Interview with Kenichi Udagawa, the president of Tosoh Corporation:

“Aiming to be a highly individualistic chemical manufacturer”

Japanese Page

There is a trend toward earnings recovery and brighter prospects in the chemical industry. Tosoh Corporation’s fiscal year 2014 first-half settlement of accounts produced better results than expected. In keeping with its slogan of “being a hybrid company,” Tosoh holds to a strategy that involves maintaining a balance between commodities and specialty products while pursuing expansion. Company president Kenichi Udagawa explains the aim: “To compete on a global scale, earning capacity is important. We aim for a current profit margin of 10%.”

Q: In the interim settlement of accounts for fiscal 2014, sales and profits in each division exceeded expectations. You therefore revised upward your estimates for the full financial year. Net sales are estimated to increase 12% over the previous year’s figure, to ¥750 billion, and net profit is anticipated to increase 54%, to ¥26 billion—a good performance. What is your management policy for the future?


A: Putting aside the question of whether or not this can be called a good performance, we would like to achieve at least the expected, publicly announced figures. Some time ago, Tosoh established the goal of becoming a “hybrid company.” There will be no change in our management policy of maintaining a good balance between our chlor-alkali and petrochemical commodities businesses and our specialty products businesses. We do, however, also intend to focus on expanding our specialty products operations.


We have set the goal of a consolidated current profit margin of 5% at the worst. But to compete globally, we intend to set our recurring profit margin goal at 10%.

Q: What is required for the expansion of your specialty products operations?


A: To start with, the expansion of our specialty products business involves increasing the production capacity of our manufacturing operations, high-silica zeolites being a prime example. Regulations on automobile exhaust gases are being tightened in Japan and the United States and in many European countries. The resulting growth in the market for catalysts to process car exhaust gases has pushed us to increase our zeolite production capacity.
In March 2013, we raised our production capacity at the Yokkaichi Complex with the completion of expanded zeolite facilities there. And we are doing the same at the Nanyo Complex, where construction of expanded facilities is expected to be completed in September 2014.

Along with production capacity expansion, the establishment of new operations is also necessary. An example is our development of a unique procedure to synthesize chemical manganese oxide (CMO). Compared with conventional manganese dioxides, CMO has high purity and uniform particle size. So we are marketing it as a raw material for positive electrode materials for next-generation lithium-ion rechargeable batteries. To produce CMO, Tosoh Group company Tosoh Hyuga completed the construction of a new factory in March 2013 where it intends to start commercial CMO production within fiscal 2014.

We have also decided to build new production facilities in fields related to electronics materials, particularly sputtering targets. This is to respond to growing demand for the next-generation of large-sized wafers, which are essential in the production of semiconductors.

And we are adding new items to our bioscience product lineup. These include high-performance separation materials and diagnostic reagents. We intend on expanding the sales of our bioscience offerings domestically and internationally while also working to launch new diagnostic instruments using the principles of liquid chromatography.

Q: You slate earnings recovery as one of your management issues. In addition to the expansion of your specialty products operations, you have mentioned turning the cash flow of Nippon Polyurethane Industry positive. You also state a desire to reduce Tosoh’s ethyleneamine deficit and to, as a result, raise your profits. Have you made a decision concerning ethyleneamines?


A: Several of our competitors have been steadily expanding their ethyleneamines facilities since 2010, such that the supply-demand balance has been seriously disturbed. We think that the oversupply of low amines in particular, which have a low molecular mass, is likely to continue for some time. In response, we decided to abolish the No. 1 of three production lines at the Nanyo Complex because it produced a high proportion of low amines. We will increase our production and sales of high amines. By optimally adjusting sales prices, we hope to improve our earnings capacity in ethyleneamines.

We are, meanwhile, constructing a manufacturing facility on the former site of the Nanyo Complex’s No. 1 ethyleneamine line to produce an emission-free reactive amine catalyst for polyurethane (PU) foam, that we call Rzeta. Rzeta is a proprietary catalyst technology that is eco-friendly and that ensures advanced functionality. Our plan to start selling Rzeta in fiscal 2015 will grant us an extensive range of high-performance amine products.

Q: Please tell us your thoughts on making Japan Polyurethane Industries profitable and in regard to your chlor-alkali operations.


A: We are making efforts to reduce variable and fixed costs at Japan Polyurethane Industries. And we are steadily moving toward a better balance in the supply and demand trends for that company’s products following the low in 2009. The continuing low yen, meanwhile, is likewise positive. Various rival companies, however, plan to increase their production capacities, so we expect competition to intensify. We are convinced that we need to respond rapidly to changes in the business environment and began early to prepare for amalgamating NPU with Tosoh in October 2014.

In our chlor-alkali operations, we seek to maintain a fine balance between our production capacities for vinyl chloride monomers (VCM) and for polyvinyl chloride (PVC). We are proceeding with a plan to increase our VCM production capacity at the Nanyo Complex to 200,000 metric tons a year. After the planned completion of the plant there in October 2014, our supply of VCM to PVC manufacturing and sales companies in Japan and abroad will be more stable. Also, by increasing the operation of our electrolyzing equipment to ensure reserve capacity our production of caustic soda will increase, which, in turn, will result in expanded sales.

Q: How do you see the future of your petrochemicals business, centered on your Yokkaichi Complex?


A: Yokkaichi is an area where we only have one plant at the Yokkaichi Complex that is cracking naphtha. By utilizing Tosoh’s characteristic strength of buying ethylene in large quantities, our plant is maintained at a high rate of operation. In other areas where, unlike in Yokkaichi, multiple crackers do not exist, the range of choices does become comparatively limited. We will, however, adjust production and build a sales system that is flexible and can respond to changes in the business environment.

Our derivative products, meanwhile, may continue to face competition from imported products. In response, we propose innovative uses for our polyethylene and functional polymers, such as PPS resin, CR, CSM, vinyl chloride paste, petroleum resin, with a focus on expanding our sales of advanced materials and other specialty products.

Q: What issues lie ahead for you as you approach fiscal 2015?


A: The two main ones are advancing our safety reforms and expanding our earnings capacity. We believe that safety is the basic premise for a corporation’s continued survival. We have declared safety reforms to be the No. 1 issue to tackle and have urged all our employees to make efforts to establish and maintain safe, steady operations. We aim to be a chemical manufacturer imbued with safety. We also aim to further improve our profits in fields that are already good earners, such as bioscience, high-silica zeolites, functional polymers, and so on, and to expand our operations overall.

I believe that unclear conditions in the domestic and global economies will continue for some time. I also believe that for our company to survive and thrive amid international competition, we must improve our profitability by skillfully maintaining a balance between commodities and specialties by responding to conditions as necessary. We aim to be a highly individualistic chemical manufacturer.