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Japan-Update

Japan's Tosoh on track for 26% April-December profit jump

Tight market for key chemical boosts company to another record

Wider margins on urethane feedstock business buoyed profit for Tosoh.

TOKYO -- Chemical company Tosoh's operating profit probably rose 26% on the year in the April-December 2017 period to around 90 billion yen ($812 million), marking a third straight record. A tighter market for a mainstay chemical product has boosted earnings at the Tokyo-based company.

Tosoh is the Japanese leader in methylene diphenyl diisocyanate, a feedstock for urethane used in synthetic leather, paint and other items.

Production disruptions at the factories of overseas competitors have cut the supply of the feedstock, despite strong demand, mainly in China. The price of the substance started climbing around the end of 2016 and averaged a little over $3,000 per ton in the October-December quarter of 2017, from a little below $2,000 a year before.

The cost of benzene, a raw material used to make the feedstock, has held relatively stable, so the spread between precursor material cost and product price roughly doubled in a year to more than $2,000, boosting margins for Tosoh.

Another key product, caustic soda, also sold briskly. The chemical, extracted from salt water through electrolysis, has grown pricier abroad due to greater demand. Meanwhile, margins on polyvinyl chloride narrowed due to higher costs of a raw material, naphtha.    

Tosoh's mainstay chlor-alkali business, which includes these three products, probably saw its operating margin rise from just below 15% a year earlier to around 20%. The segment is expected to generate nearly half of the company's full-year operating profit, so a profitability boost there is significant.

Other major Japanese chemical companies have also enjoyed a favorable business environment. Demand for petrochemical products has been rising alongside the growing world economy. And the reduced supply capacity of foreign competitors due to Chinese environmental regulations and other developments has led to higher prices of many key products like commodity-grade resins.

Tosoh will announce its three-quarter results Feb 2. It is likely to keep its full-year operating profit projection unchanged at 118 billion yen, a 6% increase, as forecast in October.

Toward the end of the fiscal year, the market for the urethane feedstock may loosen and the price could sag because many foreign competitors have been restarting and opening plants since the end of 2017, and the business is expected to slow down with the Lunar New Year in February.

(Nikkei)

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