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Gas stations may strike to protest Formosa price hike

Shares of Formosa Petrochemical Corp (台塑石化) declined NT$0.5 to close at NT$61.4 on the Taiwan Stock Exchange yesterday, as its contracted gas stations were mulling whether to stop sourcing from the nation's second largest oil refiner if it refuses to cancel a 10 percent price hike.

"Market speculation about retailers withdrawing from Formosa Petrochemical did affect the share performance yesterday," said Matthew Lin (林鴻宗), an analyst with Polaris Securities Co (寶來證券).

He said that the recent slight decrease of the refiner's share prices was also triggered by the fact that Formosa did not adjust their 10 percent hike in wholesale prices early this month, as worldwide crude oil prices were down below the US$65-per-barrel level last week from the previous US$70 a barrel.

Formosa's price increase adds NT$2.4 per liter for gasoline products and NT$2 per liter for diesel oil products to the retailers, while state-run rival Chinese Petroleum Corp (CPC, 中油) did not match the hike as it used to be, making retailers buying Formosa's gasoline see a considerable loss in business.

According to Chinese-language media reports yesterday, the Formosa Gas Station Association, which consists of around 600 retailers that distribute Formosa's oil products nationwide, may organize a strike and throw eggs at Formosa headquarters within a week if the situation remains unchanged.

The association further threatened to join Formosa's larger rival CPC instead, said the reports, adding that a mid-sized Formosa retail station will see losses of up to NT$3 million a month if the price hikes take effect after a 10-day grace period.

CPC commands about 70 percent of the retail gasoline market in Taiwan, while Formosa takes the rest.

One Formosa official said yesterday that the company will maintain current wholesale rates. Wang Yung-tsai (王永在), vice chairman of Formosa Plastics Group (台塑集團), said last Friday that Formosa will respect its retailers' choices as the company is willing to lose margins but not incur losses.

These negative news will not cast a long-term impact on Formosa's profits, as it will still benefit from the oil-export markets, which currently contribute 70 percent to the total revenues, Polaris Securities' Lin said.

"Retailers are faced with a dilemma as even they want to switch over to CPC, it will not be able to absorb them," he said, adding that CPC will eventually raise its wholesale oil prices, as both refiners are losing money due to the soaring crude oil prices.

Meanwhile, National Petroleum Corp (全國加油站), a member of the Formosa Gas Station Association with 92 stations nationwide, said that it does not have plans to withdraw from retailing Formosa's gasoline.

"We will take things in a rational way and negotiations will be based on the contents of the contracts," said a manager who spoke on condition of anonymity.

It does not plan to hold strikes as this will ruin business relations with Formosa, she said, refusing to give out details.
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