Formosa group to invest US$1.5bn in US, Taiwan

Formosa Plastics Group (台塑集團), which owns the world's biggest processor of plastics for pipes and imitation leather, plans to invest as much as US$1.5 billion in the US and Taiwan to tap rising demand for chemicals and energy.

The parent company may invest US$1.1 billion in Texas over the next five years to expand chemical production and build a power plant, plus as much as US$400 million in Taiwan to boost chemical output, said Lee Chih-tsuen (李志村), president of Formosa Plastics Corp (台塑), the group's oldest company.

Formosa Plastics Group is expanding as it seeks to gain market share from rivals, including Dow Chemical Co of the US and Germany's BASF AG. The company is betting US economic growth will prompt higher demand for chemicals used in construction, computers and consumer products including handbags,shoes and diapers.

"Demand for petrochemicals usually moves in tandem with the gross domestic product," Lee, 70, said in an interview at his office in Taipei on Thursday. Formosa Plastics is expanding in the US, because "market demand is there.''

The US economy will grow by 3.4 percent this year, according to the median forecast in a Bloomberg News survey of 72 economists.

The parent company plans to build a 163,293 tonnes-a-year polyvinyl chloride, or PVC, plant in Texas, and a 300-megawatt power plant that will burn petroleum coke, a cheaper alternative to natural gas, Lee said.

The group will also expand ethylene production capacity in the US, he said. Ethylene is a basic chemical used in most plastics.

Formosa Plastics' plants at Point Comfort, Texas, account for 4.4 percent of North American ethylene capacity. The group also has natural gas assets and makes PVC among other chemicals in the US.

In Taiwan, Formosa Plastics is seeking government approval to spend between US$300 million and US$400 million in the next three to four years on plants making acrylic esters and super-absorbent polymers, according to Lee.

Acrylic esters' applications include paint and adhesives, while super-absorbent polymers are used in products like diapers.

The Taiwan plan will add to the group's NT$652.8 billion(US$20.4 billion) petrochemical venture in Mailiao, where Formosa Plastics already has plants capable of producing 1.7 million metric tons of ethylene a year and processing 480,000 barrels of crude oil a day.

Formosa Plastics will boost the capacity of its Mailiao refinery to 540,000 barrels a day before the end of the year, according to Lee. Construction of an ethylene plant that has an annual capacity of 1.09 million tonnes is also proceeding.

The parent company has been in talks with governments in Taiwan and China for a chemical project in eastern China's Ningbo city, Lee said. The proposal, including a 1.09 million tonnes-a-year ethylene plant, may cost between US$3 billion to US$5 billion.

"If the mainland doesn't build new plants, the shortage will continue to widen," Lee said. This has prompted Formosa Plastics to prod the Taiwanese government to allow the project.

China imports about 9.07 million tonnes of ethylene a year, he said.

China consumes about 14.5 million tonnes of ethylene a year and its demand for the feedstock increases by more than 907,000 tonnes every year, according to Lee.

The Taiwanese government bans companies from building ethylene plants in China, on the grounds such projects will siphon too much investment from the country, harming Taiwanese chemical producers.