Annual Report 2017





The Chlor-alkali Group delivered strong profits in the first year of Tosoh's medium-term business plan.

  • Snapshot

    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.

    Within the Chlor-alkali Group, the Urethane Division 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.

  • Group Performance

    Improved Profitability

    Chlor-alkali Group net sales decreased 0.1%, to ¥279.7 billion (US$2.6 billion), in fiscal 2017. That represented 37.6% of Tosoh’s consolidated net sales, up from 37.1% a year earlier. Operating income improved 116.4%, to ¥47.9 billion (US$442.3 million), and contributed 43.1% of consolidated operating income. The operating margin was 17.1%, compared with 6.4% in fiscal 2016.

    Caustic soda prices in Japan gradually decreased, but export prices for caustic soda increased because of improved market conditions overseas. Shipments of VCM and PVC resin remained strong; however, prices for these products decreased because of a strong yen and a fall in naphtha prices.

    Cement shipments decreased domestically as demand fell in Japan. Cement exports, though, increased.
    Shipments of MDI increased, but MDI export prices fell, largely because of a strong yen.

  • Developments

    Capital Investments

    Tosoh is building competitiveness for its Chlor-alkali Group in part by replacing the Nanyo Complex’s coal-fired electric power generation plant, and investing in piers, tanks, and other infrastructure at the complex. Construction at the Nanyo Complex to improve the power generation facilities and to maximize production capacities is under way and is expected to be completed in December 2018, at a cost of around ¥20 billion. Tosoh will also raise the efficiency of the complex’s facilities for producing bromine from seawater.

    A highlight of fiscal 2017 was Tosoh’s investment of ¥4.2 billion to increase PVC production capacity at Tosoh Group company Philippine Resins Industries, Inc. (PRII), headquartered in Makati City, the Philippines. PRII began construction of additional PVC manufacturing facilities in February 2017, and they are expected to be completed in December 2018. Commercial operations are expected to begin in January 2019. They will add 110,000 metric tons a year to PRII’s PVC production capacity, effectively doubling capacity in an effort to meet growing demand in the Philippines and elsewhere in Asia.

  • Positioning

    Vinyl Isocyanate Chain

    The profitability of the vinyl isocyanate chain has been an issue for the Tosoh Group over the past decade. Fortunately, the chain’s profitability improved in fiscal 2017 because of lower naphtha and other raw material prices and the yen’s appreciation.

    The upgrade in power generating facilities is due to be completed in winter 2018. Tosoh is also stabilizing the procurement of raw materials. And it is expanding PVC production capacity at PRII and enlarging the Chlor-alkali Group’s hydrochloric acid shipment facility.

    Exploiting the cost-effectiveness of Tosoh’s independent electricity generation capabilities is an important way the Chlor-alkali Group is boosting the cost-competitiveness of its primary chloride and other product lines. The Chlor-alkali Group is devising methods to share Tosoh’s electricity generation capabilities among its operations at the company’s domestic factories, beginning with the Yokkaichi Complex and including the Sakata Plant of Tohoku Tosoh Chemical Co., Ltd. Increasing domestic environmental taxes on fossil fuels also require the group to continue efforts to distribute Tosoh’s electricity generation and keep its electric power costs and its product pricing competitive.

    The global VCM market is highly competitive but growing. The Chlor-alkali Group employs a wide range of measures to reduce its VCM production costs and to strengthen its VCM marketing. The group is also considering prioritizing domestic and overseas markets where profitability is greatest amid changing exchange rates, market conditions, and technologies.

    The group is focusing on products, including PVC, produced by Tosoh subsidiaries. Its plan is to encourage subsidiaries to collaborate in expanding markets in ways that ensure their profitability. The goals specifically for VCM and PVC operations are to provide stable VCM supplies to Tosoh’s PVC manufacturing subsidiaries and to maximize profits for all. This means strengthening domestic sales and tapping sales opportunities overseas in such markets as Indonesia and India. In contrast, China remains a difficult market to access because of its increasing use of the inexpensive carbide method to produce PVC.

    Tosoh produces more than 35% of Japan’s VCM output and is the domestic leader in PVC resins, accounting for one-fourth of national output. Long term, VCM and PVC demand should increase in Asia, and Tosoh expects to benefit despite heightened competition at home and abroad.


    The Chlor-alkali Group’s Urethane Division embodies the full integration of Tosoh’s and Nippon Polyurethane Industry Co., Ltd.’s (NPU) MDI, TDI, HDI, and functional urethane operations. NPU was fully integrated into Tosoh’s Urethane Division in 2014. From a single location within Tosoh’s head office, the division’s administrative staff has been examining how best to optimize Tosoh’s ample resources to further Tosoh’s urethane business strategies. This will be particularly important in view of growing volatility in the polyurethane business climate amid raw material cost fluctuations, planned capacity increases by competitors, foreign exchange rate swings, Chinese market risks, and other factors.

    Regardless of operating climate, the Urethane Division will pursue efforts to cultivate high-value-added MDI offerings and to reinforce its functional urethane business to bolster Tosoh’s profitability. The division also looks to maximize production and sales to help stabilize Tosoh’s vinyl isocyanate chain and increase the company’s earnings.

    Tosoh’s conversion to low-cost MDI production was mostly complete before the integration of its vinyl isocyanate chain through the tie-up with NPU’s operations. The Urethane Division is now contending with debottlenecking and thereby freeing up MDI production capacity which will lend to increasing the presence of Tosoh’s MDI products domestically and overseas.

    The division also intends to reinforce its MDI export sales structure. While reviewing its sales structure in China, it will attempt to reduce its reliance on China’s market. It will instead expand sales in Southeast and South Asia, which offer potential for stable demand. To reinforce its MDI marketing drive in Asia, particularly in the Association of Southeast Asian (ASEAN) markets, the division has set up an MDI stockpiling base in Singapore.

    Strengthening sales of monomeric MDI is another divisional priority. It will accomplish this through the increased production capacity of specialty MDI for high-value-added applications. It is also looking to accelerate the shift from commodity products to specialty products and from single-item sales to system sales.

    In addition, the Urethane Division is considering establishing an overseas polyurethane system house.


    The Chlor-alkali Group is improving the waste plastic processing of its cement operations through an upgrade to cement manufacturing facilities, simultaneous with continued programs aimed at conserving energy and reducing energy costs. The Chlor-alkali Group's single-kiln cement operations feature low maintenance, labor, and outsourcing expenses and thus low fixed costs.

    Medium term, the group is considering increasing the waste plastic processing of its cement operations. This will involve an upgrade to its cement manufacturing facilities alongside ongoing programs to conserve energy and reduce energy costs.

    In fiscal 2018, the Chlor-alkali Group expects that demand for cement will remain steady. Demand related to the 2020 Summer Olympics and Paralympics in Tokyo, the Linear Chuo Shinkansen (bullet train) and Kumamoto earthquake recovery needs should pick up in the first half of that year and offset a tapering off in domestic public-sector demand. Overseas, competition in Asia could intensify owing to slower growth in China. Tosoh, though, anticipates operating at full kiln production and sales capacity in fiscal 2018.

  • Medium-term Business Plan

    Under its three-year business plan, Tosoh’s objective is ¥21 billion in operating income for the Chlor-alkali Group by fiscal 2019. The group, however, surpassed this aim in fiscal 2017, garnering operating income of ¥47.9 billion. Operating income, though, is expected to drop to ¥46.5 in fiscal 2018 and to decline again in fiscal 2019. Tosoh is therefore aiming for a group operating margin of 15.5% in fiscal 2018, following a margin of 17.1% in fiscal 2017.

    Tosoh’s strategy for its Chlor-alkali Group and specifically for the group’s PVC, VCM, caustic soda, and chlorine derivatives operations is to maximize profits by optimizing the vinyl isocyanate chain. Initiatives include ensuring the stable procurement of competitively priced raw materials and building competitiveness through greater efficiencies in power generation, power consignment, and other areas. Tosoh will also strengthen the profitability of its soda and chlorine derivative products.

    Tosoh, meanwhile, will continue to strengthen its functional urethane operations and to shift to high-value-added MDI production. This will accelerate the company’s move from commodity to specialty products and from single-item to system sales. The Chlor-alkali Group will underpin Tosoh’s strategies in this regard, especially through an MDI marketing drive in Asia reinforced by the Urethane Division’s MDI stockpiling base in Singapore. The division will also promote sales of functional urethanes in medical fields and plans to add production capacity for HDI derivatives.

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