Report: Better days ahead for Zeon elastomers business  

Tokyo – Weakness in elastomer materials markets are set to have a negative impact on earnings at Zeon Corp. for the full fiscal year to 31 March 2015, according to a report by Investment Bridge Co. Ltd. The study, however, identified some bright prospects for the elastomers business on the back of new capacity additions and materials innovations.

Overall, the Tokyo-based chemicals and advanced materials maker is on course for a 4.6-percent year-on-year rise in sales to Yen310.0 billion. However, the investor-focused ‘Bridge Report’ said operating income would decline by 23.2 percent to Yen25.0 billion due partly to “uncertainties arising from the elastomer materials market conditions”.

During the first half of the fiscal year, synthetic rubber sales volumes declined at Zeon, with domestic sales and exports of general-use rubber falling by 2 percent and 8 percent respectively. Weak sales of tires within Japan, weakness in overseas markets contributed to these declines. Increases in sales of low-priced latex products and flat sales volumes further contributed to the downward sales trend.

On the plus side, speciality rubber sales rose by 4 percent year-on-year, with both domestic sales, exports and sales of overseas subsidiaries trending favourably. Speciality rubbers also increased in their share of Zeon’s sales – to 34 percent and 57 percent in volume and value terms respectively, compared with 32 percent and 54 percent previously.

However, a deterioration in overseas market conditions, high materials prices, and a Yen0.7-billion increase in depreciation from the company’s Singapore plant contributed to a 16-percent year-on-year decrease in operating income at Zeon’s elastomer business, the reported added.

Looking to the future, Investment Bridge noted that Zeon supplies tire makers with styrene butadiene rubber (SBR), butadiene rubber (BR) and isoprene rubber. With the characteristics of SBR now being further refined for use in low-fuel-consumption S-SBR, the report said demand is expected to rapidly expand, and capacity is expected to be increased.

A focal point for this expansion will be Zeon’s Singapore plant, which started operation in September 2013. Capacity there is expected to rise in the second half of 2016 by up to 40,000 kilotonnes per annum (ktpa) –  from the current level of 55ktpa.

“The addition of a second manufacturing line at the Singapore plant can be expected to contribute to future growth in Zeon’s earnings over the longer term,” said the report.

Zeon, meanwhile, claims to be the world’s number one manufacturer of specialty rubber for applications such as automotive radiator hoses, fuel hoses, fan belts and oil seals.Products typically include its Zetpol hydrogenated nitrile rubber-based timing belts that are said to display superior heat and oil resistance.

A new version of Zetpol has significantly improved the performance of products using the original versions of the HNBR, including a 15-degree C increase in heat resistance, according to the Bridge Report. The material, it said, extends the life of seals and gaskets and is in strong demand for use in next generation bio-fuel engines. Commercial production of the new Zetpol started in November 2012 at Zeon's Kawasaki Plant and reached full-scale production in 2013.

“The new version of Zetpol is well suited to extruded processing, which is being leveraged to expand its usage in various hoses,” continued the report. “Products using Zetpol have also been well received by customers, and are being used increasingly as a replacement material for expensive rubber in Japan, Asia, Europe and North America.”