Tosoh is currently on an upswing. Its “Vinyl Chain” concept envisaged ten years ago has been partly realized, and is now becoming the greatest trigger in producing the company’s record profits. Chairman Tashiro says calmly, “It is not enough to be strong only in Japan. First of all, we must win in Asia.” But, in order to do so, as if he feels dissatisfied that the company has the reputation of being a vinyl chloride manufacturer, he adds, “In fact, does it not stand out that half of our profits come from specialty products? In the future too, to maintain steady profits, I want to strengthen this sector.” Tashiro analyzes the high prices of crude oil as follows: “In the case of chemical products, there are many aspects that are saved by the international demand and supply balance.”

Q: In this era of a price of $50 for crude oil, it must be difficult for the chemical industry. How do you plan to respond to this?

The problem of resources such as crude oil and coal is one that is not within our scope of control. It is difficult to come up with responsive measures, and we clearly have no choice but to conduct a price shift. Unless we do so, we cannot continue our operations. In the area of petrochemicals, we do have some measures such as diversification of feedstock (raw materials) and so on, but even so, when $20 becomes $50 or even $60, there’s nothing we can do.

Q: The price shift seems to be going relatively well.

That means that the conditions for making a shift possible are in place. Globally speaking, the supply-demand balance is shifting to a condition of tight supply. For that reason, international market conditions are improving, and a domestic price shift can also be carried out to a certain extent.

One background factor is the overwhelmingly large market of China. In recent years the petrochemical industry in China has shown continued impressive growth of about 8% to 10% every year. The area of vinyl chloride is growing by 10% or more. This kind of growth cannot be expected to shrink easily in the future either. Moreover, the US, which for a while had seemed to have rather dismal prospects, is now not doing so badly. The same can be said of Europe and Asia. The Japanese economy also has now already reached rock bottom. While it is true that the Chinese economy is playing an outstanding role as leader, if we look at the world as a whole, demand is on a strong wave.

Q: And meanwhile the supply capability is not increasing?

Yes, that’s true. Over the last ten years the industry has been suffering from a low margin, and the mood for investment has gone down. In contrast, restructuring and concentration have continued, with inefficient plants being closed. Many alliances have also been set up overseas. Currently there are several investment plans in oil-producing countries, but because of a lack of sufficient infrastructure and for other reasons, there are few that are proceeding on schedule. Because of these factors, we are now facing a very strong demand along with a restricted supply capability.

Q: In such conditions Tosoh has focused on the Vinyl Chain concept, even though it could be considered that making products in expensive Japan and then exporting them to China goes against the usual flow of things.

Moreover, Japan is already in a position to be included as part of the global market. Within Japan, simply having a low cost is insufficient. Unless we can win in world competition, especially competition in Asia, we can’t win in Japan either. To put it the other way round, if you can attain competitiveness in terms of cost within Japan, you can also do so overseas.

The Vinyl Chain of Tosoh that leads from electricity generation to electrolysis, VCM, PVC and assembled products is located in an ideal site in Nanyo (Yamaguchi Prefecture), which is blessed with a good port and bays as well as electricity and other infrastructure, and has a very high cost position. It is superior not only in Japan, but in Asia. That being the case, we thought that we should also be able to do the same thing in China, if we had the chance. Basically, this idea was not mistaken. We have the same concept in relation to isocyanates.

Q: I’ve heard that you are expanding even further at Nanyo, on top of adding a facility for producing 400,000 tons of VCM.

Once this current factory is completed, we will be able to produce 1.2 million tons of caustic soda, 1.48 million tons of VCM, 1.2 million tons of MD, and 150,000 tons of anilines per year, enabling us to become the biggest-scale Vinyl-Isocyanate Chain manufacturer in Asia. We are constructing it in consolidation with our subsidiaries, Hodogaya Chemical Co., Ltd. and Nippon Polyurethane Industry Co., Ltd. But the demand in China is still strong. Also, over the last few years we did not carry out any major investment.

Furthermore, with the aim of producing 1.50 million tons of caustic soda, 1.68 million tons of VCM, and 1.20 million tons of PVC annually in the near future, we are undergoing environment assessment now in order to build facilities for production of in-house power generating facilities producing 2.20 million tons.

Q: I hear your vinyl chloride plans also include Guangzhou City in China.

We had planned to build a plant to establish a 100% Japan-capitalized subsidiary company in the Nansa Economic Development Zone in Guangzhou City, to produce 110,000 tons of PVC annually However, in order to align this with our new investment standards, the second term doubling plan was brought forward, and we decided to begin with an initial 220,000 tons per year. Completion will be six months later than planned, at the end of 2006, but it appears that there are no major obstacles.

Q: So your image as a “vinyl chloride manufacturer” will become stronger than that as an integrated chemical company?

Well, it might appear that way, but actually we are proceeding with operations focused on three main core areas: basic raw materials such as vinyl chloride monomers and so on, petrochemicals, and specialty products. However, for petrochemicals one problem is the degree of commercial viability in the medium and long terms. There is a need to establish competitiveness and to come up with strategies for that purpose, but within the central company there are the beginnings of trends towards establishing production bases in oil-producing countries and towards strengthening ties with refineries. We need to properly assess such changes.

Although specialty products may not stand out, they are steadily improving their performance in areas such as scientific measurement, electronic materials and organic chemicals. Since there is the possibility that in the future they will expand dramatically, we recently launched a genetic diagnosis system, as a new field of scientific measurement. For international products such as vinyl chloride, profits fluctuate easily. Our company must firmly establish other steady cycles. We are selectively focusing investment in this area, with the aim of building it up so as to obtain half of our profits from it.

Q: According to your September intermediate consolidated results, Tosoh has achieved a considerable increase in profits. What is your next goal?

I agree that in September we managed to produce good consolidated results. Because of the rise in overseas markets, sales of our main products such as VCM increased and our profits went up accordingly. Specialty products also did well. However, in Tosoh’s case, overseas market factors play a major role, and change can occur as a result of the slightest move. From now on also, with trends in the price of crude oil unclear and uncertainty about how long the present growth in demand will continue and the future supply structure, we cannot predict the future. I plan to enable Tosoh to have a system whereby we can achieve more stable profits.