Fitch on Taiwan: Energy Prices Not Fully Reflecting Global Pressures; Electricity Price Hikes Could Widen Losses in Petrochemical and Steel Industries

Taiwan's energy prices have not yet fully reflected the impact of the Middle East situation. As international energy costs remain high, Taipower and CPC are facing increasing financial pressure and growing pressure to raise electricity prices. Wu Chi-kai, Deputy Managing Director of Corporate Ratings at Fitch Ratings Asia-Pacific, stated today (21st) at the 'Fitch on Taiwan' press conference that even if the Strait of Hormuz reopens, it will take considerable time for global energy trade and supply chains to return to normal. Fitch expects Brent crude oil prices to remain elevated throughout this year, only beginning to decline next year, meaning Taiwan may face relatively high energy prices for an extended period.

Fitch identifies industries most affected by potential electricity price hikes, including petrochemicals, textile fibers, steel, and retail. The agency warns that a 10% increase in electricity prices could further widen operating losses for these traditional industries.

Regarding energy supply and pricing, Fitch notes that although Taiwan secured import volumes through various means during the initial phase of the strait's closure—resulting in more stable supply compared to neighboring countries—many Asian nations have already implemented demand control measures. For example, Indonesia has imposed fuel quotas and encouraged remote work, Sri Lanka has mandated public sector holidays, and Thailand has restricted purchase quantities.

In contrast, Taiwan has not seen a significant reduction in oil and gas supply due to strong government financial support and state-owned enterprises leading supply arrangements. However, this also means that Taiwan will bear relatively high energy prices for a longer period even after the strait reopens.

Since Taiwan's current energy prices have not been fully passed through to downstream fuel and electricity prices, financial pressures are mounting. Taipower faces increasing pressure to raise electricity prices, and CPC is similarly under significant financial strain. If natural gas and oil product prices drop rapidly at the same time, CPC could face even higher losses.

Looking back over the past few years, electricity prices have risen by an average of about 11% annually. If electricity prices rise further, it could have a significant impact on traditional industries, especially upstream sectors with high energy intensity.

Industries most affected by electricity price hikes include petrochemicals, textile fibers, steel, and retail. Fitch believes that a 10% increase in electricity prices could further widen operating losses in the petrochemical and textile fiber industries. With crude oil costs remaining high, the difficulty of returning to profitability has significantly increased.

In contrast, the semiconductor industry and most technology firms have a stronger ability to absorb higher electricity prices. However, many traditional industries are still in a downturn cycle, with limited capacity to withstand pressure. Rising energy costs will further compress profit margins and push up corporate debt ratios.