Formosa Petrochemical suffers profit downturn

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

Second-quarter net income rose 67 percent from a year earlier to NT$13.5 billion (US$416 million), the slowest pace since the first quarter of last year.

Soaring crude oil prices and strong competition from state-run Chinese Petroleum Corp (中油) are squeezing the earnings Formosa Petrochemical makes refining each barrel of oil.

Increasing production in China, which has helped reduce petrochemical prices, also damped the company's profit growth.

"Profit from petrochemicals may fall because of rising capacity in [China]," Nora Chen of Fubon Securities Investment Trust Co (富邦投信) in Taipei said before the earnings were announced.

"Second-quarter profit was relatively weak because of a narrower refining margin," said Chen, who helps manage US$48 million in assets, including Formosa Petrochemical shares.

Formosa Petrochemical's refining margin, the difference between oil-product prices and crude-oil costs, was about US$7 a barrel in the second quarter, according to Taipei-based Capital Securities Corp (群益證券) analyst Eric Chang. That's down from an average of US$9.5 a barrel in the first quarter.

Shares of Formosa Petrochemical rose 1.2 percent to NT$59.2 by the Taiwan Stock Exchange's 1:30pm close. The stock has advanced 9.1 percent this year, compared with a 1.5 percent decline in the benchmark TAIEX index.

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.

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

That comment followed a government report on Aug. 5 showing that consumer prices last month increased 2.4 percent from a year earlier, matching the rise in the previous month.

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

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 a year earlier in June because of falling demand for petrochemicals in East Asia and increased competition from China, the Ministry of Economic Affairs said in a statement on July 21.

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 for 24 percent.

First-half profit increased 81 percent from a year earlier to NT$30.8 billion, a company filing to the stock exchange showed today.