Post merger of their ethylene operations, Mitsubishi Chemical Holdings Corp. and Asahi Kasei Corp. plan a 30% reduction in ethylene capacity, trimming production costs by 3-4 bln yen by 2012. The two petrochemical majors will merge their ethylene operations under a 50-50 joint venture on April 1, 2011 to run their plants at a petrochemical complex in Okayama Prefecture. Each ethylene plant has an annual output capacity of 500,000 tons, together accounting for 12% of total output capacity in Japan.
Over the past many years, Japan's ethylene crackers have operated at near full run rates on growing demand in China. A supply glut from the feedstock advantaged Middle East (offering material at less than 10% of prices in Japan) as well as increasing capacity in China will result in reduced demand in the Japan. Mitsubishi and Asahi anticipate that domestic production capacity will rise to 30% more than market demand and domestic consumption. If automakers and electronics firms move production overseas, demand will continue to shrink. This could lead to further consolidation by the two partners into one plant, a move that would cut costs by 8-9 billion yen.