FocusTaiwan petchems optimistic over elections

20 March 2008 04:31 [Source: ICIS news]

Taiwan By Hong Chou Hui

SINGAPORE (ICIS news)--Taiwan’s petrochemical industry is hoping the outcome of this weekend’s general elections boosts its faltering economy through a push for direct trade links with China, the island nation’s producers, traders and analysts said on Thursday.

Sunday’s presidential election is a two-way fight between Ma Ying Jeou of the Kuomintang (KMT) and Frank Hsieh of the Democratic Progressive Party (DPP), who have both pledged to improve relations with China while improving business and travel links.

Taiwan’s economy has been in the doldrums ever since President Chen Shui Bian came to power in 2000 on a wave of pro-independence sentiment.

Relations between the two countries has deteriorated since and trade links are said to been tenuous, with no member from Chen’s (DPP) cabinet visiting China during his term.

“The Taiwanese economy is virtually on life support provided by China because it is too weak to survive on its own. The two candidates are smart enough to know this despite their different political leanings,” a source from Far Eastern Textile, said in Mandarin.

It is Taiwan’s largest polyethylene terephthalate (PET) producer.

He added that with more than 750,000 Taiwanese investing directly or indirectly in businesses in China, it would take a foolish candidate to ignore the demands for closer ties.

Far Eastern has two PET facilities in Shanghai and Suzhou in eastern China with a combined annual capacity of 340,000 tonnes/year.

“Investors are already pumping money into Taiwan because they feel optimistic about the economy,” Jim Hung, an investment analyst with Goldman Sachs, said in Mandarin.

“However, many of them have indicated that they would prefer to see a KMT win because the DPP was founded on a pro-independence platform, which may not please the Chinese government,” he added.

“Based on our projections, Taiwan’s stock exchange will gain by 10,000 points for a KMT win but only 6,600 points for a DPP victory. That in itself is a clear indicator that while both candidates are spouting the same lines, the outcome for the economy may not be the same,” added Hung.

The country’s weighted stock index closed up 1.51% at 8,179.35 on Thursday.

“Ma Ying Jeou has popular support and the stock market will shoot up if he wins. The direct links between China and Taiwan are crucial to improve the economy,” a styrene trader said in the Hokkien dialect.

One of the main issues facing voters was the sluggish economy, which has been growing at an average of 4.88% from 2003 through 2007, according to statistics from the website of Taiwan’s Ministry of Economic Affairs.

This number lags behind the average of 6-7% that Singapore, Korea and Hong Kong recorded over the same period of time, industry sources said.

“The current administration has frozen the price of oil and electricity three to four months before the election,” said a source with the USI Group, a diversified petrochemicals maker with production in vinyls, polyethylene and styrene monomer.

“I guess once the ruling party loses the election, the first thing they will do is lift prices (of oil) NTD 2-3/litre and this will create some turbulence,” he added.

Direct trade links with China could give a much needed boost to the Taiwanese petrochemical exports, he added citing possible incentives much like the Closer Economic Partnership Arrangement (CEPA) that has greatly benefited Hong Kong’s economy.

Beijing, meanwhile, has avoided aggressive pre-election tactics such as verbal threats in 2000 and lobbing missiles over the island in 1996.

The Chinese government has chosen instead to dangle economic sweeteners along with the offer of talks between both governments on an equal footing with a long term view to reunification.

These gestures received a cool gesture from Taiwan’s petchems industry whose ardour for China was limited to closer ties with its economy.

“China and Taiwan will never be one because there’re simply too many differences. Not even the one-country, two-systems policy that China has implemented in Hong Kong and Macau will sway Taiwanese to seek reunification,” said the source from FET.

Market watchers said that no Asian economy could afford to step on Beijing’s without losing access to the Chinese market, which is one of the largest in the world.

Taiwan is a net exporter of petrochemicals and is home to Asia’s largest naphtha cracker - Formosa Petrochemical’s 1.2m tonnes/year unit located in Mailiao.

Formosa Group, Taiwan’s largest petrochemical producer, has invested in a 450,000 tonne/year polypropylene (PP) plant, which has been unable to start as scheduled due to problems obtaining approvals from China’s central government.

Steve Tan and Clive Ong contributed to this article

By: Hong Chou Hui
+65 6780 4359

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly