Japan’s chemical companies must combine their most carbon-intensive businesses into a national “champion” if they are to survive an industry transformation driven by global decarbonization efforts, the chief executive of one of the world’s largest has said. chemical companies in the country.
Jean-Marc Gilson, the Belgian executive who heads Japan’s Mitsubishi Chemical Holdings Corp., called on the country’s Japanese petrochemical makers to follow his lead and combine oil assets into a business that can compete globally and invest in emission reduction technologies.
“Petrochemicals need to undergo a transformation – it will take a lot of capital, and no one can do it alone,” Gilson said in an interview with Bloomberg News in Tokyo last week.
Gilson announced plans in December to sell the company’s carbon products and petrochemical businesses. In the interview, he stepped up his appeal to domestic rivals, as well as the government, for support.
Japan only needs “one or two” companies in the sector, he said, envisioning a company worth $15-20 billion with enough capital to “retool” in using cleaner energy. “This country doesn’t need five – and all of them are underscale.”
Around the world, private sector companies are under pressure to clean up their portfolios and set carbon neutral targets. The chemical sector is both the largest industrial consumer of oil and gas and the largest consumer of energy, according to the International Energy Agency.
Mitsubishi Chemical first aims to merge its petrochemical assets with others before pulling out in a sale or listing. Gilson, named by surprise when he took over the chemicals giant last April, said he would like a deal with a partner in 12 months, although he declined to identify specific companies.
He compared the industry’s situation to others once dominated by Japan, such as semiconductors and flat-panel TVs. Exhausted by the internal scrapping of too many domestic competitors, these sectors have finally consolidated with government support for companies like chip company Renesas Electronics Corp. and display maker Japan Display Inc., but largely failed to capitalize on Japan’s lead.
“These companies were created too late – the problem was right in front of it,” Gilson said, warning that as 2030 approaches, chemical companies will come under greater pressure. “Let’s make a decision when our backs are not against the wall.”
While the plan is positive and would allow Mitsubishi Chemical to focus on its core strengths, executing it will be a more difficult task, according to Bloomberg Intelligence analyst Horace Chan. “Securing a counterparty for the transaction is a formidable task,” he said, “as domestic and international peers and financial investors are also transitioning to net zero.”
Gilson also called on the government to give businesses a better push to decarbonise. Japan aims to reduce its carbon emissions by 46% below 2013 levels by 2030 and to be carbon neutral by 2050.
“There’s no incentive in Japan,” Gilson said. “There’s not a lot of support from the Japanese government, direct support,” especially compared to Europe, he said.
Petrochemicals is just one part of the broad corporate portfolio that Gilson is looking to revamp. Health care is another area of interest for investors, following the 490 billion yen ($4.3 billion) takeover of drug manufacturing unit Mitsubishi Tanabe Pharma Corp. in 2020.
Shares fell in December after Gilson announced the company would postpone seeking approval for its Muse cell-based regenerative medicine as it plans broader trials. The stock has lost more than 10% since then, against a 3.7% decline in the Topix.
“It’s overkill” for the company to have both a pharmaceutical and chemical business, Gilson acknowledges. However, he insists that in the short term he is focused on turning around health care and rebuilding its pipeline, rather than divesting it.
An immediate source of revenue could be the COVID-19 vaccine developed by Canadian unit Medicago Inc. which has just been approved for use in Canada. Gilson also hopes to obtain clearance in Japan, the United States and elsewhere.
“It’s probably one of the last COVID-19 vaccines that’s going to be approved,” Gilson said, expecting the vaccine to become a business worth up to $1 billion a year. Despite its late entry to market, Gilson sees the shot attracting an audience because of the new plant-based technology used to grow the vaccine, and predicts that some of those hesitant to take mRNA vaccines will opt for the treatment.
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