Japan’s ethylene producers are facing extraordinary pressures that are placing the industry’s survival in jeopardy. Faced with constant overcapacity from competitors like China, most of Japan’s ethylene facilities have no near-term strategy to avoid being shut or consolidated. The situation has prompted industry leaders to seek solutions as they strive to address persistently low utilization rates.
To put Japan’s ethylene capacity utilization into context, it has been below very dangerous level for 37 months in a row. In August, this spelled bad news for the sector once again, resulting in its fourth consecutive month of underwhelming performance. With production so low, there’s a lot of room for inefficiencies to sink in. They highlight the growing threat from our global competitors, most notably China, which has massively expanded its own production capacity.
The Japanese petrochemical industry, formerly the uncontested regional leader, now must make difficult choices. Industry experts warn that plant closures are unavoidable without a significant turnaround in current utilization rates. Companies are eyeing numerous consolidation attempts to remain in business. They are adjusting to position themselves to ride out the brutal new market to come.
Current developments are a part of larger dynamics within the global petrochemical market, where supply flooding has resulted in intense price collapse. In fact, China is now the lowest cost producer of ethylene. This combination has led to a punitive competitive landscape for Japanese producers. The encouraging news is that some companies are already making strides and can serve as examples. They’re making major technology investments and looking for collaborative partnerships to increase their efficiency and save money.
The Japanese government has seen the writing on the wall and is responding with a range of measures to bolster the industry. These interventions should be evidence based and most likely they would involve targeted financial assistance or incentives designed to increase innovation in the industry. These financial management initiatives will need to be thoughtfully planned and implemented to more effectively contribute towards the future we want – a fiscally and environmentally sustainable one.