Formosa’s troubles deepen, markets rally on supply concerns

By Malini Hariharan

The latest accident at Formosa Petrochemical Corp’s (FPCC) refinery at Mailiao, Taiwan, on Sunday is adding to the bullish sentiment in markets for key petrochemicals. A fire in the propylene recovery unit has forced the company to close its 540,000 bbls/day refinery and related facilities, including two residual fluid catalytic cracking units (RFCC) and an olefins conversion unit, for a safety inspection. FPCC has also declared force majeure on all petroleum products.

Styrene hit a 3-year high of $1,600/tonne CFR China yesterday amid concerns that the government would ask sister company Formosa Chemical and Fibres Corp (FCFC) to shut a 600,000 tonnes/year plant, reports ICIS news. Two other styrene plans operated by FCFC have been shut since May following a fire at Formosa Petrochemical’s No1 cracker.

Paraxylene (PX) prices rose initially by around $60/tonne with selling indications crossing $1,650/tonne. But prices corrected yesterday by $5-10/tonne on weaker crude futures.

FCFC continues to run its No2 and No3 PX plants but may have to close them for government mandated safety checks. The No1 aromatics facility has been shut since 13 May.

Sentiment in the polypropylene (PP) market strengthened further with confident Chinese distributors raising their offer levels in anticipation of a disruption in supplies from Taiwan, reports ICIS news.

Formosa Plastics Corp (FPC) and FCFC have suspended offers for PP and polyethylene (PE) from their plants in Taiwan. The two companies have a total capacity for 854,000 tonnes/year of PE and 350,000 tonnes/year of PP.

FPCC has also decided to hold to its planned maintenance shutdown schedule of its 1.1m tonnes/year cracker for 45 days from 15 August. It has also not set a date for the restart of its No1 cracker.

“There is mad scramble in Taiwan to import cargoes. Before the Formosa accident there were questions on whether the rise can be sustained through August but now things have changed,” said one trader. He now expects markets to remain firm until September as closures by Formosa coupled with maintenance shutdowns are likely to keep markets tight.

The Formosa group of companies are in deep trouble with the government asking for a shutdown of all plants at the huge Mailiao complex in stages to carry out safety checks. The inspections will have to be monitored by local or international experts.

There have been seven accidents in the last twelve months and two fires have taken place at the Mailiao complex at less than a week’s interval in July.

The company plans to negotiate with the government as a shutdown of the complex will have implications for the entire Taiwanese economy.

But it is not clear if the government will be in any mood to listen. The country’s Industrial Development Bureau (IDB) has ordered the Formosa Plastics Group to provide a detailed report within a week on safety measures that the company plans to take at its plants.

“Unless FPG makes an overhaul of its operations and is able to convince the taskforce that it is ready to resume operations, the suspension will continue,” he said,” warned IDB’s director general.

A second official from the IDB blamed the accidents on poor maintenance as a result of cost cutting by the group over the last one year.

And although FPCC’s chairman and president have resigned, this is unlikely to satisfy angry residents in the Mailiao area. They are now planning a rally on 4 August to reiterate their demand for an immediate halt to all operations at the Mailiao complex.

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