Petrochemical producers from Japan and North America, in particular, have traditionally been able to count on the countries of East and South Asia to absorb their surplus production in times of slack domestic demand. Japan has since the early1990s typically exported about 15-20% of its PE output. The next 4 years will see a number of lower-cost capacities due onstream, overseas. With an increasing number of new facilities coming on-line in the Asian regions, it will become increasingly difficult for Japan to sell. This scenario seems to be leading to ethylene shutdowns, particularly in Japan. Many of Japan's PE plants are older, smaller-scale and less cost efficient compared with the newer ones in other Asian regions. Of Japan's 15 crackers, the largest has a capacity of only 750,000 tpa with the smallest at 375,000 tpa. Japan's smaller crackers ridden with weak economies of scale, could be vulnerable to closure, particularly if they are highly export-dependent -- either directly through monomers or indirectly through derivatives.

A prediction that 1-1.5m tons of Japan's ethylene capacity would have to be shut down over the next 4 years meets the agreement of leading Japanese cracker players. Almost all players; namely, Mitsubishi Chemical, Showa Denko, Sumitomo Chemical, Idemitsu Petrochemical and Maruzen Petrochemical accept that they may have to reduce overall ethylene capacity to stay viable, although they are also worried about the difficulties involved in making the cuts. Cracker cutbacks seem to be essentially triggered by decline in demand for domestic commodity-grade PE combined with an influx of cheaper Asian product. However, a cracker shutdown necessarily means complicated re-engineering of the whole downstream production process and re-organising the workforce in an already embattled Japanese economy with unemployment at nearly 6%.

To counter the declining demand for commodity grade PE, domestic polymer producers have made a conscious decision to change their product mix to include more speciality-grade propylene derivatives.

	Showa Denko was planning to spin-off its olefins business until earlier this year, but currently seems less inclined to divest on account of improved profitablity as well as consolidation. Assisted by tight markets and export opportunities, the company is reported to be making strong earnings this year from ethylene and benzene. Consolidation of its downstream PE business with Mitsubishi through Japan Polyethylene Corp (JPC) has also had a positive impact.
	Mitsui Chemicals has decided to invest $34m in a project to employ ABB Lummus' metathesis technology to increase its propylene capacity at its cracker in Osaka. This project, to be completed by July 2004, will boost capacity to 420,000 tpa from 280,000 tpa. The technology, which makes propylene by reacting ethylene and butene, will reduce the company's ethylene output to 414,000 tpa from 463,000 tpa. The additional propylene would feed Mitsui's expansion in Osaka, due for completion by August 2004.
	Sumitomo Chemical is studying the feasibility of using metathesis technology at its cracker in Chiba. Mitsubishi has increased its propylene yield to 42% from 40%, using an in-house process. It wants to use the technology to reverse its position as a net buyer of propylene.

Some companies are actively expanding businesses in their speciality fields.

	Mitsubishi Chemical : : PTA, acrylic acid and engineering plastics
	Mitsui Chemicals group : : PTA, and bisphenol A
	Ube Industries : : caprolactam
	Idemitsu Petrochemical : : SM and PS

Along with domestic measures, it is also necessary to expand overseas businesses actively, mainly in Asia, to cater to the growing demand from China. Sumitomo Chemical has completed the second phase expansion in Singapore with an ethylene capacity of 1 million tpa. Along with polymers, the company plans to start production of acrylic acid, MMA and PMMA, which on completion will become the company's mainstay plant, even larger than its Chiba plant.

Compared with the investment plans of the Western petrochemical giant companies such as ExxonMobil, Dow, BP and BASF, Japanese companies' business expansion plans are still small in scale. With DuPont and Bayer entering the market, Asia is about to enter an era of investment by major firms where the Japanese will have to compete for the market and higher technology and survive.

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