Tue, Jan 25, 2005 - Page 11 News List

Formosa Plastics' profit soars on demand from China


Formosa Plastics Corp (台塑集團), the world's second-largest maker of polyvinyl chloride, or PVC, had a bigger-than-expected rise in profit in the fourth quarter after increasing demand from China pushed up product prices.

Net income in the three months ended Dec. 31 doubled to NT$11.3 billion (US$355 million) from NT$5.60 billion a year earlier. The earnings were derived by subtracting nine-month profit from full-year figures. The median estimate of six analysts polled by Bloomberg was for a profit of NT$9.55 billion.

Formosa Plastics benefited as economic growth in China boosted demand for PVC, which is used to make plastic pipes, flooring and window frames. The company, part of Taiwan's largest industrial group, sells about 35 percent of its products to China, where the economy expanded 9.5 percent in the first nine months of the year.

"The whole petrochemical industry expanded significantly last year, and growth wasn't clamped down" by China's measures to cool its economy, Audrey Chiu, an analyst at Yuanta Core Pacific Capital Management Co (元大京華投顧) in Taipei, said before the results were released.

China tightened credit last year in an effort to slow investment in property and other industries to prevent capacity from outstripping demand. The People's Bank of China (中國人民銀行) raised its one-year lending and deposit rates by 0.27 percentage point to 5.58 percent and 2.25 percent respectively as of Oct. 29.

PVC prices in Taiwan rose to US$882 a metric tonne last year from US$634 in 2003, according to a report by UBS Securities Asia Ltd. The US$248 rise was larger than that for ethylene, an ingredient in PVC, the price of which increased to US$762 a tonne from US$549, the report showed.

Fourth-quarter sales at Formosa Plastics, which also makes polyethylene for use in packaging and bottles, increased 32 percent to NT$32.6 billion.

The company said yesterday that unaudited net income for last year was NT$36.3 billion, more than double the NT$16.6 billion posted in 2003. Earnings per share reached NT$7.12 for last year.

Formosa Plastics' shares have fallen since reaching NT$57.50 on Oct. 8, the highest in more than a decade, on concern increased product prices might squeeze clients' earnings and damp demand. The stock declined NT$0.50, or 0.9 percent, to NT$54.50 in Taipei yesterday and is unchanged so far this year, compared with a 6 percent slump in the benchmark TAIEX.

The company's sales in December rose 14 percent to NT$9.81 billion, slower than the 40 percent surge in November and a 43 percent increase on October, a signal that demand for the company's products may have peaked.

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