Denka elastomers unit hit by slowdown in chloroprene rubber demand

Tokyo – Denka Corp.’s elastomers & infrastructure business, which includes chloroprene rubber (CR) and cement units, has seen a trend reversal in its third quarter results.

The unit, which swung into profit in the second quarter of the fiscal year, saw operating income going into negative territory with a loss of Yen1.3 billion (€9 million) for the three months ended 31 Dec 2022.

Overall, for the first nine months of the year, the segment reported a marginal year-on-year loss mitigated by a Yen1.5 billion recovery in the second quarter.

Segment sales rose 17% during the nine-month period to Yen94.5bn, driven by price hikes.

For the full year, ending 31 March, Denka expects a segment operating loss of Yen1.5 billion, down from an earlier estimate of Yen3.5 billion profit in November last year.

Segment sales are estimated to come in at Yen125 billion, down 15% from the Yen140 billion outlook presented in November.

Third quarter CR shipments "were lower year-on-year due to inventory reductions at users,” said Denka in its quarterly report.

This, it said, was due to declining demand in industrial, adhesive, automotive, and other applications, as well as intensified competition in the market.

“While there remains a scarcity of CR suppliers, a growing volume of CR is being held up in the form of inventory at user companies due mainly to the recent disruption of logistics networks,” Denka noted.

And, although the disruption “has largely subsided”, the Japanese group said a “deceleration” in global economic growth had caused CR demand to decline in step.

“This, in turn, resulted in a radical decrease in CR sales volumes starting from October 2022,” it explained.

On the upside, Denka said it expected demand to gradually recover from June following inventory adjustments.

In terms of sales prices, Denka said it had been acting “as a price leader and thus promoted upward price revisions.”

The manufacturer said it had raised CR prices four times since last year without losing market-share.

“Accordingly, we intend to maintain CR sales prices at a level commensurate with product value,” it concluded.