TOKYO -- Toray Industries is expected to report a slight fall in operating profit for the six months ending Sunday, contrary to its projection of a 1% rise, as rising materials costs erode the profitability of its carbon fiber business.
Toray's operating profit will likely come to about 77 billion yen ($678 million), falling short of the projected 79 billion yen and marking the first profit drop in six years for an April-September half. Sales, however, are expected to grow 14% to 1.19 trillion yen in line with the company's forecast.
The Japanese company has enjoyed profit growth driven by carbon fiber, a field where the global leader commands a market share of just over 40%. The material has been finding broader applications, and Toray logged strong sales for use in aircraft and wind turbines.
But surging feedstock costs pushed down profit margins. The price of acrylonitrile, a carbon fiber precursor, was around $1,900 per ton on average in the April-June quarter, up 20% on the year. More recently, the price has hit $2,400.
Toray has struggled to pass the higher costs on to customers because it often supplies the material under long-term contracts.
The cost of buying a Dutch carbon fiber processor, TenCate Advanced Composites, also squeezed profit.
Higher materials costs also weighed on Toray's performance chemicals segment, which handles products used in automobiles and home appliances. The price of paraxylene, a resin feedstock, climbed during the first half.
Revenue growth in the April-September period has been led by fibers and textiles used in apparel. Toray is a key supplier to Fast Retailing, the company behind the Uniqlo casual clothing chain.
Toray's textile sales for winter clothing usually increase in the October-December quarter. But this fiscal year, sales climbed in the July-September quarter due to frontloaded production coordinated with business partners.
Toray is scheduled to release its interim results on Nov. 9. It is expected to keep its full-year projections unchanged, with a 5% increase in operating profit to 165 billion yen, on sales of 2.45 trillion yen, an 11% increase.