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Ohio Utica Shale

Formosa Plastics to expand U.S. operations due to cheap natural gas

By Bob Downing Published: November 22, 2013

From Bloomberg News today:

By Brian Wingfield & Yu-Huay Sun

 

Formosa (6505) Plastics Group, Asia’s largest chemical producer, is seeking U.S. permits for a $2 billion expansion of its Texas operations as cheaper natural gas prices make U.S. production more competitive.

The Taiwanese company asked federal and state environmental regulators to approve plans for an ethane cracker unit and downstream derivatives, Formosa Plastics Vice Chairman Susan Wang said in an interview in Washington yesterday. She is visiting the U.S. as part of a business delegation led by former Taiwan Vice President Vincent Siew.

“Because of shale gas, the cost of making petrochemical and plastic-related products is becoming very competitive here in the United States,” Wang said. “It’s probably as cost effective as in the Middle East.”

Formosa Plastics’s proposed U.S. investment comes as Taiwanseeks to diversify business and trade ties beyond China, which has become its largest trade partner while also disputing the island’s sovereignty. Taiwan this year resumed trade talks with the U.S. after a five-year halt and the U.S. House Committee on Foreign Affairs this week agreed to introduce a bill to allow the sale of four frigates to Taiwan’s navy.

Siew, Far Eastern Group Chairman Douglas Hsu and CX Technology Co. Chairman Albert Ting, joined Wang for the interview with Bloomberg News.

Formosa Plastics Corp. (1301), which owns 23 percent of the business that’s expanding in Texas, rose 1.3 percent to NT$75.10 in Taipei trading. That pared the stock’s loss this year to 0.6 percent.

 

The investment is bigger than previously planned by Formosa Plastics in February 2012, when it said it would spend $1.7 billion to build two factories and a polyethylene plastics plant in Texas.

One of the business delegation’s key aims is shoring up U.S. support for Taiwan’s participation in the proposed Trans-Pacific Partnership, a regional trade deal that will cover the U.S. and 11 other nations, an area with about $28 trillion in combined annual economic output. Taiwan seeks to join the talks, which don’t include China.

The island has been ruled separately from China since Chiang Kai-shek’s Nationalists fled from the mainland in 1949 during a civil war with Mao Zedong’s Communist army. Chinese President Xi Jinping last month called for a resolution to the cross-strait political impasse.

“It’s critical for the global supply chain that Taiwan be part of the regional economic integration,” CX’s Ting said.

 

CX makes speaker parts for high-end automobiles including those made by Ferrari SpA, and about 65 percent of its manufacturing base is in Vietnam, one of the parties to the trade-pact talks. An accord will spark deregulation in Vietnam and provide protections for Taiwanese investors there, he said.

Chief negotiators from the nations brokering the trade deal are meeting this week in Salt Lake City, Utah, with the goal of reaching an agreement by year-end. China, the world’s second largest economy, has said it will study joining the talks.

“Taiwan’s position is that we do not oppose China’s participation,” Siew, the former vice president, said through an interpreter. “It would be a good thing for both parties to participate.” Mainland China and Taiwan both belong to the World Trade Organization, the Geneva-based trade forum.

The Taiwanese delegation visiting the U.S. also includes Terry Gou, the billionaire chairman of Foxconn Technology Group, which plans to invest in Pennsylvania.

 

Foxconn flagship company Hon Hai Precision Industry Co. (2317)assembles some of the world’s most popular consumer electronics devices, including Apple Inc. (AAPL)’s iPhone and iPad.

Formosa Plastics’s Wang said the Taipei-based company expects to receive the environmental permits for an expansion at its Point Comfort facility, about 125 miles (200 kilometers) southwest of Houston, sometime within the next year. Construction can begin immediately thereafter, she said.

Environmental regulations in the U.S. are “quite reasonable,” Wang said. The hurdles in Texas are a shortage of skilled labor due to the number of competing facilities, and the relatively high cost of shipping products by rail in the U.S., she said.

The diversified industrial company is one of the world’s largest chemicals producers, behind BASF SE (BAS) and Saudi Basic Industries Corp., with a combined NT$2.2 trillion ($74 billion) market capitalization of its four listed companies: Formosa Petrochemical Corp., Nan Ya Plastics Corp. (1303), Formosa Chemicals & Fibre Corp. (1326) and Formosa Plastics Corp.

 

Formosa Chemicals climbed 1.2 percent in Taipei trading while Nan Ya Plastics advanced 1 percent and Formosa Petrochemical rose 0.9 percent. Taiwan’s benchmark Taiex index closed 0.2 percent higher.

Wang said Formosa Plastics is “at a crossroads” in determining whether to build or invest in an ethylene plant in China. Taiwan last month lifted the ban on investing in Chinese ethylene plants, also known as “naphtha crackers” for the use of the petroleum distillate naphtha. China has yet to ease its rules on ethylene investments across the Taiwan (TWGDCONY) Strait.

U.S. shale gas and oil will replace naphtha in the production of basic chemicals as their costs are lower, Simon Liu, vice president at Yuanta Securities Investment Trust Co., which oversees NT$300 billion of assets and holds shares of Formosa Plastic Group companies.

“Investing in U.S. petrochemical plants is the right move,” Liu said.

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