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Chemical Company Profits Surge In Japan

Annual Results: Weaker yen boosts performance of specialty producers

by Jean-François Tremblay
May 16, 2014 | APPEARED IN VOLUME 92, ISSUE 20

Buoyed by a weaker yen and improving economic conditions in Japan and the U.S., most major Japanese chemical companies reported a sharp increase in earnings in the fiscal year that ended March 31. The rise in profits occurred even though several firms booked large charges to restructure their Japanese petrochemical operations.

Nonrecurring items helped boost profits at some companies. For instance, both Asahi Kasei and Mitsubishi Chemical received large awards after winning lawsuits in the U.S. Other companies simply had a good year. Shin-Etsu Chemical reported strong sales of polyvinyl chloride in Latin America as well as in the U.S., where the housing sector is recovering.

A weaker Japanese currency helped most companies, particularly those that make specialty chemicals. “In specialties, the proportion of imported raw materials is not very high, therefore specialties benefit from a weaker yen,” says Shigeki Okazaki, head of the basic materials research team at the Japanese brokerage Nomura Securities. On March 31, 100 yen was worth 97 cents, down from $1.06 a year earlier.

The improvement in financial performance was sharp at some companies. For instance, profits at Asahi increased by almost 90% to $984 million. This was due in part to Asahi’s legal windfall, but the firm also improved its core business results, boosting recurring income by 50%. Asahi could have reported even higher profits, but it booked a $220 million charge on restructuring its Japanese petrochemical operations.

Sumitomo Chemical, which reported a loss of almost $500 million a year ago, swung to a profit of $359 million in the latest fiscal year. While Sumitomo’s basic chemical businesses continued to struggle, the company improved profit margins for its electronic materials, agrochemicals, and pharmaceuticals.

One major Japanese firm, Mitsui Chemicals, continued to lose money, posting a net loss of $244 million compared with a loss of $79 million last year. The company booked large charges for the restructuring of its petrochemical and phenol businesses in Japan.

But the restructuring charges Mitsui is booking will quickly pay off, according to Nomura’s Okazaki. Whereas he expects the Japanese chemical industry as a whole to continue improving in the months ahead, Okazaki says the improvement will be particularly noticeable at firms that are restructuring their home operations.



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