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Trade War

Formosa Plastics foresees holiday gloom as orders slow

Bellwether petrochemical group says trade war saps market confidence

Formosa Plastics makes raw plastics as well as petrochemical and electronics materials that are used by companies in a broad range of industries. (Photo by Keiichiro Asahara)

TAIPEI -- Formosa Plastics Group, Taiwan's biggest industrial conglomerate and an international provider of petrochemical, plastics and electronic materials, signaled tepid holiday season demand on Monday, citing the escalating U.S.-China trade war and global economic slowdown.

The group's four crown jewels and publicly traded companies -- Formosa Plastics, Nanya Plastics, Formosa Petrochemical and Formosa Chemicals and Fibre -- have long served as a gauge of demand for industrial and consumer products. Their products are used in industries covering construction, transportation, textiles, footwear, food, daily necessities and consumer electronics.

But executives from each of the four forecast a revenue decline for their company in the October-December quarter compared with the July-September period.

"China's economy is weaker than expected, while the trade war and many geopolitical issues add to the massive uncertainties," Vice Chairman F.Y. Hong of Formosa Chemicals and Fibre told reporters. The European economy lacks optimism as well, Hong said.

"The whole petrochemical industry has turned very conservative for the demand outlook for this quarter," the vice chairman said, "and I don't see the demand picking up at least till the Chinese New Year."

Wu Chia-Chau, chairman of Nanya Plastics, echoed that sentiment and said the protracted trade conflicts between Washington and Beijing have hampered overall market confidence.

"Additional tariffs would elevate production and operation costs, while they would also lead to price hikes for daily goods and harm consumers' purchasing power," Wu said. "It could turn out to be a vicious circle."

Most buyers turn cautious when the prices of most petrochemical products are declining, said Jason Lin, chairman and CEO of Formosa Plastics.

China, the world's No. 2 economy, is growing at its slowest pace since 2009, and the country's official manufacturing purchasing managers' index dropped to a 27-month low in October, Lin said.

"Those indicators all fueled market concerns," the chairman said.

The warnings from the industrial heavyweights added to the pessimism about global macroeconomic conditions ahead and dimmed the outlook for what is traditionally the busiest time in many industries. Nanya Plastics is the global top provider of copper coil -- a crucial material for the printed circuit boards that all the electronic devices need -- while Formosa Plastics is the world's No .2 maker of polyvinyl chloride, the essential base for many plastic products.

The International Monetary Fund recently lowered its global economic growth forecast for this year and 2019 as trade tensions slice into business activities worldwide.

Leo Lee, a petrochemical industry analyst at Yuanta Investment Consulting, said the dramatic uncertainties prevent anyone from being too aggressive in investments or business.

"The U.S.-China trade dispute remains unresolved," Lee said. "People are still waiting for the results of U.S. midterm election on Nov. 6 and the meeting ahead between American President Donald Trump and Chinese President Xi Jinping by the end of this month."

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