April 11, 2017 1:00 am JST

Formosa Plastics worries China slowdown may dampen demand

Taiwan conglomerate doesn't fear oil spike

CHENG TING-FANG, Nikkei staff writer

TAIPEI -- China's economic slowdown is the primary threat to petrochemical demand in that country this year, senior executives at Formosa Plastics Group, Taiwan's largest industrial conglomerate, warned Monday.

"The economies of Europe and the U.S. are steadily improving and on the way to recovery," said Jason Lin, chairman of Formosa Plastics, the flagship group company that makes polyvinyl chloride and polyethylene -- materials used in a broad range of goods. "Chinese economic downside risk is the only key concern for overall demand."

Lin said Chinese regulators are expected to tighten controls on the property market this year, and China may also implement tighter money-market policies. He said a possible shortage of capital could affect demand for various petrochemical products in China.

Partly to head off that risk, Lin said his company will continue to reduce its reliance on the Chinese market this year, through expansion in Vietnam, Bangladesh, India, the Middle East and Africa.

For the three months through March, the ratio of revenue from China fell to 40.9%, from 42% a year earlier. Formosa Plastics' sales in the period came to 47.79 billion New Taiwan dollars ($1.55 billion), advancing 11.7% on the year.

Calm about crude

Meanwhile, the head of the group's petrochemical arm tempered talk of a surge in oil prices amid rising concerns over conflict in the Middle East.

Such chatter has increased since the U.S. hit a Syrian government air base with cruise missiles last week. Brent crude futures, the international benchmark for oil, advanced nearly 1% on Monday to more than $55.70 on Monday, after hitting a one-month high last Friday.

Nevertheless, Formosa Petrochemical President Tsao Mihn said any price increase is likely to be limited, and only last for the short term.

"We believe the oil price would stay at $55 on average for this year, as we do not see substantial drivers on fundamentals, and the impact of the U.S.-Syrian incident is mainly on the psychological side," Tsao said, adding that the growing output of U.S. shale oil could also restrain any rise.

Leo Lee, an analyst at Yuanta Investment Consulting, echoed Formosa Plastics' view, saying oil is unlikely to top $60 this year. 

FPG's four crown jewels -- publicly traded companies Formosa Plastics, Formosa Petrochemical, Formosa Chemicals and Fibre and Nan Ya Plastics -- together generated net income of NT$55.06 billion for the January-March period, up 94.7% on the year. Their revenue rose 21.3% to NT$374.21 billion.

The group's four main units had a combined market capitalization of more than NT$2.76 trillion when trading closed on Monday, before the earnings were released.

Asia300

Formosa Plastics Corp.

Taiwan

Market(Ticker): TAI(1301)
Sector:
Industry:
Process Industries
Chemicals: Specialty
Market cap(USD): 18,589.50M
Shares: 6,365.74M

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