Japanese chemical giants post gains

In contrast to major Japanese automakers’ large earnings declines in the fiscal year that ended March 31, Japan's chemical industry is looking increasingly profitable. Companies have so far managed to minimize the impact of US tariffs and are benefiting from a stable profit structure they built in recent years by taking a specialty-oriented approach.

Earnings at several major companies were up year over year. Shin-Etsu Chemical saw a turnaround from 2023, when profits fell by double digits. Sumitomo Chemical also achieved a V-shaped recovery, moving from a historic loss of over $3.2 billion in its previous fiscal year to a modest profit. And Asahi Kasei posted its highest-ever operating profit.

Exceptions were Mitsui Chemicals, which took a profit hit because of trouble with an ethylene plant, and Mitsubishi Chemical Group, where earnings were depressed by expenses related to its structural improvement program.

In general, by shifting their focus to specialties, Japan's major chemical makers are building a corporate structure that minimizes the impact of petrochemical market cycles. And companies expect the trend to continue in the current fiscal year.

While Sumitomo and Mitsubishi will continue to expand growth businesses and improve their business structure by exiting nonstrategic businesses, "Asahi Kasei and Mitsui Chemicals have already moved beyond that stage and are now at the stage of making concrete investments for growth in business fields in which they excel,” says Mikiya Yamada, a chemical analyst at Mizuho Securities.

“Over the past 3 years, the pharmaceuticals, critical care, and digital solutions businesses have returned to a growth trajectory, and the ratio of key growth businesses has expanded,” Asahi Kasei's chief financial officer, Toshiyasu Horie, said at a recent press conference to discuss earnings. Yamada notes that the company’s investment in commodity chemicals in the current fiscal year will be only about 5% of its total capital investment of about $21 billion.

Mitsui says it will start operating a series of large-scale plants for differentiated products, including a high-performance elastomer facility in Singapore and a high-performance polypropylene plant in Japan.

Chemical executives acknowledge that their Japanese customers in the automotive industry are suffering from tariffs in the US. But they say their own firms are prepared to weather the tariff policy of President Donald J. Trump during the current fiscal year. At a press conference, Mitsubishi CEO Manabu Chikumoto said that “the direct impact will be minor” and that the indirect impact—mainly on the acrylic raw material methyl methacrylate, which Mitsubishi sells in large volumes to China—will be at most $130 million.

Yamada agrees that the tariffs are manageable. “The cost of products and raw materials imported by US subsidiaries will increase, but so will the costs of US competitors,” he says. Yamada also notes that many items exported by Japanese firms to the US, such as polyacetal and nylon, are excluded from the tariffs.

Executives say the US tariffs will affect their strategies, however. “In the medium to long term, the trend to strengthen domestic production will continue,” Sumitomo CEO Nobuaki Mito said at a press event. “In the US, investment opportunities will increase, especially in the semiconductor-related sector, and we will also consider developing our Japan-centered contract manufacturing industry for pharmaceuticals in the US.”