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V. Risk Factors
An investment in the Shares of the Company involves a number of risks. Investors should carefully consider all information contained in this Prospectus, including the risks described below, before making an investment decision
. The Company’s business, financial condition and result of operations could be materially adversely affected by any of these risks. The market price
of the Company’s shares could decline due to any of these risks and investors may lose all or part of the investment.
Risks that will be disclosed hereinunder are the risks that are material for the Company and its Subsidiaries. Based on Company’s
consideration, the risks below have been prepared based on the weight of the risks against the financial performance of the Company, starting from the main risks faced by the Company:
1. Risks relating to the Companys Business and Operations
Cyclicality in the petrochemical industry may materially and adversely affect our profitability.
Capacity utilization rates and margins in the petrochemical industry have historically been characterized by a high degree of cyclicality. Prices for petrochemical products are sensitive to change in supply and demand, both regionally and internationally. Demand for our
petrochemical products is in general positively correlated with the level of economic activity and is particulary highly dependent on the demand from and performance of countries in the Asia Pacific region, especially in China, with weak economic conditions tending to reduce
demand. Supply is also affected by significant capacity additions, and if such additions are not matched by corresponding growth in demand, average industry operating rates and margins will face downward pressures. As a result, the petrochemical industry cycles have
historically been characterized by periods of tight supply, leading to high operating rates and margins, followed by periods of oversupply primarily resulting from significant capacity additions, leading to reduced operating rates and margins. It is not possible to accurately predict
the changes in supply and demand, market conditions, and other factors that may affect our operating rates and margins, nor is it possible to accurately predict the timing, severity or duration of future down-cycles in the petrochemical industry that may materially and adversely
affect the profitability of the Company. The historical operating results of the Company reflect the cyclical nature of the petrochemical industry. Prior to the Merger, the operating
margin income loss from operations divided by net revenue of CA between 2001 and 2010 have ranged from a high of approximately 23.4 in 2004 when the global petrochemical industry margins reach their most recent peak, to a low of approximately 17.0 in 2001,
when the global petrochemical industry margins were depressed. In the same period, the operating margins of TPI have ranged from a high of approximately 16.5 in 2009 to a low of approximately 2.6 in 2011. After the Merger, the operating margins of the Company
were 2.1 in 2011, 1.7 in 2012 and 0.5 in the six month period ended in 30 June 2013. The
Company’s management expects that the prices of the Companys products will continue to be cyclical and
that the Company’s operating margins will continue to be affected by these cycles. The Company cannot assure Investors that future changes in supply or demand for the Companys products will not
adversely affect the operating margins and profitability of the Company.
The volatility of the international market prices for petrochemical products may adversely affect the Companys operating results.
The Companys operating results are affected by the prices of the Companys products in the international market, which historically have been volatile. Although a substantial portion of the
Company’s sales are made pursuant to supply agreements with terms of one year, the Companys sales arrangements generally provide for the purchase price to be determined in part by reference to published industry
benchmarks. Historically, international prices for petrochemical products have fluctuated widely in response to factors, including but not limited to, the
dynamics of supply and demand in the market and economic and political developments. For example, the SEA CFR average spot prices for ethylene per ton were US1,191 in 2011 and US1,230 in 2012. The highest and the lowest spot prices for ethylene per ton were
US1,500 and US1,000 in 2011 and US1,480 and US920 in 2012. The SEA CFR average spot prices for polypropylene per ton were US1,579 in 2011 and US1,442 in 2012. The highest and the lowest spot prices for polypropylene per ton were US1,790 and US1,260
in 2011 and US1,550 and US1,280 in 2012. These fluctuations had corresponding impact on the prices of the Companys products and
the Company’s revenues. The Company expects the prices for ethylene, polypropylene, and the other products that the Company produces will, due in part to their commodity nature, continue to be volatile and may
cause significant fluctuations to the Company’s margins and adversely affect the Companys results of operations.
Fluctuations in the cost of feedstock may result in increased operating expenses and adversely affect the Company’s results of
operations, cash flows and margins. The feedsctock used by the Company to produce the Companys products are commodities subject to international and domestic market
forces. The historical operations and margins of the Company have been affected by fluctuations in prices for feedstock and the Company expects that the operations and margins of the Company in the future will also be affected by such fluctuations in prices for feedstock as
well.
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