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Sumitomo Chemical Announces Production Cuts Amid Strategic Restructuring

The Japanese chemical giant plans to reduce output in optical filters and feed additives, streamlining operations to counteract declining performance
s 4005.TSE Mid and Small Cap 2000
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Sumitomo Chemical, a leading Japanese chemical company, is undertaking significant operational changes to improve its financial performance. The company has announced plans to reduce its production capacity for optical filters used in liquid crystal displays (LCDs) by autumn and cut down its capacity for feed additives by about 20%. This move comes as part of a broader effort to streamline its operations amid a downturn in its core petrochemicals business.

The group is facing a declining performance and aims to restructure through approximately 30 measures over two years, ending March 2025, with around 10 of these actions scheduled for completion by March 2024. Notably, Sumitomo Chemical will suspend production lines for polarizers, essential components in LCD screens, at its factories in Pyeongtaek, South Korea, and Tainan City, Taiwan, between this spring and fall. Additionally, a partial suspension at a Japanese factory will result in a 30% capacity reduction by fiscal 2024 compared to February 2023 levels.

Despite being the world’s second-largest polarizer maker in 2022, Sumitomo Chemical has struggled with decreased demand for TVs and increased competition from Chinese manufacturers, leading to an oversupply in the market. The company will also exit the color filter business in South Korea by the end of March, a decision influenced by declining demand from local LCD producers.

Another significant cutback will occur in methionine production, an essential additive in poultry and pig feeds. The company plans to partially suspend production lines at its Aichi prefecture factory, reducing its capacity from 230,000 tonnes in fiscal 2022 to around 180,000 tonnes by fiscal 2024.

Shinsuke Shojima, managing executive officer in charge of animal nutrition operations, emphasized plans to update equipment and reduce variable and fixed costs to improve earnings. Despite a substantial investment in 2018 to increase methionine capacity, price drops due to increased global production have led to impairment losses for Sumitomo Chemical.

Facing its first net loss in 11 years and a significant drop in core operating profit, Sumitomo Chemical is focusing on restructuring about 30 businesses that collectively generate about 270 billion yen in revenue. These measures are expected to boost core operating profit by 50 billion yen through March 2025.

This strategic shift reflects the company’s efforts to adapt to changing market dynamics and achieve a “V-shaped recovery” in fiscal 2024, as stated by President Keiichi Iwata. However, reaching the 200 billion yen core operating profit target remains challenging under current conditions. The restructuring encompasses various segments, including essential chemicals, IT-related materials, and health and crop sciences, signifying a significant transformation for Sumitomo Chemical’s operations and market position.

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