Tokyo at nightSource of picture: liveworldtours.com
By Malini Hariharan
it is easy to write off the Japanese petrochemicals industry which has for long struggled to find a solution to the dual pressure of rising global competition and an anaemic home market.
Japanese companies, once at the forefront of the Asian industry, have already given way to newer players from countries such as China, India and Thailand. Product portfolios have been trimmed and alliances formed to ensure profitable operations.
"The names of the companies may have not changed but their product mix has changed remarkably," says senior executive adviser at consultancy Accenture Japan, Ryota Hamamoto.
"Some companies have relocated their production facilities overseas and reassigned their Japanese employees to new smaller but sophisticated high-end specialities business without laying them off as their counterparts in Western countries usually do."
And more restructuring appears inevitable.
"The new ethylene capacities in the Middle East and China will result in Japanese producers losing market share. It is possible that 1.5-2.0m tonnes/year of Japanese ethylene capacity, or 3-5 less competitive plants, will be dismantled in the coming 5-6 years, " Hamamoto predicts.
The remaining crackers will need to operate as companies need hydrocarbon feedstocks to maintain their lucrative speciality chemicals businesses.
However, companies can delay the inevitable as long as markets such as China remain robust.
Hamamoto points out that Japanese ethylene production nosedived to 6.8m tonnes in 2008 from 7.8m tonnes in 2007.
"At that time some pessimistic analysts had forecast that output would fall further to 6.1m tonnes in 2009 as a fall in domestic demand seemed inevitable. But to our surprise, production hit 7.1m tonnes mainly as a result of strong demand from China and other Asian countries," he explains.
Hamamoto cautions that it would be unwise to dismiss all Japanese crackers as being uncompetitive.
"Most of the crackers are 30-40 years old and rather small; so one would think that their cost competitiveness is poor. However, the major producers are quite competitive as their plants are fully depreciated and are run at high operating rates with minimum accidents.
"Additionally, the plants are fully automated and companies have invested in energy saving technologies to compensate for the small size, old design and high cost of feedstock.," he says.
One example is Showa Denko.
A Showa Denko source explains that the company has attempted to raise its competitiveness to a higher level by making changes to its 695,000 tonnes/year Oita cracker.
Earlier this year, Showa Denko recently replaced seven small furnaces at the cracker with two high-efficiency furnaces; improved the waste heat recovery system and renovated the pre-distillation system.
The new furnaces give greater feedstock flexibility as they can crack liquefied petroleum gas (LPG), natural gas liquids (NGL), kerosene and light oil. The company says that the changes will improve energy efficiency by 5.3% and reduce carbon dioxide emissions by 6%.
Showa Denko, says the source, is looking at further improvement in production efficiency with an aim to reduce costs and does not have plans for further plant shutdowns other than those announced.
Japanese companies are also investing time and money to develop alternative production routes and make value-added products.
Mitsubishi Chemical has built a pilot plant to make propylene using methanol/dimethyl ether (DME) and other olefins from a naphtha cracker. It has also tested a new butadiene technology that uses butene as a feedstock although a decision to commercialise the technology has yet to be taken, says a company source.
Idemitsu has successfully developed metallocene polypropylene (m-PP) and is constructing a 40,000 tonnes/year plant at Chiba scheduled for completion in Q4 2011.
A 240,000 tonnes/year metallocene linear low density polyethylene (m-lldPE) plant at Ichihara will be expanded by 60,000 tonnes/year by November 2011.
And there are plans for a new 200,000-300,000 tonnes/year m-lldPE plant overseas for start up in 2014. Possible locations include Singapore and China with a final decision due to be made in H2 2011.
Random copolymer m-PP is currently being test marketed for food packaging and there are plans to start produce around 50,000 tonnes/year at an existing PP plant at Osaka by end of fiscal 2010, says a company source.
Homopolymer m-PP and block m-PP are also being developed at a pilot plant although a decision has yet to be made on commercialising these grades.
These efforts show that while Japanese companies no longer dominate the Asian petrochemicals landscape they still have the capacity to teach a few lessons to other regional players.