A year of moderation ahead

27 May 1996 00:00  [Source: ACN]

MAJOR Japanese chemical companies which announced robust financial results in 1995 are forecasting moderate increases in their earnings in the current fiscal year ending March 1997.

The forecasts were based on an expected drop in average selling prices this year, said analysts. A pall in business confidence in the early part of the year also influenced the moderate earnings estimates by the companies.

While business is expected to improve in H2 this year, some deterioration is anticipated in the early part of 1997 as new capacity comes onstream in other parts of Asia.

'The conservative forecasts allowed for that uncertainty,' said Tommy Tang, vice-president and senior analyst at Merrill Lynch, Japan. He added that forecast earnings were also based on a conservative yen-dollar exchange rate of Yen100 to US$1.

Mitsubishi Chemical estimates operating profit will be Yen32bn, Yen3bn lower from the previous year. It expects average selling prices of petrochemical products to plunge and trim its earnings by Yen23bn.

In its forecasts, it has assumed that selling prices will remain largely unchanged from the February-March level. The company adds that its high-cost inventories of paraxylene are also likely to shave its earnings by as much as Yen3-4bn.

Sumitomo Chemical expects operating profit to improve by 30% to Yen32bn. The improvement would have been stronger if future selling prices were more certain. The company expects lower petrochemical prices in 1996-97. On a consolidated basis, operating profits will rise only 2% as Singapore petrochemical group companies are expected to post lower net profits.

Mitsui Toatsu expects its sales to fall by 1% to Yen390bn, based on the assumption that resin prices are expected to remain unchanged from the weakened price levels in March 1996. Operating profit is expected to improve by Yen4.4bn. While higher sales of new products are expected to improve operating profits by Yen3.5bn, a decline in selling prices is expected to hurt profits by Yen4bn.

Denki Kagaku expects its operating profit to remain flat for the current fiscal year because of lower selling prices of petrochemical products and increased depreciation costs. But interest savings are likely to help boost recurring profits by 9% to Yen4.5bn.

Ube Industries is concerned about a possible economic slowdown in H2 of 1996-97. It estimates that petrochemical sales will drop from Yen19bn in 1995-96 to Yen16.4bn in 1996-97. Its polypropylene sales are expected to drop correspondingly from Yen19bn to Yen6.4bn.

Daicel Chemical expects sales to rise 7.7% to Yen178bn on strong contributions from cellulose acetate and polystyrene. It projects operating profit to rise by 43% based on volume expansion and higher operating rate.

Forecast sales and profit for 1996-97 (Yenbn)
	Sales	Operating Profit
Mitsubishi Chemical	1086	32.0
Sumitomo Chemical	970	54.8
Mitsui Toatsu	390	23.0
Denki Kagaku Kogyo	198	11.0
Daicel Chemical	178	12.0
Ube Industries	380	20.0

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