FPC's Q2 profit growth may slow

Formosa Petrochemical Corp (台塑石化), the nation's only publicly traded oil refiner, may post the smallest profit growth in more than a year because of increased crude oil costs and falling petrochemical prices.

Second-quarter net income probably rose 64 percent from a year earlier to NT$13.3 billion (US$414 million), based on the median estimate of seven analysts in a Bloomberg survey. That would be the slowest pace since the first quarter of last year, when profit fell 0.2 percent. The company must report by Wednesday.

Soaring crude oil prices and competition with state-run Chinese Petroleum Corp (中油) are squeezing the earnings of Formosa Petrochemical makes refining each barrel of oil into fuels. Declining petrochemical prices also dampened the company's profit, said analysts including Eric Chang at Capital Securities Corp (群益證券) in Taipei.

"They aren't able to pass on higher costs by raising product prices," Chang said in an Aug. 19 phone interview. "The spread is narrower" between raw materials and product prices, said Chang, who has a "hold" recommendation on the stock.

Taiwan's average per-barrel cost of importing crude oil soared 34 percent from a year earlier in the first six months, while gasoline prices increased by less than 8 percent, according to the Bureau of Energy's Web site.

Formosa Petrochemical's sales climbed 34 percent from a year earlier to NT$103.7 billion in the second quarter, according to the company's monthly reports. Oil products accounted for 68 percent of sales and petrochemicals 24 percent.

The company's refining margin, the difference between oil product prices and crude oil costs, was about US$7 a barrel in the second quarter, Chang said. That's down from an average of US$9.5 a barrel in the first quarter.

"Formosa Petrochemical was affected by government policy; it can't raise oil product prices if Chinese Petroleum doesn't," because the government is trying to keep consumer prices stable, said Audrey Chiu, an analyst at Yuanta Core Pacific Capital Management Co (元大京華投顧) in Taipei.

Minister of Economic Affairs Ho Mei-yueh (何美玥) said on Aug. 14 she didn't support Chinese Petroleum raising oil product prices further after the company and Formosa Petrochemical increased charges for gasoline and diesel NT$1.5 a liter on Aug. 2.

Shares of Formosa Petrochemical rose 0.3 percent to NT$58.5 by the Taiwan Stock Exchange's 1:30pm. close. The stock has advanced 7.8 percent this year, compared with a 0.5 percent decline in the benchmark Taiex index.

Chinese Petroleum controls about 70 percent of the gasoline and diesel markets, while Formosa Petrochemical, a unit of Taiwan's biggest diversified industrial company, has 30 percent.

Formosa Petrochemical and state-owned rival Chinese Petroleum, the nation's only oil refiners, also have units that process naphtha, an oil product, into petrochemicals such as ethylene for making plastics and fibers.

Taiwan's spot ethylene prices fell about 18 percent during the second quarter, according to oil-pricing service Platts.

The nation's production of chemical materials declined 2.2 percent from last year in June because of falling demand for petrochemicals in East Asia and increased competition from China, the Ministry of Economic Affairs said.