November 10, 2008

Volume 86, Number 45

p. 8

Earnings

Chemical Profits Fade In Japan

Major Japanese firms were barely profitable in their first half

Jean-François Tremblay

AFTER EDGING DOWN for more than a year, profits at major chemical companies in Japan tumbled off a cliff in the first half of the fiscal year, which for them ends on March 31, 2009.

Teijin, a producer of performance chemicals and fibers, earned just $4 million, whereas Sumitomo Chemical's net earnings shrank 76% compared with the same time a year ago. Alone among the majors, Shin-Etsu Chemical managed to increase its net profit by 6%.

Japanese firms are blaming deteriorating market conditions in Japan and elsewhere. The firms also say they were not fully able to pass along the increasing costs of raw materials to their customers. Furthermore, the rising value of the yen has hurt foreign sales.

So far, the companies have not announced new measures to boost sales or cut costs. "Half of the companies are already thinking about what they will do, and the other half have been so caught by surprise by the swiftness of the change that they have not given serious consideration to their response yet," says Joel Scheiman, director of research for chemicals and textiles at KBC Securities Japan, in Tokyo.

"The bottom is falling out of demand," he adds. "Japanese managers can't figure out how much of this is really fundamental loss of demand and how much is a buyer's strike." According to Scheiman, chemical buyers in China may be using existing stockpiles while they wait for suppliers' prices to descend further.

Although Shin-Etsu maintained its full-year profit outlook, others have cut theirs dramatically. Mitsubishi Chemical, for example, now expects to earn for the full fiscal year only half the profit it had forecast last May.

Chemical & Engineering News

ISSN 0009-2347

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