A plan by the four major units of Formosa Plastics Group (FPG, 台塑集團) to lower their stakes in a steel mill in Vietnam reflects the group’s caution about global demand, analysts said yesterday.
“As China, one of the world’s largest steel buyers, will no longer pursue high economic growth, global steel demand could slow down accordingly,” Hua Nan Securities (華南永昌證券) analyst Henry Miao (苗台生) said.
In the second quarter, China’s economy grew 7.5 percent year-on-year, slowing from a 7.7 percent increase in the first quarter.
Beijing expects GDP this year to grow by 7.5 percent, compared with a 7.7 percent increase recorded last year. Chinese authorities have said the country wants a more balanced economy rather than simply seeking high GDP growth.
“I think FPG has taken possible lower demand from China into account and decided to cut its stake in the steel investment project in Vietnam,” Miao said.
The group’s four major units — Formosa Plastics Corp (台塑), Nan Ya Plastics Corp (南亞塑膠), Formosa Chemicals & Fibre Corp (台灣化纖) and Formosa Petrochemical Corp (台塑石化) — said on Thursday that they each decided to cut stakes in Formosa Ha Tinh Steel Corp (台塑河靜鋼鐵興業) to 14.75 percent from 21.25 percent.
Before the adjustments, the subsidiaries had poured US$744 million each into the
Vietnam steel project, which is still under construction. It is scheduled to become operational in the second half of 2015 with an annual production capacity of 7 million tonnes.
After the reductions, the four investments in the Vietnam project are expected to be worth US$516 million each.
The group said the four subsidiaries are expected to see their financial burdens eased due to the smaller investments. It added that because steel production is not their core business, they aim to introduce partners in the global steel industry to help them push the Vietnam project forward.
Media reports said FPG plan to introduce foreign partners such as Nippon Steel Corp to the project.