Basic Materials Business Sector
By leveraging our strengths in the entire chain from raw materials through to derivative products and tapping into value-added fields, we aim to secure stable earnings and build a framework that serves as a foundational business and supports the Group as a whole.
Fiscal 2019 Business Overview
Sales by product
Sales by region
Trends in net sales and operating income (¥ bn)
*FY2020 forecasts on an IFRS basis.
Fiscal 2025 target
Operating income of ¥30 billion
In polyolefins, although the impact of products like shale gas-based polyethylene is also beginning to be felt in Asia, we aim to build a polyolefin business with a strong presence in the Japanese and Asian markets by shifting to high value-added products. In monomers and basic chemicals too, by leveraging our strength as a manufacturer of the entire chain from raw materials through to end products, we aim to develop and expand even higher value-added derivatives and downstream products.
- We aim to further boost earnings through initiatives to expand our high-margin differentiated products and derivatives.
- We plan to actively carry out capital investments to further strengthen competitiveness.
1. Building a stable earnings base
In the global financial crisis of 2008, commodity products for which we maintained a high export ratio, like phenols, purified terephthalic acid (PTA), and polyurethane materials, fell sharply into the red. Since then, we have undertaken structural reforms for these businesses. We downgraded the size of our production capacity to meet the level of demand through measures such as retiring our production facilities, which also included the closure of plants based on a strategy of local production for local consumption. In parallel, we have introduced a formula method to automatically link changes in raw material cost to product prices for those three products and other key materials in an effort to improve our resilience against fluctuations in market prices. As a result of these initiatives, earnings volatility has been improving—the weighting of local production for local consumption for phenols, PTA, and polyurethane materials has now reached more than 80%, while the price formula ratio of mainstay products together with domestic polyolefins now stands at more than 70%.
On the other hand, the competitiveness of our crackers compares favorably with the new large-scale crackers in Asia and they have been rated highly by specialized overseas agencies for their superior energy efficiency. This is the source of competitiveness in our derivative products including our lineup of high value-added products outside of the basic materials field.
However, we expect a loss in operating income before special items in fiscal 2020 owing to the demand slump caused by COVID-19 and the booking of an inventory valuation loss caused by the decline in raw materials prices. Up ahead, we intend to pursue further cost reductions in our crackers by lowering and stabilizing input costs through diversification of raw materials and improving energy efficiency with the installation of gas turbines. We also plan to streamline production and distribution in our existing businesses by actively employing AI, IoT, and other highly advanced technologies. In the pursuit of further restructuring, we will consider a variety of initiatives without being bound by previous methods.
Reducing volatility through steady restructuring
2. Expanding our lineup of value-added products
We are working to increase our ratio of captive ethylene consumption and develop derivative products with more added value. In 2014, we withdrew from Keiyo Ethylene Co., Ltd., closed our commodity polyethylene plants, and took steps to expand capacity for the production of EVOLUE™ and other ethylene-based high value-added polymers. As a result, our captive consumption of ethylene is now quite high at 80%, while the export ratio, which is susceptible to overseas market conditions, is less than 10%. In addition, our weighting of high value-added polymers has reached 90%. This has enabled us to shift to a product mix which makes it difficult for shale-derived polyethylene, which is mostly commodities, to take the place of.
For other distinctive value-added products, such as ICT- and EV-related materials, we will work on achieving business growth by maintaining and expanding our share in growth markets. Moreover, we aim to explore the growth potential of this foundational business by acquiring new business opportunities through strengthened collaboration with customers.
The impact of COVID-19 is causing a major shift in the supply-demand balance for chemical products. We will respond rapidly to changes as we also keep a close watch on post-COVID-19 trends.
3. Initiatives to tackle global environmental issues
We contribute to society by supplying a wide range of plastic materials that are essential to people’s everyday lives, including polyethylene, polypropylene, PET resin, and polyurethane materials. However, there are growing concerns about climate change and marine plastic waste, calling for companies to contribute to solving these issues.
We are strengthening our initiatives for global environmental protection. In addition to expanding biomass plastics such as ECONYKOL™, we are actively considering how we can help realize a recycling-oriented society, such as by developing materials that can reduce the volume of plastics used and reusing waste plastic as a raw material.
Seat cushion material ECONYKOL™
- Reduces CO2
- Conserves resources