The Japanese industrial gas industry is moving steadily along. Nevertheless, the financial uncertainty sparked by the subprime problem which occurred in the US last autumn has certainly had an effect on the Japanese economy. The Japanese stock exchange fell by an average of 30% and the bottom is not yet in sight. Production in the electronics, oil, optical fibre, steel, shipbuilding, and chemical industries, which are the major users of industrial gases, had not fallen off as of March of this year. The uncertainty in financial circles, the soaring prices of crude oil and materials, along with the plunge in the stock market however, has not been without an adverse effect on corporate business results.
Forecasts call for negative figures regarding profit in the March 2009 term for the steel, chemical, and automotive sectors. Nevertheless, the level of production has not decreased to the extent that the industrial gas consumption has been affected. This is a trend which could clearly be seen as of the period ending March this year.
As a vivid expression of this, the business results of the two major Japanese industrial gas firms, Taiyo Nippon Sanso and Air Water, are both expected to show increased earnings and profit. Although there has not yet been a formal announcement, sales of Taiyo Nippon Sanso are expected to amount to ¥497bn, with ordinary profit of ¥39.2bn, while Air Water is expected to show sales of ¥425bn, with ordinary profit of ¥27.5bn, progressing according to plan. All of the major companies can be said to have had an extremely solid year and while the industrial gas industry is of course affected by capital investment and the level of production of the users, at present capital investment in the electronics and machinery sectors has not slackened.
At the Sharp plant in Sakai, Osaka Prefecture, which will be one of the world’s largest production bases for LCD’s and photovoltaic (PV) modules, the initial investment for the gas facilities amounts to ¥30bn and this should finally reach over ¥60bn. It is said that the consumption of gas may eventually reach 200,000 m3/h for nitrogen, 10,000 m3/h for oxygen, and 1.2 million m3/h for dry air. Taiyo Nippon Sanso and Air Water have established a joint venture called Sakai Gas Centre to supply oxygen, nitrogen, helium, argon, and dry air. In terms of specialty gas, by 2012 Taiyo Nippon Sanso will supply an annual quantity of 200-300 tonnes of silane, and 400-500 tonnes of NF3.
Plans call for Iwatani International to supply liquid hydrogen, for a monthly helium consumption of nearly 300,000 m3 and in addition to this, IPS Alpha Technology (a joint venture company of Matsushita Plasma Display, Hitachi and others for the production of LCD) will construct the new LCD plant in Himeji, Hyogo Prefecture. For semiconductors, Toshiba plans to construct new flash memory plants in Yokkaichi, Mie Prefecture, and Kitakami, Iwate Prefecture. This is all there is for major investment at this point. The solar cell sector is also very active. In addition to the Sharp plant for producing PV module also in Sakai, Kyocera at Yokaichi, Shiga Prefecture, Sanyo Electric at Nishikinohama, Osaka Prefecture and Kaneka Solar Tech at Toyooka, Hyogo Prefecture are all planed for expansion.
Due to all of this, the demand for gas is expected to be very solid. Because of a vigorous demand, 2007 could indeed be characterised as having fallen into an overall shortage in supply. For helium, argon, and xenon in particular, rather than being in short supply, they have fallen into a situation whereby there is simply not enough gas in some areas. The scramble to get hold of gas continues. Helium and xenon especially, which are imported products, are greatly dependant on the situation overseas, while up until now, xenon plants in Japan have been small in scale – with costs being high. Due to the rise in the price of the imported product, Taiyo Nippon Sanso and Air Water plan to undertake operation of xenon plants in Japan.
Helium has some difficulty to cope with the demand raised by new users and argon is increasing in demand for use with silicon wafers. For monosilicon, Sumco and Shin-Etsu Handotai consume the huge volume of 1 million m3 per plant. Growth is forecast due to expansion and the construction of new facilities for 300mm line.
The outlook from April forward
With the rise in the prices of fuel, materials, non-ferrous metals, and coal, it is expected that the profits of gas companies for 2009 will not continue in the fashion as expected for 2008. Because of this, companies have been raising their gas prices by around 10-15% and whether this price correction succeeds or not will affect business results.
In Japan, users in the steel, electronics, and automotive sectors are global companies, strongly positioned in terms of scale and competiveness, so it is likely to be hard for the price hike to permeate throughout these areas. Still, through reorganisation, the number of industrial gas companies has now been consolidated into just four, with competition not as sharp as it had been in the past, permeation has become easier than before.
Furthermore, cost reduction has become something of an issue this year. Taiyo Nippon Sanso and Air Water have a large onsite business at the steel and chemical companies, and they plan to replace superannuated ASU’s.
If they bring in and implement new energy saving systems, they will not only be able to reduce costs but this will also lead to a reduction of CO2 emissions. As of 2006, major Japanese companies have been obliged to submit reports on CO2 emission to the Ministry of the Environment, needing to comply with the ministry by reducing CO2 emissions based on the use of energy saving plants.
Special features of the Japanese market
Distributors wield immense control. There are over 2,000 distributors in Japan, of which there are around 180 companies with a yearly business of over \\1bn. Of these, there are only 24 companies with a yearly business of over ¥10bn. Sales of all the 24 companies in 2007 came to around ¥560bn, with a growth of 5.4% over the previous year, even including gas, welding machines, and LP gas. Tomoe Shokai is the largest, with annual sales exceeding ¥70bn and positioned extremely strongly in both electronics and chemicals. Even major producers are not able to engage in direct sales to Tomoe Shokai customers.
For Taiyo Nippon Sanso, there are numerous instances where they conduct sales though these distributors, whereas a feature of Air Water is that in numerous cases they engage in direct sales. Distributors with annual sales exceeding ¥10bn are featured by being able to undertake some maintenance and equipment production of their own.
Trends among producers
In March of this year Taiyo Nippon Sanso announced its new midterm management plan and according to this, sales in 2010 will exceed ¥600bn, with operating profit of over ¥54bn.
The company is aiming at capturing 10% of the global market share and in terms of total sales, its overseas ratio was just under 21% in 2006 – but by 2010 is expected to increase to 27.5-28%. During the next 3 years the company plans to make strategic capital investment totaling ¥200bn. Of this, Taiyo Nippon Sanso plan to invest ¥140bn in such growth businesses as electronics and the overseas market. For the overseas market, it is targeting North America, China, and Asia as growth areas. As for recent trends, in September of last year the company signed a contract for its monopolistic industrial gas supply for the Dalian Changxing Island Horbor Industrial Zone. In addition, in November it finished construction of Plant Number 3 at its subsidiary National Oxygen (NOX) in Singapore. In February the company completed construction of Plant Number 2 at its local subsidiary, Ingasco, in the Philippines.
In contrast, Air Water is focusing instead on the domestic market as a growth area. The company has been engaged in the chemical products business for a long time now, striving for growth in this area and in 2002 acquired chemical producer Sumikin Chemical, a chemical company which was a group company of Sumitomo Metals. Sales at the time of start-up amounted to ¥25bn, with ordinary profit of ¥500m. This has dramatically risen to sales of ¥70bn and ordinary profit of ¥6bn, while in addition, the company anticipates growth in its NV business which involves nitriding treatment for metal surfaces. Last year it acquired the leading common salt producer Nihon Kaisui, drawing it into its orbit, and is focusing on the creation of new business.
As for what the company has been doing recently, Air Water is continuing to operate its plant division at full capacity including an order obtained for a large plant for Sumitomo Metals. As a result of this, it has installed a new production centre for plant engineering, which is the manufacturing arm of the Air Water Group, on the premises of the Kobe Steel plant in Harima, striving to double its production capacity.
Although Iwatani International anticipates sales of just over ¥710bn for 2008, the ratio accounted for by LP gas is very high, while sales of industrial gas amount to just over ¥150bn putting it in 3rd or 4th place along with Japan Air Gases (JAG). The company plans to expand, with liquid hydrogen as its main business and announced that it will construct its second liquid hydrogen plant in Chiba Prefecture, in the Kanto Area of Eastern Japan, following Hydro-Edge (the first liquid hydrogen plant in Japan) located in Osaka Prefecture, in the Kansai Area of Western Japan.
JAG recorded sales of just over ¥126bn in 2006, but as of December 2007 anticipated that it would have an increase in earnings of 7-8%.
According to Benoit Potier, Chairman and CEO of Air Liquide, stating at a press conference held in Japan in October last year, for the Japanese market the company is placing its hopes especially on growth in large industry and healthcare. It will also pursue all M&A opportunities and not only that, but is also aiming at increasing its presence by pursuing various partnerships with high tech companies.
As for recent investment, in 2008 Air Liquide will put a liquid oxygen and liquid nitrogen plant with a capacity of 5,000 Nm3/h into operation at a location adjacent to the Asahi Techno Glass plant in Shizuoka Prefecture. In addition, with an investment of ¥2.4bn, the French gases giant will construct a new electronics specialty gas plant in Harima, Hyogo Prefecture, which will be its third production base in Japan. The plant is scheduled to go into operation in July of this year.