Shares fall sharply as yen rises

20 September 1999 00:00  [Source: ACN]

Share prices of export-oriented Japanese petrochemical companies fell sharply last week as the yen breached the level of Yen104:1US$ on Thursday, its highest since January 1996.

Analysts feared the yen could strengthen to Yen100:US$1. This, according to the Japan Petrochemical Industry Association (JPCA), is the breakeven point beyond which benefits from lower cost feedstock imports will be neutralised by uncompetitive exports (ACN 30 Aug, p7).

However opinion was divided on the level at which exports will start becoming un-viable. The yen would have to rise to Yen80-90:US$1 before polymer exporters need to reconsider their positions, one Japanese polymer trader said.

Japanese petrochemical companies are not likely to be badly affected by the recent strengthening of the yen, a Tokyo-based chemicals analyst said. 'Chemical producers have in the past few months begun to reduce exports because of the recovery of domestic demand and the scrapping of uncompetitive plants,' he said.

However, others said any strengthening beyond Yen100:US$1 would be disastrous. 'If the yen rises beyond that level, we may be forced to close our exporting business,' a petrochemical producer said.

Japanese petrochemical exports are bound to be hit by the current level of yen, a petrochemicals analyst said. The industry's exports average 27.7% of total production, despite the narrowing of producers' export positions in recent months.

If the current strengthening of the yen continues into next year, Japanese petrochemical companies will have to step up their plans for mergers and acquisitions outside Japan, an analyst said.

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