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Asia300

Formosa Plastics exec says oil rally may peak at $55

'Hot money' will flee if output cuts aren't sustained, says head of Taiwan giant

Executives at Taiwan's Formosa Plastics warn that 2017 could be a bumpy one, citing China's slowdown. (Photo by Keiichiro Asahara)

TAIPEI -- The recent global oil rally could end depending on the outcome of the Dec. 10 meeting of OPEC and non-OPEC members in Vienna to discuss the supply glut, according to the head of the petrochemical arm of Formosa Plastics Group, Taiwan's largest industrial conglomerate.

"We think oil prices may soon peak at around $55," said Tsao Minh, president of Formosa Petrochemical. "The current hype over [rising] oil prices stems from hot money from investors, which could begin to exit after things finally settle down," he said.

Brent crude oil futures have surged some 18% since Nov. 30, when OPEC member economies agreed for the first time since 2008 to cut production to ease the supply glut. The international benchmark for crude prices retreated some 0.3% to around $54.70 on Tuesday.

Looking to 2017, Tsao said that if both OPEC members and their counterparts outside the cartel agree to production cuts and stick with that deal, oil prices may eventually climb to $60. Otherwise, he said, oil prices may likely slip below $55 next year.

"Uncertainties" ahead

Meanwhile, executives at Formosa Plastics Group have warned that the year ahead could be bumpy and "full of uncertainties," citing China's economic woes and U.S. President-elect Donald Trump's likely protectionist path.

"We are a bit concerned about the possibility of a hard landing for the Chinese economy, as we see a housing bubble there and a continued slide in the country's currency," said Jason Lin, chairman of Formosa Plastics, one of the group's flagship companies and the island's largest maker of key raw plastic materials.

China's contribution to Formosa Plastics' revenue fell to around 23% for the first three quarters of 2016, from 26.5% for the same period a year earlier, according to company spokesman Jerry Lin.

Regarding further investment and selecting new manufacturing bases overseas, Formosa Petrochemical's Tsao said the company would be more careful, as it had "learned a lesson" from its painful experience in Vietnam and will look for places where there is less risk.

In August, Formosa Plastics Group unit Formosa Ha Tinh Steel paid a $500 million fine to Vietnamese authorities for allegedly polluting waters and causing large numbers of fish to die earlier this year. The conglomerate is still under fire from local fishermen and activists.

"Someone in Myanmar approached us for investment," said Tsao. "But I think at this moment we would be a bit more cautious and try to avoid building plants in places in Southeast Asia, as the region may be too volatile politically and in terms of enforcing laws."

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