Page 136 - CW E-Magazine (17-10-2023)

Point of View

finding its way to Asia (including to India and South Korea), and is a competitive feedstock with cost economics significantly better than
that of naphtha crackers. Furthermore, not much rationalisation of cracker capacity is expected in Japan in the near-term, which implies
operating rates will continue to be under pressure.

Priorities for the next decade
The industry has identified certain priorities for the decade ahead and these include a ‘greening’ of the industry to make it
carbon-neutral and by closing material loops; optimisation of production capacity through portfolio shifts and geographical diversifications;
and deploying digitalisation strategies to improve efficiencies.

Japan’s petrochemical industry is targeting carbon-neutrality by 2050, and is eyeing innovative production technologies and shifting
to non-fossil energy where possible. Some Japanese crackers, for example, have started to use bio-based naphtha to produce bio-olefins
(allocated on a mass balance basis). The volumes are still small, but expected to grow, both to meet the ‘net-zero’ commitments, as also
as a means to stand out from the competition.

There is a strong focus is on recycling – a task made somewhat easier by Japanese society’s discipline and eye for detail. The country
has a well laid out infrastructure for collection and sorting of waste plastics, and collection rates are already in excess of 90% (recycling
rates are lower). As elsewhere in the world, much of this is in partnership with other stakeholders, both inside and outside of the industry.

The need to rejig the industry to reflect the new economic realities is well recognised and many companies are now eyeing
rationalisation of production capacity individually and collectively, as well as vertical and horizontal collaborations involving upstream
and downstream industries. The aim is to benefit from economies of scale, superiority in logistics, and improvement in operation rates.

The deployment of digital technologies – big data, artificial intelligence, smart factories, infrastructure for supply chains and machine
learning – to improve operational efficiencies, lower costs, and to obtain better consumer insights, are imperatives. However, the industry’s
classical mindset, rooted in the well-set practices of the past, is seen as a stumbling block.

Portfolio shifts
The most important shift taking place in Japan’s chemical industry is away from local production of energy-intensive commodities,
to instead focus on the global market for high-quality, premium-priced chemicals and synthetic materials.

In 2021, Mitsubishi Chemical Group (MCG), Japan’s largest chemical maker, announced plans to spin off its petrochemical operations
to concentrate on performance chemicals. Ube Industries, has rebranded itself as UBE Corporation, spun off its cement and machinery
businesses, and is rationalising its chemicals business as well. Though it has made caprolactam and ammonia in Japan almost since
its founding, it now plans to stop local production of both in Japan – caprolactam production will be phased out in 2024, while ammonia
output will cease by 2030. The closure of these energy-intensive businesses will allow the company to reduce greenhouse gas emissions
from 4.3-mt in 2021 to 2.4-mt in 2030. Growth is expected to be achieved by a pivot to speciality chemicals and materials, achieved by
investments of $1.1-bn into eight sectors, including fine chemicals, high-performance coatings, engineering plastics composites, and
polyimide.

Venturing overseas
Aside of the portfolio shifts at their manufacturing sites in Japan, several Japanese companies are eyeing opportunities overseas.
The US is a recent favourite – given the energy, feedstock, and infrastructure advantages the country offers, not to mention generous
fiscal support to investors in sectors deemed critical. UBE Corporation, for example, is eying investments in the manufacture of 100-ktpa
of dimethyl carbonate (DMC) and 40-ktpa of ethyl methyl carbonate (EMC), a derivative.

According to McKinsey, Japanese chemical players have been and still are market leaders in certain high value segments. For example,
they have more than 50% of global market share in areas such as polarizers and separators. However, even here their market share is on
the decline – in the former it has dropped by 2.4% CAGR in the past ten years and settled at 45.2%, while in the latter it has dropped by
1.5% CAGR and settled at 44.1%. Although both values are still relatively high, demonstrating Japan’s overall competitive strength, the
drop illustrates the emergence of new entrants gaining share even in niche markets.

Only time will tell whether the pivot Japanese companies are attempting will bear the outcomes expected! Ravi Raghavan

136 Chemical Weekly October 17, 2023

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