make business processes as smooth as possible, from the application process through setting credit limits to managing risk.

 

OTHER SERVICES

  

Mobile Communication

Situation in 2023

• Income to telecoms providers edged up slightly over 9M23. Operators benefited from domestic economic recovery that was led by the tourism sector, and with rising numbers of foreign tourists and migrant workers in the country, income from roaming charges and international calls rose. Income was lifted further by growth in receipts from business customers and the continuing rise in online business activity. Operators have also adapted their strategies by focusing on more targeted consumer groups, especially those with higher incomes, adding value by bundling packages together, and offering 5G solutions to companies in target industries. As a result, average revenue per user per month has risen by 2.0%- 3.0%.

• Income will continue to strengthen through the remainder of 2023 as the tourism industry moves into its high season and Q4 arrivals reach 8m, adding to receipts from pre-paid customers. For the year as a whole, income from service fees should increase by 1.0-2.0% from its level in 2022.

2024-2026 Outlook

The business environment will improve, but not dramatically, with incomes strengthening by 1.5-2.5% per year thanks to the following tailwinds.

• Growth in demand for telecoms services will be driven by :

  • A steady increase in consumer spending power and the rise in tourist arrivals to 43m by 2025, thereby widening the potential customer base, especially for pre-paid services.

  • The increasing popularity of data services, including for the consumption of online entertainment, using social media, and completing financial transactions and buying goods and services online, all of which will provide operators with opportunities to attract new customers and grow their income.

  • Rising demand for 5G services as a vehicle for facilitating the digital transformation of businesses and industry, e.g., by creating automated retail outlets, developing new digital health services, and allowing smart electronic devices to be integrated into day-to-day life.

  • Government policies (e.g., developing the digital economy, the smart city program, and the EEC) that are extending the country’s telecoms infrastructure and stimulating demand from consumers in remoter areas.

• Operators will continue to expand their 5G networks, thus distributing the cost of fixed assets over a wider userbase. To secure long-term income growth, companies will also develop additional business services and extend their activities into areas typically regarded as falling within the scope of tech companies.

 

Logistics

 

Warehouse Space

Situation in 2023

• Business conditions have improved on: (i) an uptick in economic activity, led by the rebound in the tourism sector and growth in private-sector consumption (expected to reach 3.3% growth) that will feed additional demand for consumer goods; (ii) expansion in e-commerce (the Thailand E-commerce Association sees this running to 13-15% growth); and (iii) additional demand for space from some distributors that have increased imports from China while the economy there is sluggish. Nevertheless, exports are likely to contract -1.5% YoY this year and this will counterbalance some of the expansionary pressures in the industry, and so overall 2023 demand is predicted to rise 7.0% from its 2022 level to 5.8m sq.m.

• Operators are responding to anticipated growth in demand by steadily stepping up their investment in new warehousing space. Indeed, data from the BOI show that over 8M23, applications for investment support jumped 73% YoY across areas as diverse as food processing, the manufacture of medical devices, and the production of machinery and machinery parts. The total supply of warehouse space has therefore increased 6.8% from 2022 to 6.7m sq.m., while the occupancy rate has remained almost unchanged, edging up from 85.9% to 86.0%.

2024-2026 Outlook

• Demand for warehousing space is expected to expand at an average rate of 5.3% per year. The market will be lifted by: (i) 3.0-4.0% annual growth in the Thai economy, while an improving outlook in overseas markets will boost the export sector; (ii) ongoing geopolitical stresses, which will encourage some manufacturers to shift production facilities to Thailand, particularly for players in the auto and auto parts, electronics, and clean energy industries; (iii) the establishment of new industrial estates, including the Smart Park Industrial Estate (scheduled to open in 2024), the Apex Green Industrial Park (phase 1 is opening in 2023), the EEC Advanced Healthcare Industrial Estate (opening in 2024) and the EEC Digital Park; and (iv) anticipated 13% annual growth in e-commerce.

• The supply of new warehouse space is forecast to grow by 5.5% annually as operators respond to strengthening trade, investment, and manufacturing output. Investors will look in particular at sites in high-potential locations in the BMR, regional centers, the EEC, and border regions that benefit from access to favorable transportation networks linking on to neighboring countries. Development will also tend to focus on built-to-suit models that take advantage of modern digital technologies and that allow companies to better meet their ESG goals. Demand will slightly outpace supply, and so the occupancy rate will average around 86.5%.

 

Mass Rapid Transit Operators

Situation in 2023

• Over 9M23, operators benefited from steadily increasing ridership that resulted from: (i) the post-pandemic revival of normal social and economic life, increased on-site work and study, and the return to seminars, exhibitions, and trade shows; (ii) government efforts to stimulate the tourism sector (e.g., phase 5 of the We Travel Together program) and the rebound in the tourism sector (arrivals hit 20m); and (iii) the opening of the Yellow Line, which made travel on to connecting routes more convenient. Market details are given below.

  • A total of 334.5m passenger journeys were made over 9M23 or an average of 1.2m per day (up 55.4% YoY). Most journeys (58.5%) were made on the BTS, accounting for 195.8m passenger journeys in total, or 0.72m per day (up 48.5% YoY). 33.4% of journeys were made on the MRT, which carried 111.7m passenger journeys in the period, or 0.41m per day (up 60.8% YoY). In addition, the ARL (4.9% of the total) carried 16.6m passenger journeys, or 60,600 per day (up 53.6% YoY), the SRTET Red Line (1.6% of the total) carried 5.5m passenger journeys, or 20,000 per day (up 71.8% YoY), and the YL Yellow Line (1.5% of the total) carried 4.9m passenger journeys, or 18,100 per day.

  • Average daily income from fares for travel on the main lines rose 52.5% YoY, with the BTS (Green Line) increasing 49.7% YoY and the MRT (Blue Line) strengthening by 57.4% YoY.

• Through to the end of the year, operators will benefit from: (i) government-backed cuts to fares to THB 20 for travelers on the Red and Purple lines between October 16, 2023, and November 30, 2024, and the newly-run Pink Line (kicked off in November 2023) which connect to the Green, Purple, and Red lines; (ii) the high cost of gasoline, which is shifting passenger demand to mass transit services; and (iii) greater demand for travel at the end of the year, thus increasing ridership on lines that connect to Don Muang and Suvarnabhumi airports. Given this, for all of 2023, 427.5m passenger trips are expected across the year, or a daily average of 1.6m (up 79.8% YoY). Average daily income will thus increase by 41.2% YoY, split between rises of 38.1% on the BTS and 46.5% on the MRT.​

 2024-2026 Outlook

• The number of passenger journeys is forecast to expand by 10.0-12.0% annually. This outlook is supported by: (i) expected Thailand economic growth of 3.0-4.0% per year that will lift consumer purchasing power alongside the ongoing rebound in the tourism sector (due to reach 43m arrivals by 2026); (ii) an expansion in work on residential condominium developments alongside or near mass transit systems (the number of new units coming up for sale in the BMR should increase by 3.0-4.0% per year); and (iii) the implementation of the M-MAP plan and the opening of new metro lines, which will increase the number of stations, extend the reach of the network, and improve the ease of interchanging between lines.

• Income will continue to strengthen on the opening of the new Pink Line (Khae Rai-Minburi), and its extensions (Si Rat-Muang Thong Thani lake) are expected to begin service in 2025), which will function as feeders and so increase overall ridership. In addition, income from the rental of commercial space in and near stations will also improve.

 

 

Maritime Shipping

Situation in 2023

• Business conditions worsened for the sea freight industry over 9M23, and this was reflected in the slump in the Baltic Dry Index (BDI) and the China Container Freight Index (CCFI) of respectively -43.2% and -69.5% YoY. The market suffered under the sluggishness of the global economy (the IMF sees the world economy growing by 3.0% in 2023, with global trade up by just 0.9%) and the impacts of geopolitical tensions, including the ongoing war in Ukraine and the recent outbreak of fighting between Hamas and Israel. The Thai export sector also contracted by -3.8% YoY, further eroding demand for cargo space.

• The outlook should improve somewhat through the rest of 2023 as demand for consumer goods firms up with the year-end celebrations and, as the northern hemisphere moves into winter, commodity markets strengthen. In addition, in August, the Thai export sector returned to growth for the first time in 11 months, and this will then boost demand for space on vessels to move both inputs and finished goods. For all of 2023, bulk and container shippers’ income^1/ is therefore forecast to shrink by respectively -16.0% YoY and -36.0% YoY, a sharp turnaround from 2022’s growth of 33.2% and 37.4%.

2024-2026 Outlook

• Income is expected to rise by an average of 2.0-3.0% per year as supply of space and freight demand come closer into balance. The market will benefit from the following tailwinds.

  • The world economy and global trade are expected to expand by respectively 3.1% and 3.6% annually (source: IMF), while the domestic economy will grow by 3.0-4.0% per year. Thai exports will thus be lifted by a combination of economic growth in overseas markets and importers’ desire to build inventories of essential goods (especially of food). As such, the volume of goods both imported and exported will rise.

  • Cargo sea freighters will benefit from growth in the Chinese economy since China is the world’s biggest importer of energy (i.e., of coal, oil, and natural gas). In addition, freight charges are also expected to stay elevated, lifted by the sanctions imposed on Russia by Western countries, the decision by the OPEC+ group to maintain upward pressure on oil prices, and the emergence of an El Niño, which will add to food prices and potentially disrupt travel in some areas (e.g., for ships traveling via the Panama Canal).

  • Operators of container ships will gain from the expansion in the world economy and the positive impacts of this on purchasing power and demand for consumer goods. However, the market will be negatively impacted by the rapid expansion in shipping space, which is expected to grow 40% from its 2023 level over 2024-2026 (source: TNSC). Container freight charges are thus expected to fall back to their 2019 pre-COVID level.

• Headwinds will tend to come from higher operating costs. In particular, fuel prices will remain volatile and elevated, geopolitical tensions may disrupt maritime routes, and players will need to adapt to a tighter regulatory environment (e.g., from 2024, the EU will begin to charge fees under its emission trading system). Nevertheless, by raising freight charges, operators will be able to pass on some of these additional costs, and by better matching the supply of and demand for shipping services, they will be able to grow their income.

            1/ Source: Companies listed on the SET and MAI stock exchanges.

 

Digital services and software​

Situation in 2023

Overall industry revenue will increase through 2023 on strength in the digital services and software segments, while digital content will record a slow growth. Overall industry revenue is thus expected to expand by 17.0-17.5% in 2023, close to the 17.6% growth recorded in 2022.

• Digital services: With annual revenue growth expected to hit   21.0%-22.0% (close to 2022’s 20.8%), digital services are the most important driver of industry growth, mostly driven by: (i) the development of new models for delivering services through digital platforms linking data to online providers and through this, make targeted digital solutions available; and (ii) recovery in business activities, especially in logistics and tourism, which has then boosted online commerce.

• Software and software services: Revenue is forecast to grow by 14.5-15.0% this year (a slight slowdown from 18.6% in 2022) as businesses look to raise their forecasting abilities and improve their planning by using big data analytics and AI, that require investments in updating software. Based on Gartner's forecast, expenditure on software of business sector in Thailand will grow 14.9% in 2023 (higher than the global average growth of 9.3%) as Thailand is beginning to develop deep-learning-based data management systems to be a strategic business initiative, using software on AI Cloud as a primary tool.

• Digital content: Revenue will grow only 1.0-1.5%, after a -3.7% contraction in 2022, resulting from a slow cycle of games online after the easing of the COVID-19 pandemic, which has returned workers to offices and outdoor activities. However, animation and character businesses will gradually improve as spending on advertising rebounds and audiences return to cinemas, important market channels for the segment. 

2024-2026 Outlook

Total revenues will continue to enjoy a solid growth of 12.0-12.5%  annually. The main growth driver will be digital services, followed by software and digital content.

• Digital services: Revenue will strongly increase by 14.0-14.5%, with the increasing dependence of business, finance and consumers on online platforms. Business operators will likely expand their business offerings to consultancy and marketing planning delivered through new media platforms including live social commerce, creative content, performance ads, and media recommendation systems. This will help some segments of the ecosystem especially e-Retail, e-Logistics and Fintech, continue to grow. Other market segments that also demonstrate strong growth potential include HealthTech, supported by the development of medical and health applications.

• Software and software services: Revenue growth will average 9.5-10.0% as companies need to restructure around data analytics and AI services and to the use of software to deliver end-to-end services. Furthermore, software will be employed as a tool to seek business opportunities and develop products that create new experiences for customers. Growth potential segments of software services will include Software customization and Software consult.

• Digital content: Revenue will recover to 4.5-5.0%, lifted by the release of new PC and mobile games, with a focus on expanding the market for gaming competitions and e-sports, while animation and character will be helped by recovery in the tourism sector, which will add to demand for the licensing of products.