Geopolitics, sluggish Chinese economy dent Japanese firms' performance

16:40 PM | February 28, 2020 | Kartik Kohli

Major Japan-based chemical companies have released their consolidated results for the fiscal first nine months ended 31 December 2019. Firms such as Mitsubishi Chemical, Toray Industries, Sumitomo Chemical, Asahi Kasei, Mitsui Chemicals, Teijin, Tosoh, and Ube Industries report declines in income citing lower demand and weakening market conditions caused partly by US-China trade friction. Profitability was also squeezed by lower selling prices and the economic slowdown in China, which weakened key chemical-consuming industries such as automotive, smartphones, and home appliances.

Mitsubishi Chemical Holdings reports a 54% decline in net income for the fiscal nine months, to ¥76.27 billion ($693.1 million). Operating income declined 40% year-on-year (YOY) to ¥ 160.5 billion. Revenue decreased 4.9% YOY, to ¥2.7 trillion. Mitsubishi says that the supply/demand balance for certain products, mainly for semiconductors and cars, loosened due to growing concerns over US-China trade friction.

Mitsubishi's performance products business reports a 14% YOY decline in operating income to ¥54.4 billion on sales of ¥821 billion, down 5% YOY. Core operating income decreased primarily because of lower market prices for phenol-polycarbonate chain materials in the advanced polymers business. In functional products, revenue fell due to lower sales volumes in high-performance engineering plastics and other products for advanced moldings and composites, owing to weaker demand, principally in semiconductor and automotive applications.

Operating profit for the chemicals business, Mitsubishi's largest, plunged by 64% to ¥ 38.7 billion on sales of ¥826 billion, a decline of 15.3%. Core operating income decreased mainly because of a decline in prices of methyl methacrylate (MMA) and other products, despite higher sales volumes stemming from a reduced impact from scheduled maintenance and repairs at petrochemical plants. Revenue decreased because of a continued deceleration of demand growth, especially in China, and lower MMA prices.

Toray Industries reports a decline in net income of 18.6% YOY, to ¥81.3 billion. Operating income decreased 7% YOY to ¥104.4 billion and revenue was ¥1.68 trillion, a decline of 7% YOY.

Sales in Toray's fibers and textiles segment were ¥ 682.2 billion, a drop of 10.4% YOY. Operating income stood at ¥47.9 billion, down 20.5% YOY. Domestic demand for certain automotive applications was strong, but shipments for apparel and industrial applications remained weak. Overseas, various applications were hampered by weak market conditions, reflecting prolonged trade friction between the US and China, and the slowdown in the Chinese economy. Demand for apparel applications including garments and textiles, as well as for automotive applications in Europe and China, and hygiene products in China, remained sluggish.

Revenue in the company's performance chemicals business decreased 10% YOY to ¥589.1 billion and operating income was ¥48 billion, down 7.7% YOY. In the resins business, domestic sales were strong and sales for automotive and home-appliance applications were slow overseas primarily due to the impact of the slowdown in China.

Sumitomo Chemical says its net income plunged 57.7% in the nine-month period, to ¥37.5 billion on sales down 3.6% YOY to ¥1.65 trillion.

Sales at the petchem and plastics business segment, the company's largest, declined by 10% YOY to ¥518.3 billion. Operating income fell 47% YOY to ¥27.3 billion, because of weaker margins. Market prices for petchem products and synthetic resins decreased in line with falling feedstock costs. Prices of raw materials for synthetic fibers and for MMA also declined.

Asahi Kasei reports a 10.4% YOY drop in net income to ¥ 103.82 billion on flat sales of ¥1.58 trillion. Decreased shipments and increased fixed costs due to turnarounds at steam crackers and derivative plants squeezed profitability.

Shin-Etsu Chemical reports 1.9% higher net profit of ¥84 billion. Operating income increased 1.8% YOY to ¥318.7 billion and sales increased 2.7% YOY, to ¥ 1.17 trillion.

Mitsui Chemicals posted a 53.4 % YOY decline in net profit, to ¥27.1 billion due to “unfavorable terms of trade,” the company says. The performance of certain businesses was challenged by slow demand in Asia.

IHS Markit says that Japan’s real GDP growth for 2019 was 0.7%. The weaker-than-expected result reflected sluggish private demand, which had a 2.2-percentage-point negative contribution to quarter-on-quarter growth. IHS Markit expects Japan’s real GDP growth to turn more positive in the first quarter of 2020, but it says the risk skews to the downside because of the coronavirus disease 2019 (COVID-19) outbreak.