Formosa’s proposed petchem facing market challenges

Taiwanese chemical firm Formosa’s proposed petrochemical complex in Louisiana, US, is facing market challenges that do not favour its construction, according to a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

The IEEFA report finds that Formosa Plastics Corporation has experienced a significant decline in revenue overall since 2021, and the outlook for the polyethylene sector is poor. The industry faces structural changes in the global economy that suggest a secular decline.

Factors putting demand growth at risk include:

· Overcapacity in the petrochemical sector;

· An aging population and slower economic growth in China;

· Slower industrial growth, and;

· Shifts toward more sustainable commodities.

Analysts report that the operating rates of ethylene production facilities globally are at historic lows due to large-scale capacity additions and weak demand growth. Even so, more capacity is set to come online in 2025, making a new facility in Louisiana a bad bet.

“Market conditions suggest that going forward with the proposed petrochemical complex in Louisiana would be a costly misstep,” said Abhishek Sinha, IEEFA energy finance analyst and author of the report.

Formosa’s rising debt levels have weakened its financial standing and credit agencies have flagged concerns. In January 2025, Moody’s cut Formosa’s credit rating, a significant change given the rating company’s previous expectations. Standard and Poor’s in October 2023 downgraded Formosa’s overall credit assessment from stable to negative based on what it termed “weak profitability.”

The macroeconomic environment for North American petrochemical projects also has worsened significantly since 2018. Formosa’s plan to construct the petrochemical complex in Louisiana exposes it to competition from an already oversupplied market that has negatively affected its financials.

Instead of throwing good money after bad, IEEFA says Formosa should cut its losses and pursue more viable opportunities that align with market realities and shareholder interests.