Formosa Plastics Corp (台塑), the world's second-largest maker of polyvinyl chloride, or PVC, may post its biggest profit in three quarters as increased demand from China boosted product prices.
Net income probably climbed 16 percent from a year earlier to NT$6.7 billion (US$205 million) in the three months ending June 30, based on the median estimate of five analysts in a Bloomberg survey. That would be the highest since the NT$12.2 billion recorded in the third quarter of last year. The Taipei-based company is scheduled to report on tomorrow.
China, Taiwan's biggest export market, bought more of Formosa Plastics' products to make toys, handbags and shoes in the second quarter as the mainland economy grew 11.3 percent from a year earlier. About a third of the company's sales are to China.
"Demand was quite good in China," said Erik Chang, an analyst at Capital Securities Corp (群益證券) in Taipei. "A lot of people restocked their inventories because they figured prices weren't going to fall."
Prices of PVC climbed 12 percent in East Asia during the second quarter, according to Platts, a consulting company specializing in oil prices.
PVC, 40 percent of which is used to make consumer products such as handbags, accounted for a fifth of Formosa Plastics' sales for the April-June period, according to its filings to the Taiwan Stock Exchange. The material is the company's biggest-single revenue source.
Second-quarter sales at Formosa Plastics, which also makes polyethylene for use in packaging and bottles, increased 20 percent from a year earlier to NT$38.8 billion, after falling 1.5 percent in the previous three months.
Shares of Formosa Plastics fell NT$0.20, or 0.5 percent, to NT$44.7 by the Taiwan Stock Exchange's 1:30pm close. The stock has dropped 8.8 percent this year, compared with the 0.1 percent gain in the benchmark Taiex index.
Chang at Capital, who has a "sell" recommendation on the stock, predicts profit will decline to NT$7.79 billion in the third quarter from the NT$9.7 billion he estimates for the April-June period. Intensifying competition in China may hurt the company's earnings, he said.
China plans to more than double production capacity of ethylene, by 2010, the Chinese government said in March.
Shin-Etsu Chemical Co is the world's biggest maker of PVC.