TAIWAN PLASTICS REBOUND EXPECTED AS PRICES FIRM, OUTPUT INCREASES

TAIWAN PLASTICS REBOUND EXPECTED AS PRICES FIRM, OUTPUT INCREASES

Taiwan's plastics industry, hit by five straight years of slumping profits, is set for a turnaround next year as midstream product prices firm and domestic production rises, analysts said on Friday.

Analysts expect firmer prices for several major raw plastics, especially styrene monomer (SM), acrylonitrile butadiene styrene (ABS) and polyvinyl chloride (PVC). Taiwan is one of the world's biggest producers of PVC.Jardine Fleming petrochemical analyst Jack Pan forecasts PVC prices will rise 7.5 percent next year after a rise of 14.4 percent this year, with SM prices up 8.1 percent after a fall of 5.2 percent and ABS up 5.1 percent after a 3.7 percent fall.

Global oversupply hit Taiwan's plastics sector, the backbone of its heavy industrial base, hard in recent years. Jardine Fleming estimates net profits at the island's 15 listed plastics firms will drop an average 2.8 percent this year.

A key factor in the industry's recovery is the scheduled opening of another naphtha cracking plant by Taiwan's state-run Chinese Petroleum Corp. next February. This will raise supplies of ethylene, a key raw material in plastics production.

Taiwan's three existing naphtha crackers make some 750,000 metric tons of ethylene a year, far below domestic demand. Local plastics firms have to import about half their raw materials, mainly from South Korea, the United States and Japan.

Because of problems in obtaining ethylene, the factories of Taiwan's 10 midstream plastics firms have an average capacity utilization rate of only 70 percent to 80 percent, said Henry Chou at National Investment Trust.

He estimated the opening of the new cracker, combined with the planned closure of an old cracker, will raise Taiwan's ethylene production above 900,000 metric tons and increase capacity utilization at plastics firms two to three percentage points.

Some major Taiwanese plastics firms, particularly firms involved in PVC and SM, have already started to enjoy a recovery in profits.

"With global petrochemical prices starting to bottom out and an expected U.S. economic recovery next year, we expect the plastics sector to see 18.1 percent growth in net profits next year," Said George Hou, manager at Jardine Fleming.

National Investment Trust estimated a net profit decline of some 2 percent this year and a rise of 10 percent next year, followed by stronger growth in 1995.

"U.S. demand for petrochemicals is rising because of its economic recovery and reconstruction after floods in the Midwest," Said T. C. Song at Grand Cathay Securities.

Mr. Chou said China's economic boom would also boost demand as expansion in its own production capacity could not keep up with consumption.

"With indirect exports of ABS, polystyrene and low-density polyethylene to China rising, the plastics industry will be one of the main beneficiaries of Taiwan's trade with China," he said.

Baring Securities forecast Formosa Plastics would see net profits of T$3.88 billion (US$144 million) this year and T$4.04 billion (US$150 million) next year, up from T$3.84 billion (US$142 million) last year.

It saw profits at PVC processor Nan Ya Plastics Corp., another member of the Formosa group, surging to T$5.54 billion (US$206 million) in 1993 and T$6.06 billion (US$225 million) in 1994 from T$5.04 billion (US$187 million) in 1992.