Tokyo skyline.
Credit: Shutterstock
Japanese chemical makers are taking unprecedented restructuring steps. Shown here is the skyline of Tokyo.
Japan’s leading chemical producers are in the midst of a restructuring intended to shift their focus from traditional petrochemicals and pharmaceuticals to specialty chemicals. This strategic pivot comes as the industry grapples with declining profits, geopolitical tensions, and a rapidly evolving global market.
Two of Japan’s largest chemical makers, Mitsubishi Chemical Group and Sumitomo Chemical, are shedding noncore assets, exiting unprofitable sectors, and doubling down on high-growth areas such as advanced materials, agrochemicals, and environmental technologies. The restructuring will mean a significant departure from the Japanese industry’s traditional reliance on integrated chemical operations and signals a new era of specialization.
This is not the first time Japan’s chemical industry has faced the need for restructuring. In the 1990s and early 2000s, the sector changed significantly in response to economic stagnation and global competition. During that period, companies consolidated operations, formed joint ventures, and emphasized higher-value products.
The current restructuring is more drastic, though, and is driven by unprecedented challenges such as trade wars and the rapid expansion of China’s chemical industry. These factors have forced Japanese chemical producers to again rethink their strategies and accelerate their transformation.
Sumitomo Chemical president Keiichi Iwata has been at the forefront of this process. Reflecting on the company’s historic losses, which exceeded 300 billion yen (about $2 billion) in its 2023 fiscal year, Iwata acknowledges the need for extreme action. “We have almost no experience in selling off businesses. Our style has always been to make efforts to maintain even loss-making businesses through cost reductions,” he told C&EN in an interview earlier this year. But the severity of the situation has forced Sumitomo to adopt a new approach.
An executive speaks and gestures during a discussion.
Credit: Sumitomo Chemical
Sumitomo Chemical president Keiichi Iwata says the company is departing from its practice of rarely divesting businesses.
“The conventional growth model, which emphasizes profitability, has reached its limits,” Iwata said. “We will not be able to win the competition unless we more rigorously pursue selection and concentration.” This change in mindset has led the company to sell off profitable businesses for the first time and to search for a partner for Sumitomo Pharma, of which it is a 52% owner.
Mitsubishi Chemical is undergoing a similar transformation. The company is selling Mitsubishi Tanabe Pharma, its pharmaceutical business, to the US private equity firm Bain Capital and is offloading $2.6 billion worth of other operations.
CEO Manabu Chikumoto explained the rationale behind the pharmaceutical sale at a management overview in November. “It is difficult for us alone to invest a large amount of money in drug discovery,” he said. “Rising R&D costs and diversification of medical treatment methods have made the drug discovery business less compatible with our core chemical operations.”
Both Mitsubishi and Sumitomo are moving away from their traditional identities as integrated chemical companies spanning everything from ethylene production to drug discovery. Instead, they are concentrating on specialty chemicals—a sector somewhere between ethylene and drugs that can offer high profit margins and some resilience to market fluctuations.
“Difficulty divesting existing businesses is a common trend among Japanese companies and industries,” says So Hirano, a business historian at Seijo University. “However, tectonic shifts such as the trade slump caused by the division between the US and China, the stalling of the Chinese economy, and the significant increase in production capacity in China for commodity chemicals are prompting a change in the conventional management style.”
The transformation goes beyond retrenching from the drug business. Sumitomo has set a goal of generating almost $5 billion through business restructuring and inventory reductions. “The company has already made significant progress, with only 3 of its 30 targeted businesses remaining to be restructured by the end of fiscal year 2024,” or March 31, 2025, Iwata said.
One indication of Iwata’s determination is Sumitomo’s planned sale of its share in Nihon Medi-Physics, the Japanese leader in radioactive diagnostics used in medical imaging, to GE, its partner in the joint venture. “Since its establishment in 1973, Nihon Medi-Physics has made a significant contribution to our business performance, but there are few synergies with us, so we decided to target the company for restructuring from a best-owner perspective,” Iwata said.
Sumitomo is also pulling away from Petro Rabigh, a petrochemical joint venture in Saudi Arabia that, along with Sumitomo Pharma, was a factor in the company’s losses. Sumitomo and its partner, Aramco, are restructuring the venture through a deal that will decrease the Japanese firm’s stake from 37.5% to 15%.
And Sumitomo is downsizing petrochemical operations in Japan and Singapore. In Japan, the company is considering collaborating with other companies in the polyolefin business. It is working with Mitsui Chemicals and Asahi Kasei to optimize production at two key petrochemical plants and possibly shut one of them down. In Singapore, Sumitomo reduced its capacity in methyl methacrylate and acrylic polymers by about 75%.
Mitsubishi Chemical is also taking its restructuring effort beyond pharmaceuticals. From 2021 to 2023, the company exited 10 businesses that totaled $1.3 billion in annual sales. From 2024 to 2029, it plans to restructure an additional 30 businesses representing $2.7 billion in annual sales. This includes exiting noncore operations such as triacetate fiber and reducing petrochemical capacity.
“We are restructuring our businesses without sanctuary, as more and more parts of such businesses are close to our ancestral business,” Chikumoto said at the November briefing.
While reorganizing nonstrategic divisions, Mitsubishi has announced a plan to raise core operating income in its Specialty Materials division from $226 million in 2024 to $960 million in 2029. As part of the plan, the company will double its production capacity for barrier resins in the UK and increase production of polarizing films in Japan. Mitsubishi will expand capacity for sugar ester–based emulsifiers in Kyushu, Japan, and wants to boost sales in the US. In the semiconductor field, the firm will increase capacity for photosensitive polymers for photoresists and other products.
Like Mitsubishi, Sumitomo is trying to move its center of gravity to specialty materials. For Sumitomo, the key markets are agrochemicals and businesses related to information technology. With these two businesses, “we will post core operating income of 100 billion yen [about $665 million] each in 2030,” Iwata said at a press conference in November. By 2035, he expects another $665 million in profits from regenerative cells, contract manufacturing, and green chemical businesses.
In agriculture, Sumitomo has established direct sales systems in Brazil and India so it can introduce new fungicides and herbicides more easily. In IT, the company aims to become the top player in photoresists for next-generation lithography based on extreme ultraviolet light. And in polarizing films for displays, Sumitomo is adjusting its portfolio from liquid crystal displays, where it traditionally played, to organic light-emitting diode displays, a faster-growing market.
Although Sumitomo Chemical is paring involvement in the conventional drug business, it has teamed up with Sumitomo Pharma to establish Racthera, a regenerative and cell medicine business. The joint venture has already begun developing the world’s first induced pluripotent stem cell–derived product for Parkinson’s disease. Sumitomo Chemical will provide its expertise in industrialization and analysis technologies. “Biotechnology is Sumitomo Chemical’s area of expertise, and we expect sufficient synergies,” Iwata told C&EN.
In petrochemicals, Sumitomo plans to build a new business model based on technologies under development for reducing environmental impact, including one for obtaining propylene from the biobased chemical ethanol in a single step.
“We will license this technology to the world,” Iwata said. “There is a high need for petrochemical complexes, especially in developing countries, and we will license our technologies that can contribute to low carbon emissions. Normally, we receive a portion of the profits as royalties, but with this technology license, we will build a new business model based on the amount of CO2 emissions the licensee achieves.”
Despite the challenges that Sumitomo and Mitsubishi face, industry experts view their pivot to specialties in a positive light. Hirano, the business historian, points to the opportunity to develop chemicals that enhance the performance of products such as semiconductors, displays, and batteries. “Japanese chemical companies have an abundance of proprietary technologies and knowledge in a black box, which enables them to differentiate themselves from their competitors in a way that is not easy to catch up,” he says.
Mikiya Yamada, a stock analyst at the investment firm Mizuho Securities, has long been critical of firms that participate in both drugs and chemicals. “Operating both businesses under a single balance sheet is financially inefficient unless there are significant synergies,” says Yamada, adding that he welcomes the concentration of management resources on the chemical business.
“It is important to invest in businesses that can gain top market share even in smaller markets,” Yamada says. “Some of Japan's major chemical companies are still a jumble of gems and rocks. Further selection and concentration are necessary.”
Katsumori Matsuoka is a freelance writer based in Japan.
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