For Japanese chemical makers, 2025 was a year of transition

Japanese chemical companies are trying to shift away from commodity products and toward high-value materials for growth markets. Financial results for the 2025 fiscal year, which ended March 31, illustrate varying progress in this transformation.

Asahi Kasei posted record operating profit for the second consecutive year, driven by strong performance in health care and housing and solid results in electronics. Mitsui Chemicals benefited from growth businesses such as health care, electronic materials, and mobility. Sumitomo Chemical says it has doubled the sales ratio of growth businesses like agrochemicals and electronic materials over the past decade. But Mitsubishi Chemical Group saw a sharp decline in profit due to the deteriorating market for methyl methacrylate (MMA), a commodity chemical.

“Each company is steadily expanding the businesses they need to grow,” says Mikiya Yamada, a senior analyst at Mizuho Securities. “Mitsubishi started its full-scale restructuring later than others, so the progress is not yet visible in the numbers, but the company is moving in the right direction.”

In earnings announcements and investor presentations, company executives say their strategy of expanding strategic businesses will continue into fiscal 2026 and beyond. Asahi Kasei aims to achieve record profit for a third consecutive year, while Sumitomo president Nobuaki Mito told investors at an event that the firm can reach its fiscal 2027 operating profit target of $1.3 billion in fiscal 2026. Meanwhile, Mitsubishi plans to increase its core operating profit by more than 30%, to $1.9 billion, by expanding its specialty materials business, improving its MMA operations, and leveraging its industrial gas business.

At the same time, companies are accelerating the restructuring of low-profit businesses. At an April management briefing, Asahi Kasei president Koshiro Kudo said that the company had already announced restructuring measures covering the equivalent of $800 million in sales and that additional steps would be taken.

Then, on May 12, Asahi Kasei announced a downsizing of petrochemical operations at its complex in Mizushima, Japan. At a briefing, Mitsubishi CEO Manabu Chikumoto said, “We will continue structural reforms, focusing on MMA and petrochemicals.”

A major concern for companies aiming to increase profits is the surge in prices for the petrochemical raw material naphtha resulting from the Iran war. “Naphtha prices have doubled compared with before the conflict,” Kudo noted at Asahi Kasei’s briefing. But obtaining supplies isn’t a problem, according to Hiroki Yanagimoto, a petrochemical consultant. “With Asian market prices soaring, arbitrage trading—buying in cheaper Europe and the US and selling in higher-priced Asia—has become active, and naphtha is flowing in. As long as you pay, you can procure it,” he says.

Japan’s government puts the industry at an additional disadvantage: among crude oil derivatives, gasoline and diesel receive subsidies, but naphtha does not—meaning that petrochemical producers feel the full impact of high crude prices.

Since March, Japanese chemical makers have been announcing price increases to offset higher naphtha costs, but it’s unlikely that they will be able to completely pass costs through to customers, and companies are already anticipating a financial impact. Asahi Kasei, which expects a $64 million impact, assumes that “the effects will subside by the first half,” representative director Toshiyasu Horie said at the briefing.

While companies are moving ahead with price hikes, Yamada at Mizuho Securities warns that other problems loom. “There are many concerns,” he says, “including demand decline due to price increases, rising logistics costs, and reduced operating rates that could weaken competitiveness.”