Japan Firms Walking Tightrope to Keep Ethylene Plants Running

Tokyo, April 8 (Jiji Press)–Major Japanese chemical makers are working desperately to avoid halting factories for ethylene, a material for plastics and synthetic fibers, amid the ongoing Middle East crisis. Ethylene production facilities take over a month to restart once suspended, so manufacturers are reducing output instead to keep their plants running. They are trying to procure naphtha, a crude oil-based material used in ethylene production, from regions other than the Middle East, while passing on higher costs to prices in order to maintain profitability from continued plant operations. “Having no choice but to stop (production facilities)” would be the worst-case scenario, Koshiro Kudo, chairman of the Japan Petrochemical Industry Association and president of Asahi Kasei Corp., suggested at a press conference March 24. “I think we can manage to make it through April, and each company is working hard to keep operations running until after the (Golden Week) holiday period (from late this month to early May),” he added. Japan was dependent on the Middle East for most of naphtha supplies before the Middle East crisis that started at the end of February with U.S.-Israeli strikes on Iran. Major chemical makers have since diversified procurement, with Mitsui Chemicals Inc. likely able to secure supplies from the United States and Africa and Mitsubishi Chemical Corp. working to clinch a spot contract with an undisclosed party outside the Middle East. The Japanese government said at the end of last month that the country’s total naphtha procurement from sources other than the Middle East is expected to reach 900,000 kiloliters in April, double the usual level. Prime Minister Sanae Takaichi has said that inventories for the material will increase to last over half a year. However, an industry source said that this is only a stopgap measure and that long-term procurement remains a challenge. “The private sector is working hard for naphtha supplies,” another industry source said. There are currently 12 ethylene production facilities in Japan, of which at least six are reducing output. Domestic capacity utilization was low even before the Middle East crisis, at 75.7 pct in February, due to overproduction by Chinese makers. The minimum utilization rate per plant required for stable facility operations is said to be around 60 pct to 70 pct, so there is a limit to further production cuts. Ethylene makers had been planning production facility consolidation with rival companies, aiming to boost the per-plant operating rate by reducing the number of facilities in Japan to eight by around 2030. But the latest crisis has highlighted the industry’s structural weakness before the consolidation plan makes headway. Dealing with higher costs is also a key task for chemical makers. Kudo said that prices of naphtha sourced from outside the Middle East are “significantly higher than expected.” Companies with ethylene production facilities such as Mitsubishi Chemical and Asahi Kasei have announced price hikes, as have Toray Industries Inc. and Shin-Etsu Chemical Co., which produce synthetic fibers and vinyl chloride resin using ethylene. “If we assume the worst-case scenario, we may have no choice but to curb the economy in a planned way,” Toshihiro Nagahama, executive chief economist at Daiichi Life Research Institute Co., said. “Companies should make capital investments to strengthen domestic supply capacity,” such as by switching from petroleum to plant-based ethanol as materials for chemical products, he added. END [Copyright The Jiji Press, Ltd.]