Raw Material Price Volatility and the Difficulty of Passing Costs Through to Product Prices

「Due to the de facto closure of the Strait of Hormuz, the petrochemical industry is facing difficulties procuring raw materials and surging prices. The outlook is extremely uncertain, with concerns about an adverse impact on earnings from both lower production caused by raw material shortages and deteriorating profitability caused by higher raw material prices.」

「In terms of earnings, the negative impact of lower net sales was substantial. In addition, higher prices for key raw materials, increased fixed costs including labor and equipment expenses, expenses related to responding to unauthorized access to our servers discovered on 26 February 2023, and expenses for strengthening information security measures also occurred,」

「In the chemical industry, difficult conditions continued as the global slowdown in demand and rising crude oil prices from the middle of the year became negative factors.」

「In terms of earnings, in addition to the negative impact of lower net sales, delays in raising product prices in response to higher utility costs, expenses related to responding to unauthorized access to our servers discovered on 26 February 2023, and expenses for strengthening information security measures resulted in an operating loss of ¥34 million, compared with operating income of ¥35 million in the same period of the previous year.」

「In the second half, product demand was generally weak, including in the automotive and home appliance sectors, as the global economic slowdown intensified. However, as efforts to improve profitability, including product price increases, progressed, operating income was ¥1,080 million, a substantial improvement from the first half.」

「Although the negative impact of delays in raising product prices in response to the sharp rise in raw material prices and utility costs was substantial in the first quarter, domestic earnings began to recover from the second quarter onward as product price increases progressed.」

「In the first quarter, the negative impact of delays in raising product prices in response to the sharp rise in raw material prices and utility costs was substantial. In the second quarter, domestic earnings began to recover as product price increases progressed, but」

「Although efforts to pass higher raw material prices and utility costs through to product prices are progressing, difficult conditions continue, with concerns about an adverse impact on earnings if the increases cannot be passed through sufficiently or if delays occur.」

「While crude oil prices remained high, Russia's invasion of Ukraine accelerated the surge, and prices of non-crude-oil-based raw materials also rose across the board, raising concerns about an adverse impact on earnings from higher raw material procurement costs.」

「Segment income declined by ¥20 million year on year to ¥607 million as profitability deteriorated due to higher raw material prices and delays in correcting product prices accordingly.」

「In terms of earnings, although higher net sales generated an earnings benefit, the negative impact of higher raw material prices and increased fixed costs including labor and depreciation expenses was substantial, leaving operating income at ¥246 million. ... Segment income was a loss of ¥15 million, compared with a loss of ¥61 million in the same period of the previous year, as profitability in solvents deteriorated due to higher raw material prices and delays in correcting product prices accordingly.」

「Meanwhile, some raw material prices have begun to rise due in part to the recovery of the Chinese economy, raising concerns about an adverse impact on earnings from higher procurement costs occurring ahead of a full-fledged recovery in demand.」

「In terms of earnings, in addition to the deterioration caused by the substantial decline in net sales, an inventory valuation loss of ¥517 million recorded in the first quarter due to the sharp drop in raw material prices and a negative impact of ¥93 million on earnings associated with a change in the inventory valuation method caused operating income for the six months ended the second quarter to decline by ¥688 million year on year to ¥255 million, while ordinary income declined by ¥565 million to ¥99 million.」

「In terms of earnings, in addition to the deterioration caused by the substantial decline in net sales, a substantial inventory valuation loss of more than ¥500 million resulting from the sharp drop in raw material prices and a loss impact of ¥87 million associated with a change in accounting policy resulted in an operating loss of ¥150 million, compared with operating income of ¥382 million in the same period of the previous year.」

「Net sales declined by ¥3,139 million, or 6.9%, year on year to ¥42,155 million due to lower selling prices accompanying lower raw material prices.」

「Under these operating conditions, net sales for the nine months ended the third quarter at our group declined by ¥2,430 million, or 7.1%, year on year to ¥31,775 million, as generally weak product demand, lower selling prices accompanying lower raw material prices and the slowdown in the Chinese economy coincided.」

「Under these operating conditions, net sales for the six months ended the second quarter at our group declined by ¥1,260 million, or 5.7%, year on year to ¥20,973 million, as generally weak product demand, lower selling prices accompanying lower raw material prices and the slowdown in the Chinese economy coincided.」

「Under these operating conditions, net sales for the three months ended the first quarter at our group declined by ¥822 million, or 7.5%, year on year to ¥10,194 million, as generally weak product demand, lower selling prices accompanying lower raw material prices and the slowdown in the Chinese economy coincided.」

「The cost of sales ratio increased due to higher raw material costs resulting from rising raw material prices and higher expenses including labor and fuel costs, and gross profit declined by ¥21 million year on year to ¥7,371 million.」

「Meanwhile, concerns include the impact on business performance of higher raw material, labor and logistics costs, as well as the impact of trade friction accompanying the spread of protectionist trade policies, and the uncertain outlook is expected to continue. In the chemical industry as well, conditions remained relatively favorable, with demand for petrochemical products remaining firm both in Japan and overseas and domestic ethylene plants continuing to operate at high rates. However, crude oil prices remained high, and their impact has extended to raw material prices. In terms of earnings, despite the earnings benefit from higher net sales and the narrowing of the loss at Toho Chemical (Shanghai) Co., Ltd., operating income declined because these effects were insufficient to offset the impact of higher raw material prices and increased expenses.」

「However, concerns include the impact on business performance of higher raw material, labor and logistics costs, as well as the impact of trade friction accompanying the spread of protectionist trade policies, and the uncertain outlook is expected to continue. In the chemical industry as well, conditions remained relatively favorable, with demand for petrochemical products remaining firm both in Japan and overseas and domestic ethylene plants continuing to operate at high rates. However, crude oil prices are strengthening their upward trend, raising concerns about the impact on raw material prices.」

「However, crude oil prices are beginning to rise after bottoming in the second quarter, raising concerns about their future impact on raw material prices.」

「On the earnings side, although earnings were affected by higher raw material costs and the delayed improvement in the operating loss at 東邦化学（上海）有限公司, the earnings benefit from higher sales offset these factors, resulting in year-on-year increases in operating profit, ordinary profit, and quarterly net income attributable to owners of the parent.」

「On the earnings side, although earnings continued to be affected by higher raw material costs and the delayed improvement in the operating loss at 東邦化学（上海）有限公司, the significant contribution from higher sales led to substantial year-on-year improvement in operating profit, ordinary profit, and quarterly net income attributable to owners of the parent.」

「At our group, net sales for the fiscal year declined by ¥560 million, or 1.4%, year on year to ¥38,549 million, due to the impact of lower selling prices despite an increase in sales volume. In terms of earnings, although the delayed improvement in operating income and the substantial foreign exchange loss at Toho Chemical (Shanghai) Co., Ltd. caused by yen appreciation had an adverse impact, operating income and ordinary income both increased overall, owing in part to the improvement in profit margins resulting from lower raw material prices.」

「At our group, net sales for the nine months ended the third quarter declined by ¥869 million, or 2.9%, year on year to ¥28,624 million, due to the impact of lower selling prices despite an increase in sales volume. Meanwhile, in terms of earnings, both operating income and ordinary income increased, owing in part to the improvement in profit margins resulting from lower raw material prices.」

「In the chemical industry, the trend of a weaker yen and lower crude oil prices that had driven corporate earnings through the previous fiscal year has abated. Going forward, concerns include further deterioration in the export environment due to yen appreciation and rising raw material prices.」

「If material market prices surge and passing the increase through to product prices is difficult, our group's business performance and financial position may be adversely affected.」