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Business Trends

China's environmental crackdown means big business for Japan

Manufacturers' expertise likely to be in demand as Beijing tightens pollutant rules

A new Mitsubishi Chemical plant in Saudi Arabia.

TOKYO -- Tougher environmental regulations in China spell major opportunity for Japan's materials and chemical makers, as factories in the Asian economic powerhouse must either adopt technologies to curb pollution or close down.

The government in Beijing began in 2017 capping factories' emissions of particulate matter at 10mg per cu. meter, down from 30mg previously, to combat heavy air pollution. Manufacturers there are now in the market for filters that will bring emissions down to acceptable levels -- something Japan's materials makers are happy to supply.

Teijin has developed the first air filter woven from fibers just 700 nanometers in diameter, offering greater absorption of pollutants than conventional polyester filters. The company has opened sales to Chinese industrial firms such as steel and cement makers, and could attain its fiscal 2020 sales targets early.

Facilities that fail to meet the new environmental standards risk being forced to halt operations. Chinese authorities have ordered a number of Chinese plants producing hydrocyanic acid, a key ingredient in the most common process for synthesizing methyl methacrylate, to suspend operations. This has allowed Mitsubishi Chemical Holdings, already the world's largest maker of methyl methacrylate, to step in and fill the gap, raising worldwide production 15%.

Fellow Japanese chemical maker Asahi Kasei, the world's No. 2 maker of acrylonitrile, anticipates heavy utilization in 2018 at plants making that base material for acrylic fiber. Utilization reached record levels in 2017 as the Chinese government shut down makers of the material in Heibei Province and elsewhere. Ube Industries anticipates heavy utilization this year at Japanese plants making the nylon precursor caprolactam in the wake of similar shutdowns. Exports of the chemical to China appear set to rise.

A recent wave of shutdowns in China's cement sector are seen weighing on exports of the material from that country to Southeast Asia this year. Partly as a result, Sumitomo Osaka Cement sees exports rising from 1.44 million tons in fiscal 2017 to over 1.5 million tons in fiscal 2018.

Even the global shipping industry has benefited from China's tougher environmental standards. Steelmakers there are increasingly switching from cheap but low-grade Chinese iron ore to higher-quality product from Brazil and Australia, creating business for bulk shippers bringing coal and ore to China. The Baltic Dry Index of global bulk shipping rates reached a roughly four-year high in December.

And China's support for electric vehicles is seen spurring demand for materials such as copper and lithium. Anglo-Australian mining heavyweights BHP Billiton and Rio Tinto are showing signs of ramping up capital investment, ending a lull that has persisted since the end of Australia's resources boom earlier this decade.

On the other hand, companies depending on Chinese partners that fail to make the grade have felt a pinch from the tougher regulations. Showa Denko added 30% to its production capacity for aluminum foil, used in capacitors, but has refrained from increasing production itself, as a Chinese company processing the foil has been unable to meet wastewater standards. Authorities also rejected Mitsubishi Chemical's application last November to increase chemical production in China.

China's efforts to switch from coal to natural gas, a relatively clean fuel, in power production have also set prices of liquefied natural gas climbing, raising concerns about energy costs for households and companies farther down the supply chain. The country's LNG imports rose roughly 50% in 2017.

Correction: This article initially stated incorrectly that Showa Denko's aluminum foil is used in lithium ion batteries.

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