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May 20, 2002
Volume 80, Number 20
CENEAR 80 20 p. 5
ISSN 0009-2347


JAPANESE FIRMS END A BAD YEAR
Losses abound in chemical industry, but 2002 outlook is better

JEAN-FRANÇOIS TREMBLAY

Most Japanese chemical companies posted either sharply lower profits or abysmal losses in the fiscal year ending March 31, with companies having the least exposure to their home market suffering the least.

There was one exception: Shin-Etsu Chemical announced record earnings for the seventh year in a row.

It's an image of good, bad, and ugly from the firms that are part of the world's second largest chemical industry.

The yen caused the margins of Japan-based commodity chemical makers to shrink because they had to pay more for imported raw materials, says Masami Sawato, a chemical industry analyst at HSBC Securities in Tokyo. The profits of Japanese chemical makers are largely linked to the health of Japan's economy. Local demand was particularly weak in the past year, Sawato says.

Japanese producers that have global operations and international customers kept their heads above water. Shin-Etsu said its commodity polyvinyl chloride business, largely foreign-based, did not drag down the overall performance of the company. The firm increased PVC exports to Latin America, Southeast Asia, and Africa from its U.S. subsidiary Shintech.

Sumitomo Chemical posted an operating loss in its petrochemical business, a large portion of which is based in Japan. Its specialty and fine chemicals businesses, which now represent about half of total sales, anchored the company's profitability. Fine chemicals operating income rose 6.5%, and pharmaceutical income rose 8%.

Synthetic fiber manufacturers Teijin and Toray were able to avoid losses because many of their plants are outside Japan and they have diversified away from the fiber business. But losses grew at Sekisui and Mitsubishi Rayon, two fiber manufacturers producing and selling mostly in Japan.

Mitsubishi Chemical's exposure to the Japanese petrochemical business partly contributed to its whopping loss of $372 million. But most of that loss was due to a reduction in the value of securities owned by the company. A recent change in Japanese law requires companies to account for the securities they own at market value instead of purchase value.

For most Japanese chemical companies, fiscal 2001 was a year to forget. Profitability, Sawato says, will likely improve this fiscal year. Sumitomo expects a 16% rise in net income. Battered Mitsubishi Chemical expects a modest return to profitability.

RESULTS
Earnings declined for most Japanese chemical makers


SALES EARNINGSa CHANGE FROM 2000 PROFIT MARGINb

($ MILLIONS) SALES EARNINGS 2001 2000
Asahi Kasei $9,833 $43.0 –6% –79% 0.4% 2.0%
JSR 1,810 38.9 –5 –17 2.1 2.5
Mitsubishi Chemical 14,545 –372.2 2 nm def 0.2
Shin–Etsu 6,376 563.6 –4 6 8.8 8.0
Sumitomo Chemical 8,377 248.5 –2 –11 3.0 3.3
Tejin 7,596 8.0 21 –94 0.1 2.1
Toray 8,355 31.3 –6 –78 0.4 1.6
NOTES: 2001 data are for fiscal years ending March 31, 2002. Numbers converted from Japanese yen at 2001 prevailing exchange rate of ¥121.57 per U.S. $. a After-tax earnings from continuing operations. b After-tax earnings as percentage of sales. def = deficit. nm = not meaningful.

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Copyright © 2002 American Chemical Society



 
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[C&EN, May 20, 2002

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