Mitsubishi seeks petrochemical consolidation in Japan

Mitsubishi Chemical Holdings, Japan’s largest chemical company, recently announced a plan to separate its petrochemical and carbon-based chemical operations into a stand-alone business that it will eventually exit. Jean-Marc Gilson, the firm’s new CEO, hopes the move will spur other players in Japan’s chemical industry to take similar steps and eventually combine operations, but it’s not clear that they will be eager to follow.

When Gilson joined Mitsubishi in April after stints at Western firms such as Dow Corning and Roquette, he was the chemical maker’s first foreign CEO. From the start, Gilson said his goal was to create a leaner company with a more diverse staff. The basic-chemical separation is the first move in that direction.

“Energy costs in Japan will continue to rise sharply from now on while the world moves toward carbon neutrality,” Gilson said at a press conference announcing the plan. “Reorganization and integration of such operations are inevitable and a must for us. We will hive off our petrochemical business and urge other players in the industry to make similar moves, thus taking the leadership in integrating domestic petrochemical operations."

Mitsubishi aims to complete separation of the two operations in 2023. Gilson wants to focus the company’s managerial resources on high value-added and growth sectors such as electronics and the life sciences. “The two operations don’t match with the profile of the specialty chemical business we want to build in the middle term,” Gilson said.

Together, annual sales of the petrochemical and coal operations are roughly $4.5 billion, about 20% of Mitsubishi Chemical Holdings’ overall sales.

Mikiya Yamada, a stock analyst at Mizuho Securities who follows Mitsubishi, applauds the move. “Their decision is worth noting in the way it focuses business operations” on promising fields, Yamada says. Mitsubishi has a unique corporate structure covering everything from basic petrochemicals to pharmaceuticals, he notes. The planned separation is forward-looking in terms of simplifying the complex structure.

This is not the first time that Mitsubishi has taken steps to restructure its petrochemical business in Japan. The firm ended production of ethylene, a basic petrochemical, in Yokkaichi in 2001 and mothballed one ethylene plant in Kashima in 2014. Two years later Mitsubishi formed an ethylene joint venture in Mizushima with Asahi Kasei Corporation, allowing Asahi Kasei to close its ethylene cracker in the city.

Other firms have taken similar steps. The number of ethylene crackers in Japan fell from 15 to 12 from 2014 through 2016 as companies closed older, smaller plants. The nation’s ethylene capacity during that time shrunk to 6.2 million metric tons per year from 7.0 million metric tons, according to the Japan Petrochemical Industry Association.

Gilson sees the need for further action by Mitsubishi and other companies, not to end production of basic chemicals in Japan but to make the business more efficient through more reorganization and integration of now-competing operations. Companies like Braskem in Brazil and LyondellBasell Industries in the US are credited with strengthening the petrochemical sector in their countries through such consolidation moves.

“We need to concentrate managerial resources on the creation of a sustainable business model and technology,” Gilson said at the press conference. “Domestic production of basic chemicals is indispensable to national economic security.”

Yamada, however, argues that Mitsubishi’s decision is not likely to spur a larger industry reorganization in Japan. He points out that profit margins in the ethylene business, almost non-existent at present, are expected to pick up, making other companies hesitant to part with their operations.

An alternate scenario, in Yamada’s view, is that ethylene crackers in western Japan operated by firms such as Showa Denko and Mitsui Chemicals are connected virtually and operated as if they were a single ethylene center. Such cooperation would help companies lighten the burden of their basic-chemical assets.

Mitsubishi officials deny that the planned separation will be a means of helping the company meet its previously stated goals of reducing carbon dioxide emissions 29% globally and 43% domestically by 2030 compared with the 2019 level. “Our goal for curtailment of CO₂ emissions doesn’t contain those emissions stemming from separation of the petrochemical and coal businesses,” a public information staffer says. “We’ll achieve our pledged goal through energy conversion and other means.”