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4-Traders Homepage  >  Equities  >  TAIWAN STOCK EXCHANGE  >  Formosa Petrochemical Corporation    6505   TW0006505001

FORMOSA PETROCHEMICAL CORPORATION (6505)
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Formosa Petrochemical : Taiwan`s Formosa Petrochemical revives usage of LPG in February as cracker feedstock

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01/13/2018 | 09:22am EDT

Taiwan`s Formosa Petrochemical will boost LPG usage to at least 5% of its cracker feedstock slate in February from none this month, capitalizing on the deepening discount LPG holds against major feedstock naphtha, industry sources said Thursday.

This comes as privately run Formosa bought via tender on Wednesday 22,000 mt of propane for H1 February delivery at a discount around $45/mt to the Mean of Platts Japan naphtha assessment, DES Mailiao, a source close to the company said. Traders said the seller was European trading house Vitol.

The 22,000 mt cargo will be consumed next month at its naphtha cracking plant in Mailiao, the source said. Other sources said Formosa would also use propane from its term contracts as feedstock, which would boost its LPG consumption next month to about 33,000 mt.

The source close to the company said Formosa is likely to seek more LPG after this purchase, as the discount is wider on Thursday, in the range of minus $50/mt to the MOPJ naphtha assessment. This is deeper than minus $36/mt at the Asian close on Wednesday.

The discount has been steepening since flipping last Thursday from premium levels, at which it had been hovering since May last year.

One trader said Formosa might seek via tender another propane cargo for H2 February delivery.

Naphtha is the major feedstock for steam crackers in Asia, but petrochemical makers switch to using propane and butane if their prices are around 90% of naphtha, or when LPG is around $50/mt cheaper than naphtha.

AMPLE LPG SUPPLY

Before this, Formosa has been lowering LPG consumption at its naphtha-fed steam crackers at Mailiao -- which has an annual processing capacity of 10 million mt -- from 15%-20% of total feedstock in October, to 15% in November, 10%-15% in December and down to nil this month. It had also limited LPG purchases during the period, focusing on naphtha imports.

A company source said Formosa could use a maximum of 200,000 mt of LPG for cracking per month, or nearly 25% of its capacity. But analysts said a more realistic figure is 100,000-150,000 mt/month.

Formosa last bought by tender on December 21 22,000 mt of butane for January 21-31 delivery, at a discount in the low $10s/mt to January MOPJ naphtha, DES.

That purchase was made possible even though propane was still near a premium of $14/mt to MOPJ naphtha, because butane was about $24/mt cheaper than propane.

Sources said this could prompt Formosa to seek more butane as well.

Formosa operates three steam crackers in Mailiao with a combined ethylene production capacity of 2.93 million mt/year, propylene capacity of 1.465 million mt/year and butadiene capacity of 451,000 mt/year.

The recent shift in the LPG/naphtha spread comes as Asia is seeing ample US supplies of propane and butane in December and early 2018.

LPG purchases from Japan are also limited despite winter, as the country will start shortening next month the private stockpiling of LPG to 40 from 50 days, traders said.

While traders said the arbitrage of moving US LPG to Asia in February is not yet favorable, no cancellations of cargoes have been heard yet, though this could happen in view of the severe cold in North America.

While Asia has been well supplied with naphtha, the Western naphtha arbitrage to Asia is restricted by unfavorable arbitrage economics since the start of the year.

The East/West spread -- used by market watchers to work out arbitrage economics from Europe to Asia -- was at $10/mt at the Asian close Wednesday and was notionally pegged at $9.5/mt on Thursday.

(c) 2018 2017 Vanguard Media Limited, Nigeria Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ( TWD)
Sales 2018 707 B
EBIT 2018 79 831 M
Net income 2018 72 088 M
Finance 2018 65 721 M
Yield 2018 4,74%
P/E ratio 2018 16,16
P/E ratio 2019 17,27
EV / Sales 2018 1,51x
EV / Sales 2019 1,55x
Capitalization 1 134 B
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 15
Average target price 113  TWD
Spread / Average Target -5,3%
EPS Revisions
Managers
NameTitle
Ming Tsao General Manager & Director
Pao Lang Chen Chairman
Chien Tang Tsai Head-Finance & Deputy Spokesman
Chi Tang Lo Independent Director
Yu Cheng Independent Director
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