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Asia300

Formosa Plastics sees H2 rebound in oil price

TAIPEI -- Global crude oil prices would rebound in the second half of the year even though Britain's vote to leave the European Union had driven money to safe-haven assets in the short term, according to senior executives of Taiwan's largest industrial conglomerate Formosa Plastics Group.

"The oil price would rise mildly in the second half of the year even though the Brexit vote has pushed money to gold, bond or U.S. dollars for hedging purposes in the short term," said Lin Keh-yen, executive vice president of Formosa Petrochemical, FPG's petrochemical arm. "We expect the average oil price would be around $50 to $52 per barrel in the second half of the year."

Lin's remarks came as Brent crude futures fell more than 1.3% to around $46.14 on Monday, a near two-month low.

"There is still an oversupply in the global oil market, but it has been a bit relieved from a supply glut of 1.5 million barrels a day in the first half of 2016 to a supply glut of around half a million barrels per day now," said Tsao Mihn, president of Formosa Petrochemical. "We think oil prices would not plunge much now despite the lukewarm world economic outlook and demand."

For the first half of 2016, FPG's four listed subsidiaries -- Formosa Plastics Corp., Formosa Petrochemical, Formosa Chemicals and Fibre, and Nan Ya Plastics -- together generated a revenue of 643.79 billion New Taiwan dollars ($19.98 billion) and a net profit of NT$85.97 billion, growing 15.4% from a year ago. FPG's four main subsidiaries had a combined market capitalization of NT$2.27 trillion as of the market close on Monday.

On June 30, Formosa Ha Tinh Steel, FPG's $10.5 billion steelmaking project currently in a trial run in Vietnam, was slapped with a $500 million fine for its alleged culpability in water pollution resulting in shoals of dead fish in central Vietnam, though most analysts said the impact on the company's financials is limited at this point.

"We think there are a lot complicated political reasons behind the $500 million fine, but the amount is relatively bearable for the group to settle the case and to make the largest steelmaking factory in Southeast Asia begin full production as soon as possible," said Danny Ho, head of research at Danny Material Intelligence, a Taipei-based consultancy firm. "We think the payment would not at all have any impact on Formosa Plastics Group's financial performance."

The Vietnam case would not have an impact on the company's decisions in overseas investments, according to Formosa Petrochemical's Tsao. "After all, what we value the most is whether there is a mass market in the place that we invest, and all those political and other factors can eventually be taken care of, negotiated or solved."

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