Closures in Japan: The shaping and re-shaping of the petrochemical industry

Petrochemical market in Japan

The domestic petrochemical industry in Japan is experiencing a downturn, evident from numerous announcements of plant closures by major players in recent years. Sumitomo, Idemitsu Kosan, Japan Polypropylene Corporation, and Japan Polyethylene Corporation are among the few players. For instance, Japan Polypropylene Corporation closed a 21 KTPA PP plant in Goi in 2021 and plans to shut down an 80 KTPA Yokkaichi plant by April 2024. Japan Polyethylene Corporation closed a 62 KTPA LDPE plant in 2021. Recent announcements by Mitsui Chemical and Idemitsu Kosan reveal their intent to close their joint facility in Chiba, sized at 370 KTPA, by 2028. Further, they plan to consolidate assets at a petrochemical complex with an ethylene capacity of 550 KTPA, aiming to enhance efficiency, reduce carbon footprint, and transition from fossil-based naphtha to bio-naphtha derived from the chemical recycling of plastic and sustainable aviation fuel by-products in the near future.

Several factors contributed to these closures, resulting in a decrease in total domestic ethylene production from 7 MMTPA in 2010 to 5.3 MMTPA in 2023. Furthermore, capacity utilization rates have significantly decreased, reaching 80% for the majority of crackers nationwide, due to strong competition from Chinese players. Furthermore, China’s extensive capacity expansions are expected to grow from 45.8 MMTPA in 2022 to 66 MMTPA by 2025. It will intensify the oversupply situation in the international market and lead to a reduction in exports directed from Japan, which previously accounted for over 30% of total domestic capacity. This has further squeezed margins, leading to reduced profits for Japanese players as their presence in the international market will shrink.

Domestic consumption in Japan is also declining because of the decline in population and an increasing proportion of elderly citizens, prompting announcements of refinery closures by players such as ENEOS and Idemitsu Kosan. This amounts to an approximate reduction of 7% of the country’s total annual refining capacity. Additionally, aging and small-scale facilities with lower complexity indexes struggle to compete with China’s newer and larger refining and petrochemical projects.

Manabu Chikumoto, CEO of Mitsubishi Chemical Group, aptly describes the urgency of the situation, stating that “we cannot survive unless we undergo a major transformation.” Further changes in this trend are anticipated soon, as a result of several major domestic players’ objectives to cut CO2 emissions by 2050 and switch to greener alternatives such as bio-based products. These objectives align with the global imperative to reduce carbon footprints.

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