A continued streng-thening of the baht would cripple overseas sales of autos and auto parts, garments, some farm products and electronics next year, as exporters are pressured to hike their prices above those quoted by foreign rivals, manufacturers said last week.

Samart Deebhijarn, director of the Thai Auto Part Manufacturers Association, said locally made vehicles and parts, quoted in US dollars, would be more expensive than those from other countries, especially China and Taiwan. He expects zero growth next year due to the baht's appreciation.

"We have no measures to re-lieve the suffering because it is an external factor that is beyond our control," Samart said, adding that some firms have had to suspend their exports because they cannot command higher prices.

The strong baht has caused their income to drop 12 per cent, even though their profit margin has been squeezed to a thin 5 per cent due to pricing pressures.

The association targets auto-related exports to grow 20 per cent to US$9.2 billion (Bt340 billion) this year. In the first nine months, exports expanded 22.8 per cent to $6.29 billion.

Garment exporters are not expecting much growth either, said Sukij Kongpiyacharn, vice president of the Thai Garment Manufacturers Association. Due to higher prices, some small and medium-sized enterprises have lost their markets to competitors in China and Vietnam, he said.

"We have bought futures to lessen the impact, but some small operators still have problems staying competitive with overseas and large manufacturers," he said, adding that even more small businesses would fold next year. In the first nine months, garment exports increased a meagre 3.26 per cent to $2.43 billion. The association targets full-year exports to rise by 8 per cent to $3.5 billion.

Somchai Sritrakul, president of the North Eastern Tapioca Trade Association, said the baht's strengthening would cut into the income of agricultural exporters, as farm commodities carry a very tight profit margin. Tapioca exports are expected to grow only 10 per cent next year to $936 million. The figure for the first nine months was up 27.6 per cent to $807.2 million.

Kitti Hamnilrat, senior vice president of Ayudhya Securities, said electronics exports would take the hardest blow, while domestic sales would also plunge. But the currency's appreciation is a boon to cement-makers and importers of oil.

For example, Siam Cement will score a double windfall from the rising baht and falling oil price, with its production costs declining by 10 per cent.

Last week, the University of the Thai Chamber of Commerce forecast that exports next year would expand by only 9 per cent-11.5 per cent to $141 billion, much lower than the Commerce Ministry's target of 15 per cent, due to the baht's appreciation.

During the past weeks, the baht has kept gaining against the dollar - ending last week at Bt36.66.

Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), said the dollar was expected to weaken further and regional currencies including the baht would strengthen more, due to the slowdown in the US economy.

Regional currencies will be supported by the yen on the back of the recovery in the Japanese economy. As the Bank of Japan is expected to raise its policy rate sooner or later, that would further boost the yen and regional currencies, she said.

"The US dollar is expected to weaken to between Bt36.50 to Bt36.90 next week," she said, adding that the Thai unit should climb to Bt36 by the end of the year.

The University of the Thai Chamber of Commerce views the baht averaging Bt36.30 next year.

Under these circumstances - where the baht should continue to climb at least into next quarter - exporters are recommended to hedge their foreign-exchange income and accelerate imports of raw materials and capital goods.

"Exporters should have a clear picture, if the baht appreciates to a certain level, of how they will be affected and how to react in advance," said Tak Bunnag, executive vice president of Bank of Ayudhya.

The bank is not recommending exporters to cover their risk exposure completely, as it depends on the companies as to how much they want to hedge, Tak said, adding that some customers of the bank are risk-takers.

"The currency is somewhat tied with the interest rate. If the baht passes through the Bt36.50 level, Bt36 will be the next target in the medium term, particularly when the [central bank's] policy rate is unchanged," he said.

Thiti Tantikulanan, head of capital markets at Kasikornbank, also recommended exporters to sell dollars through forward contracts to reduce risks if they believe that the baht will head further up. He believes the unit will keep advancing, as capital inflows should last until the end of this year. In September, massive inflows pushed the balance of payments up to $2.6 billion.

Usara of Standard Chartered Bank (Thai) said this was a good time for exporters who also need to import materials for production. It is also a good time to expand production capacity, as utilisation now stands over 70 per cent on average.

As of September, capacity utilisation in the chemical sector was 94.8 per cent, followed by the paper sector at 89.3 per cent and the petroleum sector at 86.4 per cent, according to the Bank of Thailand.

These sectors rely on imported machinery, equipment and raw materials for expansion.

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