It’s an increasingly busy and dynamic time for business in the North Pacific Rim, with the region’s landscape seemingly changing from month to month. As we traverse the slow and gradual path out of recession, this landscape evolves even further.
At the close of June 2010 for example, China and Taiwan were reported to have signed a historic trade pact which could stimulate bilateral trade, regarded as one of the more significant agreements since civil unrest split the two countries 60 years ago.
It’s a move that could prove an important boost to the export dependent economy of Taiwan and is also seen as epitomising the reduced tension between the two countries.
In a further shot in the arm for the Taiwan market, Air Liquide has recently reaffirmed its belief in this electronics hub and the wider North Pacific region with the signing of over 10 new long-term contracts with photovoltaic (PV) leaders in the area. Deals have been struck with industry leaders in China, Malaysia, Taiwan and Japan, as Air Liquide continues to reinforce its position in the PV field.
It’s a sign of the confidence held in their respective futures as flourishing electronics markets – and in turn, as key consumers of industrial & specialty gases both during and after the global recession. There’s little doubt over the potential for the PV and broader electronic business, and it seems that the manufacturing sector is in recovery too.
According to a press release issued by global chemical giant BASF, the company is targeting an improvement in sales and earnings in 2010 and aiming to ensure its Plastics segment continues to grow profitably – and faster than the market. Where does this confidence come from?
Despite the austere times endured across the globe, the plastics market is expected to grow in all regions, with trends for construction and housing attributed to driving this growth. In fact, the same press release from BASF suggests the global demand for plastics could continue growing at an annual rate of around 5% until 2015.
This is especially relevant for the North Pacific Rim region, with Dr. Martin Brudermuller, Member of BASF’s Board of Executive Directors responsible for plastics and Asia Pacific, quoted as saying, “As a consequence, BASF will focus on Asia when investing in new plants in the coming decades.”
“At the same time, we will establish strong research and development facilities in Asia in order to serve our customers close to their markets,” he continued.
Just one of its many developments on the radar, BASF is already committed to building a Cellasto® plant in Shanghai, China to meet the growing demand for specialties.
But enough of the Chinese climate, we’ll focus on that market in next month’s Regional Markets feature. This month, our core focus is Japan and the insights we’re afforded courtesy of The Gas Review’s Izumi Ohe.
The Japanese market
Looking back over the business results of the four major gas companies in Japan for 2009 (April 2009 to March 2010, with only JAG closing in December) shows that the effects from the slump following the bankruptcy of Lehman Brothers remained strong up to July and August 2009.
What caused the recession to be so prolonged was the slump in the automotive industry, which forms the core of the Japanese manufacturing industry. The amount of material required to produce one passenger car comes to 1.3 tonnes of steel, one semiconductor wafer, and around ¥20,000 (approx. $200) worth of paint.
The shrinking of the automotive industry has greatly affected the steel, electronics, and chemical industries. The demand for gas fell sharply as a result. However, due to the economic countermeasures of the government and the strong economies of emerging countries such as China and India, industrial gas too marched on towards a recovery as of last autumn.
As a result of this, the March financial closing of Taiyo Nippon Sanso (TNSC) showed sales down by 12.6% and ordinary profit down by 3.2%. In contrast, sales of Air Water were down by 5%, but ordinary profit was up by 4.1%.
Meanwhile for Iwatani, sales of LP and industrial gas-related business were down by 18.5%, but ordinary profit was up by 63.1%. The recovery of its LP gas division, based on the recovery of LP prices, contributed to this.
While all of the companies recorded decreases in sales, this did not affect profit by all that much. As up to 90% of the large-scale supply of gas to major users was accounted for by the above mentioned four major companies, there was a tendency for the gas market to head for a recovery in accordance with the recovery of the users.
With Air Liquide Japan (Japan Air Gases/JAG) not yet making its business results public, and with its closing in December, it has obtained few benefits from this recovery – and a drop in earnings of 15% was predicted. It is expected that the company’s profit also showed a decrease.
The cylinder business
In the cylinder business, because most of the users are small-to-medium size users, no sharp recovery had been visible as of last autumn.
Even earlier this year, the market was moving along with a drop of 15% compared to the period before the bankruptcy of Lehman Brothers, but since March there has been a slight improvement, with a drop of only 5% – making for a recovery which has merely broken out of the worst period of the slump.
That the recovery on the part of the small-to-medium size users has been behind that of the major users, is due to the fact that the recovery on the part of the large users was not on such a level that it reached these smaller users. Another factor was that during the past 10 years, the structure of the Japanese manufacturing industry has undergone significant change.
More specifically, this is because the recovery of the users has greatly depended on the external demand involving exports to developing countries. With no capital investment in sight in Japan, only exports are showing any growth.
Those places which are engaged in business mainly for the domestic demand, such as the small and medium size users, are giving no evidence of a sharp recovery.
In Japan, the bulk of the cylinder business is handled by distributors. According to a Gas Review survey, there are 181 distributors doing an annual business of over ¥1bn. They cannot all be considered as being involved in industrial gas only, as they market equipment and LPG besides gas.
Even so, if gas related items are included, sales for these 181 companies come to a total of about ¥955.6bn, a figure coming close on the heels of that of the combined sales of the four industrial gas majors.
Since this summer, exports have been doing well, but the situation remains in which companies in Japan are still holding back on capital investment.
Trend of four majors
A glance at what the four majors have been up to shows that first of all, TNSC has consolidated its business mostly into the industrial and medical gas businesses and has shown a desire to become vigorously engaged in further expansion in overseas markets.
Early this year, the company converted its Indian gas distributor into a wholly-owned subsidiary through its US affiliate. In addition, TNSC has been expanding its business in the Philippines and has announced the construction of a large plant in Vietnam. The company has invested a total of nearly ¥100bn since 2004 and plans to announce a new three year mid-term business plan at the close of 2010.
Air Water meanwhile, announced its new mid-term management plan in March, and indicated intent to begin an expansion of its industrial gas business overseas, including China.
However, the end result will mean this activity focusing on the market in Japan. A special feature of Air Water is its diversified business expansion, with gas as its core but also including the chemical, medical, energy, food, and water sectors. At the start of 2010, the company moved into the business of the artificial cultivation of vegetables in Japan – making full use of gas technology.
This is a corporate strategy promoted by CEO Hiroshi Aoki himself. The idea here is to develop several medium size gas and equipment related businesses, aiming at sales of ¥10bn with a profit of ¥1bn.
The company will also be developing its gas and equipment related business to cater for growing demands such as these in Japan.
JAG is going ahead with a strategy concentrating on gas and the medical area, while it is also engaged in rationalising its corporate structure. March 2009 saw the company consolidate the JAG nationwide gas filling stations and welding material plants, establishing Air Liquide Kogyo Gas.
Finally, Iwatani recorded a profit due to the stabilising of LP gas prices. Among industrial gases, Iwatani is putting its efforts into hydrogen and boasts hydrogen liquefaction plants in Osaka and Chiba Prefectures. In addition, the company plans to construct a third plant in Western Japan.
Clearly, Iwatani is aiming at seizing the initiative for the future hydrogen society. However, current applications of liquid hydrogen are mainly for semiconductors and metals, along with the chemicals trade.
In addition to hydrogen, the company is engaged in expanding its helium business, and recently obtained rights for the Qatar #2 Project in the Middle East. Iwatani is setting its sights not only on the helium business in Japan, but also on developing the Asian market.
As for what the end-users are up to, the electronics companies – which are the major users – are expected to show growth with an expansion in demand expected in the LED, PV, LED, and lithium battery sectors.
The market for specialty gases such as silane and nitrogen trifluoride (NF3) and related equipment is expected to expand greatly. However, in these areas as well, there is a tendency for the demand to shift over to Asia – with exports growing steadily.
The medical field, which is not so greatly affected by the economic situation, is experiencing a sharpening of pricing competition, but still is relatively stable. Right now the Japanese population is not really growing, and with the reduction of costs, the number of hospitals cannot be increased.
However there is considerable expansion of operating rooms going on right now. A division is now occurring into either large hospitals specialising in operations, or small-to-medium size hospitals. In accordance with this, there is considerable competition going on to win contracts for supplying gas through pipelines and indoor equipment.
Home oxygen therapy (HOT) is performing well too. Suppliers are putting their efforts into equipment other than that for home use and just last year there were several incidents of fire caused by lack of attention on the part of HOT patients, so increased effort is being applied to safety countermeasures, with the Japan Industrial and Medical Gases Associate (JIMGA) call for caution to be exercised.