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Business trends

Chemical maker Tosoh poised to beat earnings guidance

Higher prices of polyurethane ingredient seen lifting operating profit to 3rd straight record

This Tosoh plant produces chemicals used to make polyurethane, a versatile plastic.

TOKYO -- Chemical producer Tosoh is likely to deliver a record operating profit for the year ending this month as tighter supplies of a material for polyurethane raise its price. 

The Japanese company is expected to post about 128 billion yen ($1.22 billion) in group operating profit for the fiscal year ending March 31, up 15% on the year, beating its earlier guidance by around 10 billion yen and marking a third year of all-time highs. Sales are on track to eclipse a forecast 8% rise to 800 billion yen.

Tosoh is Japan's largest producer of methylene diphenyl diisocyanate, or MDI, a chemical used to make polyurethane, one of the most versatile plastics.

Global MDI supply growth slowed after production trouble at an overseas competitor and output cuts at Chinese peers facing stricter environmental regulations. Meanwhile, demand continues to grow worldwide, particularly in China. 

The resulting tightness in the MDI market pushed up prices to around $3,500 per ton in February, more than $1,000 higher than a year earlier. This translated into a wider price spread over the cost of benzene, a feedstock for MDI, boosting Tosoh's profit margin. 

Caustic soda and vinyl chloride also sold well. The chlor-alkali business, which includes urethane materials, could see operating profit jump about 30% to more than 60 billion yen.

Tosoh may consider raising its annual dividend by several yen from the planned 36 yen a share. The company, which executed a 1-for-2 reverse stock split in October, paid out 12 yen a share at the interim and plans another 24 yen at fiscal year-end. That would keep the annual payout in effect unchanged from the fiscal 2016 level. 

Tosoh will report its fiscal 2017 results and fiscal 2018 outlook May 9. While demand for polyurethane materials looks poised to keep growing, industry insiders expect upcoming openings of big overseas plants to ease upward pressure on prices.

The recently announced U.S. import tariffs appear to have no direct effect on Tosoh, but its export margins could thin if trade uncertainty drives the yen higher against the dollar.

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