Strengthening of petrochemical operations in Japan

February 25, 2014
Asahi Kasei Corp.
Asahi Kasei Chemicals Corp.
Asahi Kasei E-materials Corp.

Asahi Kasei Corp., Asahi Kasei Chemicals Corp., and Asahi Kasei E-materials Corp. have made a decision to strengthen their petrochemical operations in Japan as described below.

1. Background

Having identified acrylonitrile (AN) and solution-polymerized styrene-butadiene rubber (S-SBR) for fuel-efficient tires as world-leading businesses in its strategic management initiative “For Tomorrow 2015,” the Asahi Kasei Group is proactively expanding production capacity for these products overseas, mainly in Asia.

In contrast, the operating climate in the domestic Japanese petrochemical market is expected to be increasingly challenging, with contracting demand and increasingly severe competition from low-priced imports. Based on careful study of how to best realign operations in such a climate, it was determined that the following measures would establish the optimum production configuration from feedstock to derivatives in balance with domestic demand in order to heighten competitiveness and ensure a stable earnings base.

2. Outline of the measures to strengthen operations

1) Unification of naphtha cracker facilities in Mizushima, Japan

The naphtha crackers of Asahi Kasei Chemicals and Mitsubishi Chemical Corp. in Mizushima are scheduled for unification on the Mitsubishi Chemical facility in April 2016, in order to establish the optimum production configuration. For further information, please refer to the press release “Basic agreement on unification of naphtha cracker facilities in Mizushima,” dated February 25, 2014.

2) AN business

Asahi Kasei Chemicals currently has AN production capacity of 1,210,000 tons/year at four locations. Capacity in Japan is 450,000 tons/year, with one plant in Kawasaki (150,000 tons/year) and two plants in Mizushima (100,000 tons/year and 200,000 tons/year). Overseas capacity is 760,000 tons/year (560,000 tons/year in Korea and 200,000 tons/year in Thailand).

In light of the challenging operating climate of recent years, including sluggish market prices due to deterioration of the supply-demand balance, rising feedstock prices, etc., the decision was made for closure of the AN plant in Kawasaki in August 2014. In addition, the 100,000 ton/year AN plant in Mizushima, currently used to produce another product as well, will be dedicated to the production of the other product, resulting in AN production concentrated on the most cost-competitive facilities at three sites. This realignment will further enhance competitiveness by engendering supply more clearly focused by geographic area, with production in Mizushima focused on the market in Japan, production in Korea focused on the market in Korea, China, and Taiwan, and production in Thailand focused on the market in ASEAN countries.

3) Styrene business

Asahi Kasei Chemicals currently has styrene production capacity of 710,000 tons/year at two plants in Mizushima (320,000 tons/year and 390,000 tons/year) and has supplied styrene to the market in Japan as well as exported to Asian countries.

A deterioration in the supply-demand balance is expected, as the expansion and construction of large-scale plants in Asia are planned. The decision was therefore made for closure of the older, 320,000 ton/year plant in Mizushima in March 2016, and focus on the domestic Japanese market and in-house consumption. This renewed focus will reduce risks associated with fluctuations in the Asian market price, enabling earnings to be stabilized.

4) Stylac™ acrylonitrile-butadiene-styrene (ABS) business

The business will be transformed into one focused on resin compounds of styrene-acrylonitrile (SAN) produced by Asahi Kasei Chemicals in Kawasaki with ABS copolymer procured from outside, with the closure of the 65,000 ton/year ABS plant in Mizushima in December 2015. This transformation will enable improved earnings by focusing on the supply of compounds of ABS and highly differentiated SAN utilizing compounding facilities in Japan and other countries.

5) Styrene-butadiene latex (SB latex) business

Asahi Kasei Chemicals currently has SB latex production capacity of 60,000 tons/year at two plants in Japan (a 36,000 ton/year plant in Kawasaki and a 24,000 ton/year plant in Mizushima). SB latex production will be concentrated on the plant in Kawasaki, with the closure of the SB latex plant in Mizushima in December 2015. Together with further advancement of high-value added products, this concentration will enable improved earnings by reducing fixed costs and increasing production efficiency.

6) Epoxy resin business

The epoxy resin business of Asahi Kasei E-materials will be realigned to focus on high-value added products with the closure of the 37,000 ton/year epoxy resin plant in Mizushima in May 2015. This realignment will enable improved earnings by focusing on high-value added products such as Novacure™ latent curing agent for epoxy resin manufactured at a plant in Fuji.

3. Impact on financial performance

In relation to the measures to strengthen operations described above, Asahi Kasei plans to record an extraordinary loss of ¥18.0 billion for consolidated results for the fourth quarter of fiscal 2013 (January 1 to March 31, 2014). As a result, the forecast for consolidated net income for fiscal 2013 announced on February 5, 2014, has been revised downward by ¥12.0 billion to ¥65.0 billion. There is no change in the year-end dividend forecast of ¥8 per share (an increase of ¥1 per share from the previous year, for a total annual dividend of ¥15 per share) which was announced on February 5, 2014.


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