06 September 1997 00:00 [Source: ACN]
THE industry is bullish about the outlook for fiscal 1997-98, with many petrochemical producers confident that they will be able to hike prices and carry on their cost-cutting programmes.
Mitsubishi Chemical, for example, projects sales to increase by 4% and recurring and net profits by 48% and 104% because of price hikes of basic petrochemicals, intermediates and resins which will boost sales revenue by Yen17bn.
It also plans to cut costs by Yen10bn this year as part of its four-year '974 Plan'.
Sumitomo Chemical anticipates consolidated operating and recurring profits to rise by 23% and 30% year-on-year in fiscal 1997. The company also expects parent company operating and recurring profits to improve by 28% and 26% year-on-year.
The new Mitsui Chemical, which will be created in October, is expected to see pre-tax profits this fiscal year rise by around 5% on the back of good speciality chemical sales. Revenue from petrochemical sales will continue to be sluggish. A senior managing director of Mitsui Petrochemical Industries suggested recently that a medium- and long-term plan for the new company may be ready by the end of the year.
Nippon Zeon expects parent company operating profits to rebound by 21% this year, and for PVC subsidiary Shin-Dai Ichi Vinyl to turn positive - a view many analysts consider too bullish in the light of a possible weakening of PVC prices later this year due to an expected oversupply and a downward pressure on domestic synthetic rubber prices. This will also negatively affect Japan Synthetic Rubber which is projecting a 7% decline in parent company profits. Any weakening of PVC prices will also hit Shin-Etsu, which is expecting total sales to increase by 9%.
Analysts also think Denki Kagaku's projections - that the prices of styrene, PS and ABS resins will remain firm for the fiscal year, and that a projected 6% decline in cement sales will have no negative impact on overall profits - are too optimistic.
Denki Kagaku expects consolidated net profits to surge to Yen5bn, the same level as its parent company, thanks to a cost-reduction programme valued at around Yen3bn.
Analysts also fear Daicel\ might well undershoot its forecast increase in operating and recurring profits of 5.4% and 2.6% because of lower ABS, PS and airbag inflator prices.
Many analysts disagree with the bullish outlook projected by most companies and believe there is still a risk that prices later in the year will start to weaken again. The slowdown in Asian economic growth could also have a negative impact. 'Japanese companies must continue to cut costs if they are to remain competitive,' said Tommy Tang at Merrill Lynch.
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