INVESTORS

Review of Operations: Chlor-alkali Group


Forward-Looking Statements: Annual reports contain estimates, projections, and other forward-looking statements, which are subject to unforeseeable risks and uncertainties. Readers should understand that Tosoh’s business and financial results could differ significantly from management’s estimates and projections.

For reference purposes only, US dollar amounts have been translated, unless otherwise indicated, from yen at the rate of ¥112.68 = US$1, the prevailing exchange rate at the end of the fiscal year under review.

Tosoh Corporation’s 2016 fiscal year covers the period from April 1, 2015, to March 31, 2016.

 

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The Chlor-alkali Group operates the largest fully integrated manufacturing capacities of their kind for chemical commodities in Asia and supplies the worldwide chlor-alkali industry with raw materials for a vast range of products. It is well positioned to take advantage of opportunities, especially in Asia’s expanding markets.

The group’s main products are caustic soda, chlorine, vinyl chloride monomer (VCM), polyvinyl chloride (PVC) resins, calcium hypochlorite, sodium bicarbonate, methylene diphenyl diisocyanate (MDI), toluene diisocyanate (TDI), hexamethylene diisocyanate (HDI), and functional urethanes. It sells these raw materials to external customers and furnishes them as feedstock to Tosoh’s fully integrated vinyl isocyanate chain, which yields the company’s commodity and many specialty products.

The group’s Urethane Division, established in fiscal 2015, oversees the production of MDI, an important raw material for polyurethane and a fine chemical with multiple uses in organic synthesis. MDI also offers attractive marketing synergies with Tosoh’s diverse product lines, including organic synthesis compounds, polyurethane catalysts, and specialty polymers. TDI, too, serves myriad applications, many similar to those served by MDI. And HDI is a higher-value-added product with applications in high-performance paints and other specialty polymers.

The Chlor-alkali Group’s chemical commodities business is thriving in tandem with the growth of economies worldwide and despite constantly changing shipment volumes and prices as supply and demand fluctuate. The group has the know-how and systems to optimize its production mix to match circumstances and to enable Tosoh to compete globally in chlor-alkali.

The group also oversees Tosoh’s cement operations, which use waste and coal ash, slag, and other by-products from Tosoh’s operations and elsewhere. That valuable contribution to recycling also occasions a considerable reduction in the cost of manufacturing cement. The entire cement output is then consigned for sale by Taiheiyo Cement Corporation, Japan’s largest cement manufacturer.

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Group Performance and Markets

Tosoh fiscal 2016 Chlor-alkali figures

Improved Profitability

Chlor-alkali Group net sales decreased 4.9%, to ¥279.8 billion (US$2.5 billion), in fiscal 2016. That represented 37.1% of Tosoh’s consolidated net sales, up from 36.4% a year earlier. Operating income improved 116.2%, to ¥18.0 billion (US$159.6 million), and contributed 25.9% of consolidated operating income. The operating margin was 6.4%, compared with 2.8% in fiscal 2015.

Shipments of caustic soda increased on the higher production volume ensuing from a rise in the operating rate of electrolysis equipment. Domestic caustic soda product prices declined slightly, however, while export prices improved owing to the weak yen. Shipments of VCM and PVC rose given a boost in VCM production capacity in fall 2014. But VCM and PVC product prices fell, largely because of a decline in the price of naphtha. Cement shipments in Japan decreased on account of falling demand. But cement exports increased. Shipments of urethane raw materials were down as a result of a slowdown in China’s economy and softening demand overseas markets.

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Developments

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Strategies and Outlook

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Medium-term Business Plan