Formosa Petrochemical Corporation Earns Big in Q1 But Not Happy: Q2 Faces Immense Challenges

Formosa Petrochemical Corporation explained that its main businesses are refining and upstream petrochemicals, with over 80% of raw materials imported from the Middle East. Procurement and transportation take about one month. When international oil prices rise sharply, oil and petrochemical raw material prices also increase. According to accounting standards, the cost of raw material consumption is calculated using the weighted average method, not reflecting the actual raw material prices of the current period, thus generating inventory gains for in-transit raw materials and products, which was the main reason for Formosa Petrochemical Corporation's profit growth in Q1.

Formosa Petrochemical Corporation today announced its Q1 unaudited net profit after tax of NT$20.408 billion, a 4.5-fold increase year-on-year, and about a 3-fold increase from Q4 last year, with earnings per share of NT$2.14.

However, Formosa Petrochemical Corporation warned that if geopolitical tensions ease, oil prices could face sharp corrections at any time, and the company would then bear the risk of equivalent price depreciation losses.

In addition, entering Q2, Formosa Petrochemical Corporation's operations face multiple impacts, including restricted production capacity and doubled supply chain pressure. In March, due to the war, about 134,000 tons of naphtha purchased by Formosa Petrochemical Corporation could not be delivered as planned, leading to the forced shutdown of Formosa Petrochemical Corporation's third olefin plant on March 24. Currently, only one ethylene plant is operating. Furthermore, shipping disruptions in the Strait of Hormuz have led to delays in Middle East crude oil deliveries, and Formosa Petrochemical Corporation's refinery operating rate has further reduced to 40%, while petrochemical capacity utilization is only 30%.

Looking ahead to May and June, Formosa Petrochemical Corporation pointed out that raw material procurement visibility remains unclear. Although it has initiated diversified raw material procurement, with the unresolved conflict between the US and Iran, raw material costs have significantly increased. The Middle East crude oil premium in May surged from US$2.5 per barrel in April to US$19.5.

Moreover, to prioritize ensuring stable domestic oil supply and cooperate with the government's policy of stabilizing prices, Formosa Petrochemical Corporation has actively supported its franchise system. To date, it has absorbed over NT$2 billion in gasoline and diesel price adjustments. Under the dual pressures of significantly increased costs and restricted production capacity, it anticipates facing immense operational challenges in Q2, with high uncertainty in its operating outlook. (Edited by Yang Lan-hsuan) 1150410