06 September 1997 00:00 [Source: ACN]
Japanese petrochemical companies are optimistic despite the dent that high prices for naphtha have made on their profitability
By Andrew Mollet
THE recent spate of Japanese annual results for the financial year 1996-97 brought few surprises. Although non-petrochemical divisions performed well on the back of strong demand due to low raw material prices and a weak yen which benefited exports, margins for the petrochemical sector were badly hit by high naphtha prices and the inability to pass the subsequent increase in costs on to customers.
As a result, although all the major petrochemical producers - with the notable exception of Mitsubishi Chemical - saw fairly healthy rises in net profits, their operating profits were badly hit.
Mitsubishi Chemical, for example, estimated that higher raw material costs and lower product prices had a combined negative impact to the tune of Yen55bn (US$476.6m) on its operating profit, which dropped Yen24.5bn year-on-year (ACN 2 June, p4).
Mitsui Petrochemical Industries said lower purified terephthalic acid (PTA) and polyethylene terephthalate (PET) resin prices in particular cost it some Yen18.4bn in operating profits while the surge in naphtha prices cost it a further Yen 14.2bn. It benefited greatly from lower paraxylene (PX) prices which helped offset some of its PTA losses by around Yen10.5bn. Sales of the chemical division (45% of total sales) dropped by 8% year-on-year and those of the resins division (25%) fell by 7%.
Sales of speciality chemicals, which accounted for 30% of total sales, rose by 11%, with strong shipments of resin modifiers, PE gas pipe and nonwoven fabric.
Sumitomo Chemical saw a 16% rise in consolidated net profit in financial year 1996-97 to Yen21.5bn on the back of a 6% rise in sales which totalled Yen1011bn.
Operating profits were up 4%, while recurring profits increased year-on-year by 10%. Sales growth of mainline fine chemicals and agrochemicals and profit growth at its US agrochemicals subsidiary were the main factors behind the profit increase.
DEMAND for fine and speciality chemicals showed good growth in sales, although companies' operating profits were often badly affected by their petrochemical-dependent operations.
Nippon Shokubai, for example, which has just changed its fiscal year-end from November to March, saw its sales exceed earlier official estimates by 6% for the period from December to March on the back of strong demand from major end-users such as superabsorbent polymer producers, and paint and adhesive makers for acrylic acid and ethers. Ethylene glycol exports also expanded on tight supply.
But the company's profits were not as good as its sales because of substantial increases in raw material costs, particularly ethylene and propylene.
At Nippon Zeon, operating profits fell by 7% year-on-year in spite of strong sales of synthetic rubber and other chemicals. This was largely because it supplied its PVC resin producer Shin-Dai Ichi Vinyl, in which it has a 40% stake, with vinyl chloride monomer (VCM) below cost and as a result suffered losses of Yen850m.
Another PVC resin producer badly hit by poor prices and high raw material costs was Shin-Etsu Chemical.
However, Shin-Etsu said the poor results of its US PVC resin subsidiary belies the fact that Shintech managed to hike prices in February and March. Because Shintech's fiscal year ends in December, this is not reflected in the group's consolidated results.
Group sales of speciality chemicals such as electronic materials and synthetic quartz posted big gains.
Japan Synthetic Rubber saw strong profit growth in spite of a 1% drop in total sales due to the impact of the spin-off of its ABS resin business to Techno Polymer, a joint venture with Mitsubishi Chemical.
Resin sales dropped by 25%, but synthetic rubber sales rose by 5.5% and fine chemicals by 42%. Recurring profit jumped by 45%, while net profit almost trebled from Yen3bn to Yen8.6bn.
Tokyo Ohka Kogyo's results were some 6% above company and market expectations due to strong export demand for photoresist and other related chemicals on the back of a weak yen.
Teijin also outperformed market expectations in terms of operating and recurring profits, which were up 35% and 36% respectively. Its net profit fell by 17% due to extraordinary losses, but its textile, chemicals, drugs, medical and other businesses divisions recorded higher profits. Medical sales produced the highest profits at 52%.
Denki Kagaku's sales and profits were also higher than many analysts were expecting. Nevertheless, although sales grew by 5%, operating profits dropped by 9% due to a sharp deterioration of margins for petrochemicals, which reflected weak prices for styrene-family products.
Another company to benefit from a pickup in the housing sector was Sekisui Chemical, which saw sales jump by 10%, and operating profit by 28%, due to a 15% increase in housing sales.
Daicel's operating, recurring and net profits fell by 15%, 9% and 37% respectively in spite of a 5% increase in sales. This was largely due to weak ABS resin, PS and engineering plastics prices, as well as the startup costs of a new PS plant, which badly hit its plastics and film division.
The company was also affected by the severe downward pricing pressure of airbag inflators. These losses were somewhat offset by strong sales and profit growth from its cellulosic derivatives and organic chemicals
|Japanese company results for fiscal 1996-97 (Yenbn)|
|Sales||% change||Net profit||% change|
|Mitsui Petrochemical Industries||321.9||(3)||10.5||27*|
|Japan Synthetic Rubber||180.3||(1)||8.6||183*|
|Tokyo Ohka Kogyo||81.7||4||6.5||13**|
* parent company results
** consolidated results
1 Nippon Shokubai has changed its fiscal year-end from November to March starling from 1997, therefore these figures only apply from December to March this year
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