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Business

Downsizing Ethylene

Petrochemicals: Two Japanese firms prepare for onslaught of Middle Eastern capacity

by Jean-François Tremblay
June 7, 2010 | A version of this story appeared in Volume 88, Issue 23

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Credit: Asahi Kasei
The Mizushima complex in southern Japan.
Credit: Asahi Kasei
The Mizushima complex in southern Japan.

Mitsubishi Chemical and Asahi Kasei, two highly diversified Japanese chemical producers, have agreed to merge and downsize their ethylene facilities at the aging Mizushima petrochemical complex in southern Japan. Their move comes amid a looming glut of basic petrochemical products worldwide as large new facilities come onstream in the Middle East and China.

For the past 45 years, Mitsubishi Chemical and Asahi Kasei have operated separate ethylene crackers at Mizushima, each with an annual production capacity of 500,000 metric tons. After undertaking a feasibility study over the past year, the two have agreed that one of the two crackers will be closed in the next few years—they haven’t decided which one—thereby removing about 7% of Japan’s ethylene capacity.

Industry watchers aren’t surprised. “We estimate that there is 8 million to 11 million metric tons of ethylene capacity coming onstream in the Middle East and China this year,” says Samuel Liew, an Asia-region olefins and elastomers analyst at the consulting firm Chemical Market Associates. “Japan exports 30–40% of its petrochemical output, and it enjoys no cost advantage within the Chinese market.” China is the main importer of petrochemicals in Asia.

In recent years, Mitsubishi Chemical has initiated a series of strategic moves to reinvent itself. It has become a conglomerate, Mitsubishi Chemical Holdings, in which the chemical business is a core member alongside Mitsubishi Tanabe Pharma, Mitsubishi Plastics, and the group’s latest acquisition, Mitsubishi Rayon. The pharmaceutical business generated most of the conglomerate’s profits in the latest fiscal year.

Liew sees more rationalization moves ahead in the global petrochemical industry. In the Japanese sector, he points out, some companies have opened lower cost facilities in the Middle East, which may allow them to close plants at home. He also expects petrochemical players in North America and Europe to close their older and higher cost plants in the face of the onslaught of new, efficient capacity from the Middle East. “All the ethylene crackers coming on-line in the Middle East and China have a capacity of at least 800,000 metric tons,” he notes.

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