Wed, Oct 10, 2018 - Page 12 News List

FPG sees slower growth as tensions rise

CLOUDY PROSPECTS:Trade conflict between the world’s two largest economies has dampened investments, procurement and consumption, Formosa Plastics Group said

By Ted Chen  /  Staff reporter

Formosa Plastics Group (FPG, 台塑集團) yesterday said it expects to see slower growth this quarter because of the impact of the escalating trade war between the US and China.

With tariff hikes against Chinese exports to the US set to rise from 10 percent to 25 percent on Jan. 1, trade tensions between the world’s two largest economies have dampened investments, procurement and consumption across the globe, group officials said.

Formosa Plastics Corp (台塑) chairman Jason Lin (林健男) said that the company’s revenue this quarter could decline sequentially, reversing a forecast of positive growth given a month earlier.

In anticipation of higher tariffs next year, some customers have begun restocking, while others have turned tentative, opting to exhaust inventories, Lin said, adding that rush orders pushed ocean freight rates higher last month.

At the same time, expectations of higher interest rates in the US and tapering of quantitative easing in Europe have clouded demand visibility, as customers have begun to brace for lower consumer spending, with household debts across major markets rising, Lin said.

Despite rising geopolitical risks and dimmer prospects, Lin cited potential upsides for the company, including higher demand for plastics during the year-end peak shopping season and lower output from China leading to higher prices, as Beijing orders factory shutdowns to ensure blue skies over Shanghai during the China International Import Expo next month.

A weakening yuan would also help offset some of the impact of higher tariffs, he said.

Formosa Plastics is entering the final quarter of this year at 92 percent capacity, compared with 88 percent last year due to fewer maintenance checks, he added.

The company is diversifying into other markets, such as Bangladesh and India, to ensure sustainable sales growth, he said.

Nan Ya Plastics Corp (南亞塑膠) chairman Wu Chia-chau (吳嘉昭) said that the trade row would lead to currency depreciation in emerging markets, resulting in slower demand growth.

As a processing manufacturer, Nan Ya Plastics is more susceptible to rising material costs as oil prices continue to trend higher, but the company is expanding efforts to preserve its growth momentum this quarter through product quality upgrade and differentiation.

Formosa Chemicals & Fibre Corp (台灣化學纖維) vice chairman Hong Fu-yuan (洪福源) said that since last month, the company has observed a demand slump in China, even though the peak season for plastics products started last month, rendering the company’s plastics business unit unprofitable.

Cooler demand during this year’s peak season reflects a downturn in consumer confidence in China, while material prices have seen a spike in volatility, Hong said.

Nonetheless, revenue is expected to see sequential growth this quarter due to higher production capacity, Hong said.

Formosa Petrochemical Corp (台塑石化) chairman Tsao Minh (曹明) said that earnings growth momentum this quarter should be the same as the previous quarter, supported by forecasts of higher oil prices.

With the exception of Formosa Chemicals, the three other companies saw single-digit declines in sales last month.

In the first nine months, the four companies saw combined net income rise 22.9 percent annually to NT$206.75 billion on sales of NT$1.31 trillion, up 19.8 percent.

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