Japan: materials sector struggles with rising costs

Materials industries such as petrochemicals, plastics and glass have faced a dilemma for some time now: while they have been pressured by rising raw material prices, the fiercely competitive market ha…

Materials industries such as petrochemicals, plastics and glass have faced a dilemma for some time now: while they have been pressured by rising raw material prices, the fiercely competitive market has not allowed them to charge more for their products. As a result, a number of Japanese materials firms have seen their earnings fall and have been forced to cut output. Some have even closed production facilities. The Bank of Japan said in a preliminary report on 10 July 2008 that its corporate goods price index, an index of the costs of deals between companies, rose 5.6% in June from a year earlier, the sharpest rise since February 1981, when the index soared 5.7% after the 1979 oil crisis. The central bank cited price hikes for petroleum and other key materials as the major reason for the increase. While many of the nation“s leading materials industries are doing their utmost to be more internationally competitive by improving the quality of their products, the obstacles facing the materials industries pose a serious threat to one of the country“s key industrial sectors. As well as prices for petrochemical products, those of soda ash, natural gas and paper pulp have risen, resulting in production cuts and the scrapping of facilities by firms including Nippon Paper Industries Co. and Asahi Glass Co. Major petrochemical companies, however, have been increasing their investment for high-end plastic resins used to make such products as parts for vehicles and personal computers, a decision that reflects the firms“ intention to focus on products that are internationally competitive. Mitsubishi Chemical Holdings Corp., the holding company of Mitsubishi Chemical, said it plans to boost its capacity investment for three years from fiscal 2008 to JPY 590 billion, 1.4 times higher than in the past three years. The company said it will invest more in high-end goods such as liquid crystal display film and less in multipurpose products such as textiles. Since business trends in the materials industries impact on the performance of the national economy, moves by materials firms will likely continue to draw much attention.