Japan Chemical Trading Blog

The latest chemical trading industry insights from Japan, Asia and the world, reported by the President of Daishin Corporation, Masa Oguchi.

Current Circumstances of Japanese Refining Manufacturers and the Weak Yen

Today, I am resuming posting on the weblog after a long interval.

During the last six months while I was not posting on the weblog, the slump in the Chinese economy has become apparent. Since China is the biggest consumer of major metals and rare metals, their worldwide surplus tended to increase, while their international market prices fell drastically along with the major impact of other external factors such as the high US dollar rate, the Greek debt crisis and low prices of crude oil. According to the information from a Japanese trading company specialized in chemicals for domestic use, domestic demand for them in the manufacturing of automobiles, building materials and electric wires generally dropped altogether.

On the other hand, the USD/JPY exchange rate has reached USD1=JPY125 owing to the speculation about a rise in U.S. interest rates and the Bank of Japan’s monetary easing policy.

Since the exchange rate a year ago (August 11, 2014) was USD1= JPY102, the yen has dropped more than 20% in a year.

The effect of a weaker yen was so great that it drove away the global/domestic recession and the profits of Japanese refining manufacturers for the April-June period generally improved year on year.

This is because both TC (Treatment Charge) and RC (Refining Charge), processing charge earnings of refining businesses, are paid in USD, and the weaker the yen becomes, the more the earnings become calculated in yen.

In other words, the positive effects of the weaker yen surpassed the negative effects of the international metals market softening.

Ordinary profits of refining manufacturers for the April-June period are as follows:

Sumitomo Metal Industries: approx. 293 million dollars (up 36%)
Mitsubishi Materials: approx. 137 million dollars (down 1.9%)
JX Nippon Mining & Metals Corporation: approx. 125 million dollars (up 59.8%)
Dowa HD: approx. 96 million dollars (up 17.8%)
Mitsui Mining & Smelting: approx. 50 million dollars (up 4.6%)
Nittetsu Mining: approx. 24 million dollars (up 33.1%)
Toho Zinc: approx. 20 million dollars (up 153%)
Furukawa: approx. 17 million dollars (up 69.4%)
(USD1 = JPY125)

The current exchange rate is USD1= JPY125; in 2011 it once reached USD1= JPY75, a devaluation of more than 60%.

On August 10, the Ministry of Finance of Japan announced that the current account surplus for Japan was 8,183.5 billion yen in the first half of this year, the largest after the Great East Japan Earthquake, which caused the trade deficit, to significantly reduce to 422 billion yen.

The weaker yen that resulted from quantitative easing, which the Bank of Japan is adopting to raise Japan consumer prices to realize an inflation rate of about 2%, improved the trade balance of exporting companies in Japan.

However, let’s not forget that this is a policy that has a risk of hyperinflation.

The debt of the Japanese government has already exceeded 1,000 trillion yen.

Current Circumstances of Japanese Refining Manufacturers and the Weak Yen

Today, I am resuming posting on the weblog after a long interval.

During the last six months while I was not posting on the weblog, the slump in the Chinese economy has become apparent. Since China is the biggest consumer of major metals and rare metals, their worldwide surplus tended to increase, while their international market prices fell drastically along with the major impact of other external factors such as the high US dollar rate, the Greek debt crisis and low prices of crude oil. According to the information from a Japanese trading company specialized in chemicals for domestic use, domestic demand for them in the manufacturing of automobiles, building materials and electric wires generally dropped altogether.

On the other hand, the USD/JPY exchange rate has reached USD1=JPY125 owing to the speculation about a rise in U.S. interest rates and the Bank of Japan’s monetary easing policy.

Since the exchange rate a year ago (August 11, 2014) was USD1= JPY102, the yen has dropped more than 20% in a year.

The effect of a weaker yen was so great that it drove away the global/domestic recession and the profits of Japanese refining manufacturers for the April-June period generally improved year on year.

This is because both TC (Treatment Charge) and RC (Refining Charge), processing charge earnings of refining businesses, are paid in USD, and the weaker the yen becomes, the more the earnings become calculated in yen.

In other words, the positive effects of the weaker yen surpassed the negative effects of the international metals market softening.

Ordinary profits of refining manufacturers for the April-June period are as follows:

Sumitomo Metal Industries: approx. 293 million dollars (up 36%)
Mitsubishi Materials: approx. 137 million dollars (down 1.9%)
JX Nippon Mining & Metals Corporation: approx. 125 million dollars (up 59.8%)
Dowa HD: approx. 96 million dollars (up 17.8%)
Mitsui Mining & Smelting: approx. 50 million dollars (up 4.6%)
Nittetsu Mining: approx. 24 million dollars (up 33.1%)
Toho Zinc: approx. 20 million dollars (up 153%)
Furukawa: approx. 17 million dollars (up 69.4%)
(USD1 = JPY125)

The current exchange rate is USD1= JPY125; in 2011 it once reached USD1= JPY75, a devaluation of more than 60%.

On August 10, the Ministry of Finance of Japan announced that the current account surplus for Japan was 8,183.5 billion yen in the first half of this year, the largest after the Great East Japan Earthquake, which caused the trade deficit, to significantly reduce to 422 billion yen.

The weaker yen that resulted from quantitative easing, which the Bank of Japan is adopting to raise Japan consumer prices to realize an inflation rate of about 2%, improved the trade balance of exporting companies in Japan.

However, let’s not forget that this is a policy that has a risk of hyperinflation.

The debt of the Japanese government has already exceeded 1,000 trillion yen.

Slight Increase in Exports of Semiconductor Materials from Japan

According to the announcement made by the Japan Society of Newer Metals on their website on December 10th, in the first half of fiscal 2014 (April to September 2014), the shipment value of compound semiconductor materials reached 15.7 billion Japanase yen(approx. USD157 million), 105% up from the previous fiscal year (15 billion yen in the same period in the previous year).

As the readers know very well, a semiconductor is a material that can be an insulator or conductor depending on conditions; therefore, semiconductors are used as materials for many electronic devices, being indispensable to modern technology.
The representative ones are Si, Ge, etc., as single materials, and GaAs, GaP, InP, GeN, CdTe, ZnSe, CdS, GaN, SiC, SiGe, CdZnTe, PbSnTe, HgCdTe, GaAlAs, InGaAs, etc., as compound materials.
GaAs, which counts for the largest market as a compound, is more expensive than Si, features high electron mobility, high-speed operation function, and reduced electric power consumption.
It is used for red LEDs, mobile phones, lasers, etc.

Recently, while exports have kept increasing, the Japanese market has been contracting, and the same tendency continued in the first half of fiscal 2014 (combining domestic sales and exports, the total amount is the same level as the previous year).
The market conditions for the raw material gallium are weak, and we have recently received fewer new inquiries.
Meanwhile, our domestic sales and exports of the other main compound semiconductor raw materials, GaP and InP, have increased.

Slight Increase in Exports of Semiconductor Materials from Japan

According to the announcement made by the Japan Society of Newer Metals on their website on December 10th, in the first half of fiscal 2014 (April to September 2014), the shipment value of compound semiconductor materials reached 15.7 billion Japanase yen(approx. USD157 million), 105% up from the previous fiscal year (15 billion yen in the same period in the previous year).

As the readers know very well, a semiconductor is a material that can be an insulator or conductor depending on conditions; therefore, semiconductors are used as materials for many electronic devices, being indispensable to modern technology.
The representative ones are Si, Ge, etc., as single materials, and GaAs, GaP, InP, GeN, CdTe, ZnSe, CdS, GaN, SiC, SiGe, CdZnTe, PbSnTe, HgCdTe, GaAlAs, InGaAs, etc., as compound materials.
GaAs, which counts for the largest market as a compound, is more expensive than Si, features high electron mobility, high-speed operation function, and reduced electric power consumption.
It is used for red LEDs, mobile phones, lasers, etc.

Recently, while exports have kept increasing, the Japanese market has been contracting, and the same tendency continued in the first half of fiscal 2014 (combining domestic sales and exports, the total amount is the same level as the previous year).
The market conditions for the raw material gallium are weak, and we have recently received fewer new inquiries.
Meanwhile, our domestic sales and exports of the other main compound semiconductor raw materials, GaP and InP, have increased.

New Japan Chemical Co., Ltd. Stops Production of Cyclohexylamine

On November 5th, New Japan Chemical announced on its website it had stopped the production and sale of cyclohexylamine and dicyclohexylamine.

Cyclohexylamine is a benzene derivative used mainly for rubber chemicals; however, as domestic demand decreased rapidly after the Great East Japan Earthquake, New Japan Chemical’s board of directors decided it was difficult to improve profitability while competing against imported products.
As this company is the sole producer in Japan, in the future, Japanese users will be forced to buy imported products (from Germany, Taiwan, etc.).

New Japan Chemical Co., Ltd. Stops Production of Cyclohexylamine

On November 5th, New Japan Chemical announced on its website it had stopped the production and sale of cyclohexylamine and dicyclohexylamine.

Cyclohexylamine is a benzene derivative used mainly for rubber chemicals; however, as domestic demand decreased rapidly after the Great East Japan Earthquake, New Japan Chemical’s board of directors decided it was difficult to improve profitability while competing against imported products.
As this company is the sole producer in Japan, in the future, Japanese users will be forced to buy imported products (from Germany, Taiwan, etc.).

The Furukawa Battery Developed Paper Air Battery

The Furukawa Battery Co., Ltd. announced on August 29th, “the company is launching an emergency magnesium air battery in a paper container in December this year”.

A magnesium air battery is a kind of fuel battery that uses metallic magnesium on the negative side, aerial oxygen on the positive side, and salt solution as an electrolytic solution.

The Furukawa Battery was established by spinning off the battery section of Furukawa Electric Co., Ltd. in 1950.
Its factory is located in Fukushima Prefecture, the area struck by the Great East Japan Earthquake.
Based on its experience during the earthquake, the company successfully developed the world’s first emergency magnesium air battery in a paper container.
The battery can generate electricity only by adding water or sea water (the maximum power generation time is 5 days) and it can charge a smartphone up to 30 times.

Human beings may sometimes be foolish but are gradually evolving.

The Furukawa Battery Developed Paper Air Battery

The Furukawa Battery Co., Ltd. announced on August 29th, “the company is launching an emergency magnesium air battery in a paper container in December this year”.

A magnesium air battery is a kind of fuel battery that uses metallic magnesium on the negative side, aerial oxygen on the positive side, and salt solution as an electrolytic solution.

The Furukawa Battery was established by spinning off the battery section of Furukawa Electric Co., Ltd. in 1950.
Its factory is located in Fukushima Prefecture, the area struck by the Great East Japan Earthquake.
Based on its experience during the earthquake, the company successfully developed the world’s first emergency magnesium air battery in a paper container.
The battery can generate electricity only by adding water or sea water (the maximum power generation time is 5 days) and it can charge a smartphone up to 30 times.

Human beings may sometimes be foolish but are gradually evolving.

Financial Results of Chemical Companies in Japan (2014.4-6)

Sales and operating profit of each company are as follows:

 Shin-Etsu ChemicalMitsubishi Chemical HD Asahi KaseiSumitomo ChemicalMitsui ChemicalsTosoh
Sales Q1 USD2.95BUSD8.11BUSD4.47BUSD5.57BUSD3.89BUSD1.78B
Profit Q1USD486MUSD295MUSD266MUSD191MUSD104MUSD51M

Sources: Website of each company

Remarks:
1) Calculated by using exchange rate of USD1.00 = JPY100
2) Profit is operating profit before interest and taxes.

Financial Results of Chemical Companies in Japan (2014.4-6)

Sales and operating profit of each company are as follows:

 Shin-Etsu ChemicalMitsubishi Chemical HD Asahi KaseiSumitomo ChemicalMitsui ChemicalsTosoh
Sales Q1 USD2.95BUSD8.11BUSD4.47BUSD5.57BUSD3.89BUSD1.78B
Profit Q1USD486MUSD295MUSD266MUSD191MUSD104MUSD51M

Sources: Website of each company

Remarks:
1) Calculated by using exchange rate of USD1.00 = JPY100
2) Profit is operating profit before interest and taxes.

Steel Price agreed to Reduce

According to the Nikkei Newspaper on August 21, Toyota Motor Corporation, Nippon Steel & Sumitomo Metal Corporation and other major steel companies agreed to reduce the steel sheet price by a little less than JPY3,000 (approx. USD30) per ton (a little less than 3%) for the April–September period in 2014.

The fall in the price of iron ore, the raw material for steel (USD170 per ton in 2011, down to less than USD100 now), and coal (USD130 per ton in 2008, down to less than USD80 now) are in the background to this decision.
The agreed price will be applied to products shipped in April and already delivered.

This is a common practice in Japan, but is it practiced in other countries as well?

Steel Price agreed to Reduce

According to the Nikkei Newspaper on August 21, Toyota Motor Corporation, Nippon Steel & Sumitomo Metal Corporation and other major steel companies agreed to reduce the steel sheet price by a little less than JPY3,000 (approx. USD30) per ton (a little less than 3%) for the April–September period in 2014.

The fall in the price of iron ore, the raw material for steel (USD170 per ton in 2011, down to less than USD100 now), and coal (USD130 per ton in 2008, down to less than USD80 now) are in the background to this decision.
The agreed price will be applied to products shipped in April and already delivered.

This is a common practice in Japan, but is it practiced in other countries as well?

Caustic Soda Price Increased in Japan

According to the Nikkei Newspaper on July 7, “the domestic price of caustic soda in Japan increased.
Paper companies, which are large consumers, began to accept higher price one and a half years after the first announcement of a price increase by manufacturers”.

Caustic soda is produced together with chlorine by electrolyzing saline water in the electrolytic soda industry and is used as alkali in wide a range of applications.
This news may surprise some people who are not familiar with the Japanese market, because the current international price of caustic soda is in a downward trend rather than increasing.

The price of caustic soda, whose unit price is inexpensive, can easily fluctuate merely because of domestic affairs since imported caustic soda cannot compete against the domestic product due to the import costs.
Electricity costs have been rising because of the shutdown of nuclear reactors after the Great East Japan Earthquake, and fuel prices have increased, caused by the weaker Japanese Yen: increased costs are finally reflected in the price of caustic soda several years down the line.

Caustic Soda Price Increased in Japan

According to the Nikkei Newspaper on July 7, “the domestic price of caustic soda in Japan increased.
Paper companies, which are large consumers, began to accept higher price one and a half years after the first announcement of a price increase by manufacturers”.

Caustic soda is produced together with chlorine by electrolyzing saline water in the electrolytic soda industry and is used as alkali in wide a range of applications.
This news may surprise some people who are not familiar with the Japanese market, because the current international price of caustic soda is in a downward trend rather than increasing.

The price of caustic soda, whose unit price is inexpensive, can easily fluctuate merely because of domestic affairs since imported caustic soda cannot compete against the domestic product due to the import costs.
Electricity costs have been rising because of the shutdown of nuclear reactors after the Great East Japan Earthquake, and fuel prices have increased, caused by the weaker Japanese Yen: increased costs are finally reflected in the price of caustic soda several years down the line.

Strong Demand for ABS Resin

Japan ABS Resin Industry Association announced that the ABS shipping volume in May rose 5% year-over-year to 28,652 tons. While the domestic shipment was strong with a 10% increase, exports fell 3% from the previous year.
ABS Resin is a plastic made from A (Acrylonitrile), B (Butadiene) and S (Styrene): ABS stands for their initials. It has excellent shock resistance, formability and hardness and is used to manufacture home appliances and car components.
Although domestic shipments increased for 9 consecutive months, exports dropped below 10,000 tons for the first time in the 4 months since January; its future development is a concern.

Strong Demand for ABS Resin

Japan ABS Resin Industry Association announced that the ABS shipping volume in May rose 5% year-over-year to 28,652 tons. While the domestic shipment was strong with a 10% increase, exports fell 3% from the previous year.
ABS Resin is a plastic made from A (Acrylonitrile), B (Butadiene) and S (Styrene): ABS stands for their initials. It has excellent shock resistance, formability and hardness and is used to manufacture home appliances and car components.
Although domestic shipments increased for 9 consecutive months, exports dropped below 10,000 tons for the first time in the 4 months since January; its future development is a concern.

Monoethylene Glycol (MEG) Market Rebound

According to The Chemical Daily on June 9, the Asian market of Monoethylene Glycol has bounced back from less than USD900 per ton to close to USD1,000.
MEG is a colorless, odorless liquid, mainly used as raw material of PET resin. As it dissolves in water, has relatively low toxicity and a low melting point, it is used for an anti-freezing solution in cars as well.
A speculation of a downturn in supply from major manufacturers is emerging, so the prices have been sharply recovering since late May.

Monoethylene Glycol (MEG) Market Rebound

According to The Chemical Daily on June 9, the Asian market of Monoethylene Glycol has bounced back from less than USD900 per ton to close to USD1,000.
MEG is a colorless, odorless liquid, mainly used as raw material of PET resin. As it dissolves in water, has relatively low toxicity and a low melting point, it is used for an anti-freezing solution in cars as well.
A speculation of a downturn in supply from major manufacturers is emerging, so the prices have been sharply recovering since late May.

Paraxylene Production Decrease

A Nikkei Newspaper article dated May 28th says that, “Price of paraxylene has dropped to USD1,200 to USD1,250 per ton and JX Nippon Oil and Energy, the top producer in Asia has further significantly decreased its production”.

While the production capacity reduction in March and April were 20% and 30% respectively, and from May, it has decreased by 50% partially due to regular plant repair.

Paraxylene is a clear and colorless liquid and a raw material of purified terephthalic acid (PTA), which is used for polyester fiber and PET resin.

Behind the significant production decrease, there is a severe condition of stagnant shipping due to an unsettled negotiation with heavy consumers in Asia.

The market of PTA, which is as a derivative of paraxylene, is suffering an excess in supply due to the recent increase in production capacity, and that is leading a sharp decrease in demand for paraxylene as its raw material.

I have heard this similar story before…

Paraxylene Production Decrease

A Nikkei Newspaper article dated May 28th says that, “Price of paraxylene has dropped to USD1,200 to USD1,250 per ton and JX Nippon Oil and Energy, the top producer in Asia has further significantly decreased its production”.

While the production capacity reduction in March and April were 20% and 30% respectively, and from May, it has decreased by 50% partially due to regular plant repair.

Paraxylene is a clear and colorless liquid and a raw material of purified terephthalic acid (PTA), which is used for polyester fiber and PET resin.

Behind the significant production decrease, there is a severe condition of stagnant shipping due to an unsettled negotiation with heavy consumers in Asia.

The market of PTA, which is as a derivative of paraxylene, is suffering an excess in supply due to the recent increase in production capacity, and that is leading a sharp decrease in demand for paraxylene as its raw material.

I have heard this similar story before…