FocusFormosa to improve 2010 Q4 earnings vs poor Q3 results

12 October 2010 04:56  [Source: ICIS news]

By Nurluqman Suratman

SINGAPORE (ICIS)--Taiwan’s Formosa Petrochemical Corp (FPC) is expected to post higher earnings in the fourth quarter after two successive fires in July at Formosa's Mailiao petrochemical complex hurt sales in the third quarter, analysts said on Tuesday.

FPC last week posted a 49% year-on-year drop in net income to new Taiwan dollars (NT$) 6.8bn ($220m, €158m) in the third quarter, while sales fell 12 % year on year to NT$158.2bn as a result of the recent fires in Mailiao, they said.

“A major reason behind the drop in revenue was the shutdown at the 540,0000 bbl/year refinery in Mailiao,” said Taipei-based Alden Lin, a petrochemical analyst at brokerage house KGI Securities.

“The refinery has yet to start up and this has decreased shipments. Also, Formosa has started importing sweeter crude oil which would hurt refining margins,” Lin added, referring to higher raw material cost for the company.

FPC shut its refinery in Mailiao after an oil leak triggered a fire at its No 2 residue desulfurization unit on July 25. Two of the refinery’s three crude units have since started production, according to local media.

“FPC’s earnings should improve next quarter once the (No 2) cracker is back in operation,” said Danny Ho, an analyst at brokerage house Yuanta Securities in Taipei.

The refinery was expected to be fully operational by the middle of October which would help boost earnings in the fourth quarter, added Lin of KGI Securities.

The company’s 700,000 tonnes/year No 1 cracker has also been suspended since a blaze on 7 July, while its 1.03m tonnes/year No 2 cracker is currently shut for maintenance since 5 October.

While the No 2 cracker was expected to come back on stream in the middle of November, there has been no fixed date as to when the No 1 cracker could come back on stream, analysts said.

“It is up to the government now to release the (No 1) cracker from suspension and give it back its operating permit,” Ho from Yuanta Securities said.

However, FPC could face further delays in obtaining approvals from the government to restart the cracker after another fire broke out at Formosa group subsidiary Nan Ya Plastics’ synthetic paper plant in Chiayi earlier this month, Ho said.

“The fire at Nan Ya made it even more complicated for FPC now,” he added.

In the January to September period of this year, FPC posted a 3.4% year-on-year drop in its net income, parent company Formosa said in a filing to the Taiwan Stock Exchange last week.

Earnings at Formosa’s other business units also reported an increase for the same period as improved economic conditions boosted demand for chemicals and polymers, the firm said.

FPG subsidiary Formosa Plastic Corp’s net income during the January to September period rose 67% year on year to NT$33.2bn, while Nan Ya Plastics Corp’s profit more than tripled to NT$32.4bn, according to FPG.

Formosa Chemical and Fibre’s net income meanwhile fell 8.1% year on year to NT$11.4bn, it said.

($1 = NT$30.9, €0.72)

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By: Nurluqman Suratman

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