Formosa Plastics Group’s (台塑集團) four major subsidiaries on Tuesday reported weaker-than-expected combined profit of NT$5.34 billion (US$167.46 million) for the third quarter, down 90.9 percent from the previous quarter and 89.2 percent from the same period last year amid an oil price pullback and weak demand.
The four companies' combined operating losses amounted to NT$18.26 billion in the third quarter due to inventory losses and thin product spreads, company data showed.
Formosa Petrochemical Corp (FPCC, 台塑石化) swung into a loss last quarter as it recognized significant inventory impairment losses in its refinery business due to a decline in oil prices, while prices and sales volume at its olefin business sank, and the spread between revenue and material costs narrowed.
Photo: Taipei Times file photo
The subsidiary posted a net loss of NT$6.28 billion last quarter, or losses per share of NT$0.66, company data showed.
“Looking forward, we see a weaker outlook for the refinery segment, with downside to spreads,” Yuanta Securities Investment and Consulting Co (元大投顧) said in a note on Wednesday. “For olefin, spot prices and spreads for ethylene will likely remain weak in the fourth quarter, given weak demand for downstream plastics inventory and China’s large-scale capacity ramp up.”
Three other subsidiaries — Formosa Plastics Corp (FPC, 台塑), Nan Ya Plastics Corp (南亞塑膠) and Formosa Chemicals & Fibre Corp (FCFC, 台灣化纖) — also posted significant declines in profit last quarter compared with the previous quarter as sticky global inflation, interest rate hikes by central banks and geopolitical conflicts continued to negatively affect end-market demand.
FPC posted net profit of NT$5.76 billion, down 72.8 percent from the previous quarter, or earnings per share of NT$0.91, company data showed.
Prices of its core products such as polyvinyl chloride (PVC), caustic soda and ethylene-vinyl acetate dropped from the second quarter, while its capacity utilization rate fell to 80 percent from 85 percent as it conducted annual maintenance — as did FPCC.
FPC’s gross margin was affected by lower sales and production scale.
FPC is likely to see faster spread recovery for key products including PVC and caustic soda on the back of limited capacity additions in the past two years, Yuanta said.
Nan Ya Plastics posted net profit of NT$3.38 billion last quarter, down 76.8 percent quarterly, or earnings per share of NT$0.43, as its electronics segment reported sliding earnings due to client inventory digestion, while earnings at its chemical segment also dropped because of lower selling prices for key products such as ethylene glycol, Yuanta said.
FCFC’s net profit last quarter declined 60.5 percent from the second quarter to NT$2.49 billion, or earnings per share of NT$0.43, as it faced headwinds from China’s COVID-19 lockdowns, the Russia-Ukraine war and weak downstream demand, company data showed.
FCFC faces a more difficult outlook than its three major affiliates due to continued ramp-up of aromatic hydrocarbon capacity among Chinese rivals and persistent sluggish demand, Yuanta said.
In the first three quarters, the four subsidiaries posted combined net profit of NT$1.15 trillion, down 40.8 percent year-on-year, with FPC leading the way with earnings per share of NT$6.84, followed by Nan Ya Plastics’ NT$4.13, FPCC’s NT$2.55 and FCFC’s NT$2.54, data showed.
Looking ahead, Taiwan Ratings Corp (中華信評) said China's zero-COVID policy and an extended slump in the country's property market will slow recovery in China's domestic demand for the rest of this year, while high inflation and interest rates will hurt exports and further undermine chemical demand in Asia.
"This, together with still elevated crude oil prices, could hinder a significant recovery in the four companies' profitability for the rest of 2022," Taiwan Ratings said in a note on Wednesday. "The four companies' operating performance is likely to improve gradually in 2023. But weak demand and high oil prices will constrain the improvement."
Still, the four companies can absorb the financial impact of weak profitability and operating cash flow over the next two to three quarters because of the group's strong capital structure, said Taiwan Ratings, a local arm of S&P Global Ratings.
This story has been updated since it was first published.
Taiwan’s technology protection rules prohibits Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) from producing 2-nanometer chips abroad, so the company must keep its most cutting-edge technology at home, Minister of Economic Affairs J.W. Kuo (郭智輝) said yesterday. Kuo made the remarks in response to concerns that TSMC might be forced to produce advanced 2-nanometer chips at its fabs in Arizona ahead of schedule after former US president Donald Trump was re-elected as the next US president on Tuesday. “Since Taiwan has related regulations to protect its own technologies, TSMC cannot produce 2-nanometer chips overseas currently,” Kuo said at a meeting of the legislature’s
TECH WAR CONTINUES: The suspension of TSMC AI chips and GPUs would be a heavy blow to China’s chip designers and would affect its competitive edge Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s biggest contract chipmaker, is reportedly to halt supply of artificial intelligence (AI) chips and graphics processing units (GPUs) made on 7-nanometer or more advanced process technologies from next week in order to comply with US Department of Commerce rules. TSMC has sent e-mails to its Chinese AI customers, informing them about the suspension starting on Monday, Chinese online news outlet Ijiwei.com (愛集微) reported yesterday. The US Department of Commerce has not formally unveiled further semiconductor measures against China yet. “TSMC does not comment on market rumors. TSMC is a law-abiding company and we are
FLEXIBLE: Taiwan can develop its own ground station equipment, and has highly competitive manufacturers and suppliers with diversified production, the MOEA said The Ministry of Economic Affairs (MOEA) yesterday disputed reports that suppliers to US-based Space Exploration Technologies Corp (SpaceX) had been asked to move production out of Taiwan. Reuters had reported on Tuesday last week that Elon Musk-owned SpaceX had asked their manufacturers to produce outside of Taiwan given geopolitical risks and that at least one Taiwanese supplier had been pushed to relocate production to Vietnam. SpaceX’s requests place a renewed focus on the contentious relationship Musk has had with Taiwan, especially after he said last year that Taiwan is an “integral part” of China, sparking sharp criticism from Taiwanese authorities. The ministry said
US President Joe Biden’s administration is racing to complete CHIPS and Science Act agreements with companies such as Intel Corp and Samsung Electronics Co, aiming to shore up one of its signature initiatives before US president-elect Donald Trump enters the White House. The US Department of Commerce has allocated more than 90 percent of the US$39 billion in grants under the act, a landmark law enacted in 2022 designed to rebuild the domestic chip industry. However, the agency has only announced one binding agreement so far. The next two months would prove critical for more than 20 companies still in the process
RSS