Print

Mail

wiki links

Competition forces FPC profit growth into slow lane

Formosa Plastics Corp (台塑), the world's second-largest maker of polyvinyl chloride, or PVC, may have had its slowest profit growth in almost three years as flagging demand and increasing competition from China depressed prices.

Second-quarter net income probably rose 12 percent to NT$7.7 billion (US$239 million) at the Taipei-based company, according to the median estimate in a Bloomberg survey of five analysts. That would be the slowest pace since an 18 percent decline in profit in the third quarter of 2002. The company must report by Aug. 31.

China's moves to damp economic growth have depressed demand for PVC, 60 percent of which is used in pipes, window frames, floors and other construction purposes. Since last year the mainland government has sought to restrict property lending and speculation in real estate as part of efforts to prevent the economy from growing too quickly.

"The mainland's controlling measures are a big cloud hanging over Formosa Plastics," Matthew Lin, an analyst at Polaris Securities Co (寶來證券) in Taipei, said in an Aug. 19 telephone interview. "PVC prices were on a downward trend" during the second quarter. He has a "neutral" recommendation on the stock.

East-Asian PVC prices fell about 20 percent during the second quarter, according to oil-pricing service Platts.

Sales at Formosa Plastics rose 5.9 percent from a year earlier to NT$32.4 billion in the second quarter, compared with a 25 percent increase in the first quarter, according to the company's monthly sales reports. Formosa Plastics sells about one third of its products to China.

House prices in some Chinese cities have fallen after the government raised property lending rates in March and imposed new taxes on house transactions in June.

Prices in cities including Shanghai have almost tripled in the past three years, stirring social tension and increasing lenders' financial risks.

China's low-cost PVC producers, which have increased production in the past two years, have damped prices and pose a "serious threat" for Formosa Plastics, CLSA Asia-Pacific Markets said in an Aug. 12 report.

"Petrochemical makers were dumping products at fire sale prices in June," said Audrey Chiu, an analyst at Yuanta Core Pacific Capital Management Co (元大京華投顧) in Taipei. "We almost saw no demand from China."

Shares of Formosa Plastics climbed 0.2 percent to NT$49.7 by the Taiwan Stock Exchange's 1:30 pm close. The stock has fallen 0.6 percent this year, lagging behind the 0.9 percent gain in the benchmark Taiex index.

Formosa Plastics' third-quarter earnings will probably improve from the second quarter, because PVC prices started to rebound in June, Lin at Polaris said.

Demand for PVC, about 40 percent of which is used to make consumer products such shoes and handbags, may rise in the third quarter when stores stock up for the Christmas shopping season.
This story has been viewed 3077 times.