Formosa Plastics to Invest $13B in U.S. Production Capacity

Originally published by: Asian Nikkei ReviewJanuary 10, 2016

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For Taiwan's largest industrial conglomerate Formosa Plastics Group, or FPG, Donald Trump's presidency will be a big blessing.

Image result for formosa plastics logo"We are currently expanding our production facilities in Texas that is expected to begin production in 2018 ... and looking forward, we think Trump's policy would make the U.S. one of the best investment destinations for the petrochemical industry," said Jason Lin, chairman of Formosa Plastics, FPG's flagship company, on Monday.

Lin says his company and its U.S. affiliate Formosa Plastics Corp. USA will heed Trump's pledge to build better infrastructure and to bring manufacturing jobs back to America. He sees Trump's promise to cut taxes for companies setting up factories in the U.S. as a great boon for the sales of various petrochemical products in 2017 and beyond.

"If Trump does cut business tax from 35% to 15%, that would help our U.S. affiliate a lot to report better profits and to further boost the U.S. economy," said Lin.

Formosa Plastics, its U.S. affiliate, and another FPG group company Nan Ya Plastics are expanding operations in Texas to build a new ethylene cracker, an ethylene glycol facility and some other factories with a total investment of $3.588 billion.

FPG's petrochemical and chemical arms -- Formosa Petrochemical and Formosa Chemicals and Fibre -- confirmed January 2016 that they have filed an application to U.S. authorities to build another ethylene cracker and other facilities in Louisiana. Under those plans, the company will spend as much as $9.4 billion and begin production in 2022.

FPG says ongoing and planned investments in the U.S. over the next few years amount to $13 billion. FPG already has two ethane crackers in Texas that produce 1.66 million tons of ethylene every year. Ethylene is a basic petrochemical product widely used in manufacturing plastics and other chemical outputs.

"Besides a more welcoming and predictable investment environment, the most important incentive for us to invest in the U.S. is that we are eyeing cheap shale gas that could substantially reduce our production cost," said Lin Keh-yen, executive vice president of Formosa Petrochemical.

Leo Lee, an analyst at Yuanta Investment Consulting, said it would be more cost-effective for the industrial titan to use American shale gas as a raw material to produce ethylene rather than naphtha which is extracted from crude oil.

For 2016, FPG's four publicly traded companies -- Formosa Plastics, Formosa Petrochemical, Formosa Chemicals and Fibre and Nan Ya Plastics -- together generated net income of 207.69 billion New Taiwan dollars ($6.47 billion), up 46.8% from a year ago, on revenue of NT$1.32 trillion. The four companies had a combined market capitalization of more than NT$2.76 trillion as of the market close on Monday.