Mizuho 1038 chemicals

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Mizuho 1038 chemicals

  1. 1. Japan Industry Outlook / 38 2012 No.1 Table of Contents1, Comprehensive Industry - Japan 15, Broadcasting (Japanese only)2, Iron and Steel - Japan 16, Marine Shipping (Japanese only)3, Non-ferrous Metals - Japan 17, Logistics - Japan4, Paper and Pulp (Japanese only) 18, Electric Power - Japan5, Cement - Japan 19, City Gas (Japanese only)6, Chemicals - Japan 20, Retail - Japan7, Pharmaceuticals - Japan 21, Food and Beverage - Japan8, Petroleum - Japan 22, Food Service Industry - Japan9, Automobiles - Japan 23, Construction (Japanese only)10, Shipbuilding (Japanese only) 24, Real Estate and Housing - Japan11, General Machinery (Japanese only) 25, Travel and Tourism - Japan12, Electronics - Japan 26, Nonbank (Credit Cards & Credit) (Japanese13, IT Services - Japan only)14, Telecommunications - Japan 27, HR Service Industry (Japanese only) Contact: Industry Research Division Mizuho Corporate Bank, Ltd. mizuho.ird@mizuho-cb.co.jp
  2. 2. FY2012 Japan Industry Outlook (Chemicals) 06 化学¥ CHEMICALS Summary■ With regards to the supply and demand levels of petrochemical products in FY2011, domestic demand remained nearly flat amid a decrease in exports due to facility stoppages in the wake of the Great East Japan Earthquake and a decrease in production from a rise in imports, while companies responded to the downturn in product market conditions seen from the end of 2011 with reduced ethylene facility utilization, which is expected to drive the utilization rate under 90%. In FY2012, domestic demand is likely to remain flat, but production will increase compared to FY2011 owing to the recovery in export capacity and a fall in imports, which will drive the utilization rate back over 90%. However, production is not expected to recover to FY2010 levels due to a slowdown in the growth of demand in Asia.■ In FY2011, Japan’s major chemical companies appear headed for a fall in profits amid deteriorating margins from softening petrochemical market conditions seen in the second half as well as the downturn in both their facility utilization and electronic materials business. Although positive factors are seen in FY2012, such as increased production, softening product market conditions are forecast to persist amid firmly rising raw materials prices, and deteriorating petrochemical product margins will likely result in weaker profits.■ In FY2011, Japan’s specialty chemical companies are forecast to see lower profits on lower revenues due to sluggishness seen in LCD panel related components on the back of the downturn in LCD-related set products. In FY2012, demand for large LCD panels is set to bottom out, while for small- and medium-sized LCD panels demand is forecast to grow, and since an upward trend can also be anticipated for semiconductors, Japan’s specialty chemical companies should see higher profits on higher revenues. 1 Mizuho Corporate Bank, Industry Research Division
  3. 3. FY2012 Japan Industry Outlook (Chemicals)1. INDUSTRY TRENDS [Fig. 6-1] Fluctuations in Domestic Demand, Imports, Exports and Output of Ethylene Equivalents [Actual] Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Unit) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast) (Thousand Domestic demand tons) 5,167 5,215 5,270 2,733 2,482 2,574 2,696 (Thousand Exports tons) 2,377 2,199 2,270 1,002 1,197 1,042 1,228 (Thousand Imports tons) 542 767 651 441 325 345 306 (Thousand Output tons) 7,001 6,647 6,889 3,293 3,354 3,271 3,618 [Rate of Increase and Decrease] (YOY) (YOY) Brief FY10 FY11 FY12 FY11/1H FY11/2H FY12/1H FY12/2H (Unit) (Actual) (Estimate) (Forecast) (Actual) (Estimate) (Forecast) (Forecast) Domestic demand (%) + 5.3% + 0.9% + 1.0% + 8.3% - 6.1% - 5.8% + 8.6% Exports (%) + 13.5% - 7.5% + 3.2% - 8.2% - 6.9% + 4.1% + 2.5% Imports (%) + 12.9% + 41.4% - 15.1% + 53.6% + 27.6% - 21.9% - 6.0% Output (%) + 7.4% - 5.1% + 3.6% - 1.0% - 8.7% - 0.7% + 7.9% Source: Compiled by MHCB Industry Research Division based on materials from the Japan Petrochemical Industry Association and the Ministry of Economy, Trade and Industry materials. (Note) Figures for FY2011 and FY2012 are based on MHCB Industry Research Division forecasts.1. Domestic Demand Domestic demand Despite the impacts felt from supply chain interruptions in the wake of the for ethylene Great East Japan Earthquake, domestic demand for ethylene equivalents in equivalents is FY2011 saw positive factors including some demand from the reconstrucion expected to see flat growth in FY2011 effort and heightened demand for smartphones and media tablets. On the other hand, negative factors included a dampening in consumer sentiment following the earthquake and the underlying trend for key sectors of demand to use more lighter weight and thinner products, especially in the packaging materials sector. As a result, domestic demand for ethylene equivalents is expected to remain flat in FY2011 (up 0.9% year-on-year) at 5.22 million tons (see Fig. 6-1). Although the rise in demand from environmental and energy conservation Demand is likely to increase only sectors post-earthquake should prop overall demand up, the downturn in buying slightly in FY2012 motivation in the consumer and corporate sectors owing to electricity tariff rate hikes and possible tax increases will exert downward pressure on demand. Another negative factor at play is that the consumer electronics sector will shed specialty demand due to the end of the eco-point program and shift to terrestrial digital broadcasting. As a result, demand for ethylene equivalents in FY2012 is forecast to remain flat again in FY2012 (up 1.0% year-on-year) at 5.27 million tons. In general, there is a sense that the bar has been lowered for domestic demand to recapture levels not seen since the Lehman Shock, as this bar appears to have been set between 5.2 and 5.3 million tons, or around 90% of the pre-Lehman Shock level of 5.7 to 5.8 million tons. 2 Mizuho Corporate Bank, Industry Research Division
  4. 4. FY2012 Japan Industry Outlook (Chemicals) Demand for synthetic Domestic shipments of synthetic resins made in Japan, which had been resins remains recovering since the beginning of 2009, entered a lull in the April-June 2010 generally flat, but the quarter in the midst of this recovery process. Although domestic demand itself effects of an increase continues to remain generally flat, FY2011 brought a number of plant in imports is beginning to appear stoppages in the wake of the earthquake and an increase in imports of both resins and products on the back of yen appreciation, indicating that challenging conditions will persist (see Fig. 6-2). Domestic naphtha Domestic naphtha prices are expected to fall back from the 59,000 yen/kl seen prices in the second in the April-June 2011 quarter (see Fig. 6-3) all the way to 51,000 yen/kl in the half of FY2011 are second half of FY2011 on the back of continuing troubles at petrochemical forecast to hover plants in Taiwan and Singapore as well as the fact that the import naphtha CIF around 51,000/kl yen, but rise somewhat price, which is a major factor behind domestic naphtha prices, was kept in firmly in FY2012 check by the appreciation of the yen. Crude oil prices appear headed for a fall over the short term as deteriorating economic conditions in developed countries are exerting downward pressure on demand and supply is on the rise due to the increase in unconventional oil production in the United States and a recovery in production in Libya. Naphtha prices, however, are expected to rise somewhat firmly compared to crude oil in FY2012 thanks to the elimination of plant troubles seen in Asia. Although, any rise in naphtha prices will depend on demand for petrochemical products. [Fig. 6-2] Domestic Shipments of Commodity [Fig. 6-3] Price Movements of Domestic Naphtha and Resins (12-month moving average) Dubai Crude Oil 115 90000 140 Domestic naphtha (left axis) 110 80000 Dubai crude oil (right axis) 120 105 70000 100 100 60000(2003/1=100) 95 80 (JPY/kl) 90 50000 ($/bbl) 85 40000 60 80 30000 75 40 20000 70 20 10000 65 02/1 02/4 02/7 02/10 03/1 03/4 03/7 03/10 04/1 04/4 04/7 04/10 05/1 05/4 05/7 05/10 06/1 06/4 06/7 06/10 07/1 07/4 07/7 07/10 08/1 08/4 08/7 08/10 09/1 09/4 09/7 09/10 10/1 10/4 10/7 10/10 11/1 11/4 11/7 11/10 0 0 01/1 01/7 02/1 02/7 03/1 03/7 04/1 04/7 05/1 05/7 06/1 06/7 07/1 07/7 08/1 08/7 09/1 09/7 10/1 10/7 11/1 11/7 LDPE HDPE PP PS PVCSource: Compiled by MHCB Industry Research Division Source: Compiled by MHCB Industry Researchbased on Japan Petrochemical Industry Association Divisionmaterials. based on Trade Statistics and materials provided by the Ministry of Economy, Trade and Industry. 3 Mizuho Corporate Bank, Industry Research Division
  5. 5. FY2012 Japan Industry Outlook (Chemicals)2. Imports and Exports Exports are expected In FY2011, exports of major petrochemical products are expected to fall 7.5% to fall in FY2011, year-on-year to 2.20 million tons (see Fig. 6-1). This can be attributed to while imports are deteriorating export profitability from the appreciation of the yen and a decline expected to rise in export capacity from a fall in production output at domestic plants following the earthquake as well as to a temporary deterioration in the supply-demand balance in Asia owing to new plants coming on line in the Middle East and Asia and to weaker economic conditions in developed countries. In FY2011, imports are expected to rise 41.4% year-on-year to 770 thousand tons on the back of emergency imports to make up for plant stoppages in Japan in the wake of the earthquake and the aggressive utilization and export stance of South Korean chemical companies backed by the depreciation of the Korean won (see Fig. 6-1). Although the absolute volume of imports was never really that large until now, attention should be paid regarding the fact that imports are gradually beginning to steal away market share from domestic products, and certain products imported because of the earthquake are showing signs of establishing a foothold in the market. China’s domestic In FY2011, the growth rate in China’s domestic demand for petrochemical demand remains products is expected to be sluggish due to slower growth in the re-export buoyant, yet the market owing to the country’s monetary tightening measures and weaker re-export market faces a tough going economic conditions in developed countries. Since the re-export market will likely continue to face challenging conditions in FY2012, growth in demand that significantly exceeds the country’s economic growth rate seen previous years is not likely, but domestic demand itself is expected to have a brisk undertone. Nevertheless, imports of certain commodity resins will see a decline (see Fig. 6-4) because of the move toward domestic production is steadily gaining steam, while the launch of operations at new plants in the Middle East and Asia means that competition surrounding the China market as a destination for exports should intensify even further. Exports in FY2012 In FY2012, imports are expected to decline compared to FY2011 with the are set to decline, but shedding of emergency imports used in the wake of the earthquake (see Fig. still remain at 6-1), but imports should remain at elevated levels due to the fact that some elevated levels, while the recovery in large orders remain (see Fig. 6-6). Although export capacities will recover with exports should be the post-earthquake reconstruction work, any increases in exports are believed limited to be limited in nature due to the appreciation of the yen and intensified competition in export markets, especially China. Asian markets in In FY2011, Asian markets rose to elevated levels in the first half on the back of FY2011 rise, then anticipation for higher crude oil prices and plant troubles, but fell back down in fall the second half following the European debt crisis and sluggish growth in the China market (see Fig. 6-5). Although fewer large scale facilities will come on 4 Mizuho Corporate Bank, Industry Research Division
  6. 6. FY2012 Japan Industry Outlook (Chemicals) line in Asia in FY2012, a quick recovery in the supply-demand balance from the slowdown in the European and United States economies is unlikely, meaning markets are expected to soften slightly. [Fig. 6-4] China’s Resin Imports [Fig. 6-5] Asian Commodity Resin Prices (12-month moving average) 2,500 180 2,300 2,100 160 1,900 140 1,700 (USD/t) (2003/1=100) 120 1,500 1,300 100 1,100 80 900 700 60 500 03/1 03/4 03/7 03/10 04/1 04/4 04/7 04/10 05/1 05/4 05/7 05/10 06/1 06/4 06/7 06/10 07/1 07/4 07/7 07/10 08/1 08/4 08/7 08/10 09/1 09/4 09/7 09/10 10/1 10/4 10/7 10/10 11/1 11/4 11/7 11/10 40 02/1 02/4 02/7 02/10 03/1 03/4 03/7 03/10 04/1 04/4 04/7 04/10 05/1 05/4 05/7 05/10 06/1 06/4 06/7 06/10 07/1 07/4 07/7 07/10 08/1 08/4 08/7 08/10 09/1 09/4 09/7 09/10 10/1 10/4 10/7 10/10 11/1 11/4 11/7 11/10 LDPE HDPE PP PS PVC ABS LDPE HDPE PP PS PVC ABS Source: Compiled by MHCB Industry Research DivisionSource: Compiled by MHCB Industry Research Division based on materials provided by the Heavy and Chemicalbased on China Customs Statistics, etc. Industries News Agency, etc. 3. Ethylene Production 89% utilization With domestic demand roughly flat, ethylene production in FY2011 is expected rate in FY2011 to fall 5.1% year-on-year to 6.65 million tons given the rise in imports and fall in exports in the wake of the earthquake and lower utilization rates from the downturn in market conditions seen in the second half. The ethylene facility utilization rate also should breach the 90% mark for the first time in three years (see Fig. 6-6). With demand remaining either flat or rising slightly, FY2012 should see somewhat of an increase in exports from the recovery in export capacity. As a result, ethylene production is forecast to increase 3.6% year-on-year to 6.89 million tons, while the utilization rate should rise above the 90% mark again. Production volume, however, is not likely to see a recovery to the 7 million ton mark. 5 Mizuho Corporate Bank, Industry Research Division
  7. 7. FY2012 Japan Industry Outlook (Chemicals) [Fig. 6-6] Ethylene Supply and Demand Balance 98.3% 96.6% 98.2% 97.8% 98.7% 98.8% 99.7% 98.2% 94.1% 10000 94.7% 92.6% 89.0% 9000 Production capacity (actual capacity) Facility utilization rate 86.6% 7697.1 7691.6 7696.8 7530.8 7623.9 7436.652 8000 7460.5 7416.7 7582.9 7657.4 7642.7 7469 7437 7000 Domestic demand 5862.7 5799.3 5681.458 5754.903 5800.2 5215.30215 (Thousand tons/year) 5460.1 5547 5579.5 6000 5166.597 5269.92894 4906.5 4778.3 5000 Export ratio 4000 33.1% 32.9% 30.5% 28.6% 30.8% 30.5% 29.8% 32.1% 27.8% 29.8% 29.2% 39.5% 3000 33.9% 2000 Import ratio 11.5% 9.4% 5.6% 5.7% 6.1% 6.5% 7.4% 5.7% 7.7% 1000 5.3% 5.3% 5.4% 5.5% 0 2011fy estimate 2012fy forecast 2000fy 2001fy 2002fy 2003fy 2004fy 2005fy 2006fy 2007fy 2008fy 2009fy 2010fy 2011fy見込 2012fy予想 Source: Compiled by MHCB Industry Research Division based on Japan Petrochemical Industry Association materials.II. CORPORATE EARNINGS [Fig. 6-7] Business Results of the Big Seven Chemical Companies[Actual] [Rate of Increase and Decrea (YOY) No. of companies FY10 FY11 FY12 No. of companies FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecast) (Unit) (Actual) (Estimate) (Forecast) 7 7 Sales (JPY 100 m.) Sales 102,370 105,010 102,400 (%) + 0.8% + 2.6% - 2.5% Operating 7 Operating 7 profit/loss (JPY 100 m.) 5,945 5,700 5,480 profit/loss (%) + 1,489.7% - 4.1% - 3.9% Ordinary 7 Ordinary 7 Became profit/loss (JPY 100 m.) 5,645 5,450 5,250 profit/loss (%) profitable - 3.4% - 3.7%Net profit/loss 7 Net profit/loss 7 Becamefor the period (JPY 100 m.) 2,331 2,290 2,190 for the period (%) profitable - 1.8% - 4.4% Source: Compiled by MHCB Industry Research Division based on corporate financial statements. Note: The seven companies are Asahi Kasei, Showa Denko, Sumitomo Chemical, Tosoh, Mitsui Chemical, Mitsubishi Chemical HD, and Ube Industries (listed in order of Securities Identification Code). [Fig. 6-8] Business Results of the Seven Specialty Chemical Companies[Actual] [Rate of Increase and Decreas (YOY) No. of companies FY10 FY11 FY12 No. of companies FY10 FY11 FY12 (Unit) (Actual) (Estimate) (Forecast) (Unit) (Actual) (Estimate) (Forecast) 7 7 Sales Sales (JPY 100 m.) 29,600 28,710 30,130 (%) - 3.8% - 3.0% + 4.9% Operating 7 Operating 7 profit/loss (JPY 100 m.) 3,541 3,260 3,590 profit/loss (%) + 13.7% - 7.9% + 10.1% Ordinary 7 Ordinary 7 profit/loss (JPY 100 m.) 3,716 3,410 3,750 profit/loss (%) + 13.0% - 8.2% + 10.0%Net profit/loss 7 Net profit/loss 7for the period (JPY 100 m.) 2,241 2,090 2,250 for the period (%) + 32.5% - 6.8% + 7.6% Source: Compiled by MHCB Industry Research Division based on corporate financial statements. Note: The seven companies are Nissan Chemical, Shin-Etsu Chemical, JSR, Tokyo Ohka, Sumitomo Bakelite, Hitachi Chemical, and Nitto Denko (listed in order of Securities Identification Code). 6 Mizuho Corporate Bank, Industry Research Division
  8. 8. FY2012 Japan Industry Outlook (Chemicals)1. FY2011 Estimate The big seven saw a In FY2011, Japan’s big seven chemical companies saw generally favorable slump in their business results in the first half as synthetic resins and monomers, particularly petrochemical business and electronic synthetic fiber related for which overseas market prices trended at heightened materials business levels, saw healthy margins (see Fig. 6-9), despite impacts felt from the earthquake. In the second half, however, growth in Asian demand flattened out on the back of the sovereign debt crisis in Europe and the rather significant softening of product markets and deterioration of margins that ensued, while a fall in utilization from tighter supply and demand meant a significant drop in profitability. This coupled with a tougher operating environment in the electronic materials business throughout the fiscal year means that Japan’s big seven chemical companies are expected to see a fall in profits in FY2011 (see Fig. 6-7). The seven specialty Japan’s seven specialty chemical companies, which focus predominantly on the companies also saw electronic materials business, combined are forecast to see lower profits on a fall in profits lower revenues in FY2011 (see Fig. 6-8). This can be attributed to a major hit taken in terms of profitability from the effect falling LCD TV and computer prices have had on LCD related components, despite generally strong performance seen for smartphone and media tablet related components. The extent of this drop in profits and revenues, however, will depend on the business operations of each company. [Fig. 6-9] Monomer Spreads (Asia) 400 350 300 (2003/1=100) 250 200 150 100 50 0 SM-Bz spread AN-C3 spread EG-C2 spread -50 PTA-PX spread CPL-Bz spread Ph-Bz spread 09/1 09/7 10/1 10/7 11/1 11/7 Source: Compiled by MHCB Industry Research Division based on Japan Petrochemical Industry Association materials.2. FY2012 Forecast The big seven are In FY2012, the performance of Japan’s big seven chemical companies should forecast to see a be boosted by quantitative factors from a rise in production volume, but the second consecutive supply-demand balance remains uncertain primarily due to the slower growth year of lower profits in demand from China’s re-export market. Given this, product markets are 7 Mizuho Corporate Bank, Industry Research Division
  9. 9. FY2012 Japan Industry Outlook (Chemicals) forecast to remain soft. In addition, there is a high probability that the petrochemical product margin will shrink since relatively weak naphtha prices compared to crude oil in FY 2011 will likely move in the opposite direction in FY2012. Despite a likely recovery in the profitability of the electronic materials business, overall Japan’s big seven chemical companies should see a downturn in profits in FY2012. The seven specialty Japan’s seven specialty chemical companies are expected to see a recovery in chemical companies profits in the second half and beyond. This can be attributed to firm and are forecast to see an ongoing demand for smartphones as well as the scheduled launch of the new increase in revenues and profits Windows operating system in the second half and major semiconductor manufacturer’s plans to make large capital investments. In the LCD TV market, however, the focus of competition is shifting from high-functionality to low cost, meaning that attention should be paid to the fact that the current business model of components manufacturers to constantly produce new more highly functional products does not align with the needs of today’s market.III. TOPICS: Prominent Medium-term Business Segments in the Chemicals Industry Japan’s chemical Japan’s chemical industry provides materials to groups of downstream industry demand industries, meaning its business domain encompasses a truly wide range of originates from a sectors. Even when seen from the angle of customer or market size, markets are wide range of growing more diversified owing to the recent economic growth of emerging sectors countries, indicating that there is a wealth of market segments in existence, such as the base of pyramid (BOP), volume zone, niche and high functionality segments (see Fig. 6-10). Japan’s chemical It is impossible for a chemical company to cover every business domain, target companies are customer and target region without the versatile competitiveness realized from concentrated in high- a wealth of management resources. Today, companies in emerging countries functionality products with high-growth domestic markets and companies from resource countries that and niche markets can procure raw materials at inexpensive prices based on support from the national government are beginning to establish a presence in markets. As such, one effective strategy for Japan’s chemical companies will be to build up their capabilities in niche markets and the high-functionality product sector, while also maintaining the strength of their commodity materials business, which is a source of high-functionality materials. 8 Mizuho Corporate Bank, Industry Research Division
  10. 10. FY2012 Japan Industry Outlook (Chemicals) [Fig. 6-10] Target Markets of the Chemical Industry Categories Minimum Comfort Food Housing Clothing Social Consumer Health Environment / Water Infrastructure Durables / Safety Function Value Water Smart Intelligent Prevention / Ubiquitous IT Developed treatment homes High solutions Diagnosis Target Countries Renewable Target Customers countries performance High Sustainable textiles Repairs and In-home In- Agribusiness Home energy performance upgrades healthcare mobility Alternative energy New systems Pesticides Emerging Construction All-purpose All- New Popularized Pollution countries materials textiles construction mobility prevention Popularization FertilizersAll-purposeAll- Price Source: Compiled by MHCB Industry Research Division. Targets are Demand is expected to grow for functional products in developed countries and sophisticated markets wealthy consumer markets in emerging countries alike for a variety of business that include developed countries and wealthy domains, from potable water and food required for life to safety and consumers in emerging environmental domains needed for comfortable living. There are a wide range countries of segments within these markets where Japan’s chemical companies can contribute as a materials supplier because of their superior quality products and advanced technologies developed through sophisticated industry accumulation. The keys will be The key to producing high-functionality products going forward will likely be stronger partnerships partnerships with downstream industries (assembling and processing industries, with downstream etc.). As providers of materials, Japan’s chemical companies can be seen as industries and collaboration with providers of “materials solutions,” while downstream industries that develop materials companies and manufacture end products can be seen as providers of “product solutions.” In order to generate new markets by creating products aligned to the diversifying needs of consumers, both chemical companies and downstream industries will need to fuse their technologies, products and markets more than ever before. In addition, one effective means of developing all-new products will be collaboration with industries that supply different materials, and in particular the consumer durables domain, such as automobiles. Japan’s chemical companies are known for having developed a wide range of materials-related innovations, and so their future direction is something to take note of. Yasuyuki Kiyama / Akiko Matsumoto yasuyuki.kiyama@mizuho-cb.co.jp / akiko.matsumoto@mizuho-cb.co.jp Primary Materials Team Industry Research Division Mizuho Corporate Bank, Ltd. 9 Mizuho Corporate Bank, Industry Research Division

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