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Earnings Fall In Japan

Annual Results: Latest fiscal year hurt nation’s chemical makers

by Jean-François Tremblay
May 20, 2013 | APPEARED IN VOLUME 91, ISSUE 20

Sales for the latest fiscal year are down at many firms.
Sales for the latest fiscal year are down at many firms.

Japan’s economy expanded at an annualized rate of 3.5% in the first three months of 2013, but its chemical industry did not benefit from this growth. For the fiscal year that ended on March 31, most of Japan’s large chemical companies reported earnings lower than in the previous fiscal year or even losses.

Several companies also reported lower year-over-year sales, a drop they attributed to sluggish demand both in Japan and abroad. The drop happened despite a weakening in the value of the yen, which can bolster the competitiveness of Japanese-made products in the international market. The yen was worth 14% less on March 31 than it was a year ago.

Among the large firms, Sumitomo Chemical fared the worst, posting a net loss of $542 million compared with a profit of $59 million a year earlier. The company explained that it decreased by $211 million the value of production facilities in Japan that it might decide to close.

In addition, Sumitomo’s basic chemical and petrochemical businesses, which together account for nearly half of the firm’s turnover, bled money in 2012. Sales actually rose in those segments, the company reported, but profit margins were negative because of lower prices. The company’s business in films for liquid-crystal displays also struggled.

The next worst performer was Teijin, which reported a $309 million loss compared with a profit of $127 million in the previous fiscal year. The company recorded a large sales drop in two of its core segments: advanced fibers and composites, and electronic materials and performance polymers. Conditions in the electronics market were “listless,” Teijin explained, and sales of p-aramid fiber for ballistic protection were “lethargic.”

Japanese chemical producers may see a benefit from the weaker yen in future financial statements, says Yoshihiro Azuma, a Tokyo-based chemical stock analyst at the investment firm Jefferies. That’s because the value of the yen started to drop only late in 2012.

The profit picture is not uniformly poor in Japan. Advanced material makers including JSR and Hitachi Chemical improved their earnings. Shin-Etsu Chemical, the world’s largest producer of silicon wafers and polyvinyl chloride, also had a strong year with net earnings of $1.1 billion, 5% more than a year earlier. Shin-Etsu’s performance was buoyed by a recovery in the U.S. construction sector, a large consumer of PVC, Azuma says.

When announcing its results, Shin-Etsu said it does not expect much benefit from the improving Japanese economy. “Although a recovery in the economy is expected,” the firm said about Japan, “the situation is such that it does not allow for optimism because of concerns about the future employment situation and the effect of the world economy’s downward movement.”



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