Denka elastomers business hit by reduced chloroprene demand

TOKYO—Denka Corp.'s elastomers and infrastructure business, which includes chloroprene rubber 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 the red with a loss of $9.9 million for the three months ended Dec. 31, 2022.

Overall, for the first nine months of the year, the segment reported a marginal year-on-year loss mitigated by a $11.4 million recovery in the second quarter.

Segment sales rose 17 percent during the nine-month period to $720 million, driven by price hikes.

For the full year, ending March 31, Denka expects a segment operating loss of $11.4 million, down from an earlier estimate of $26.7 million profit in November last year.

Segment sales are estimated to come in at $952 million, down 15 percent from the $1 billion outlook presented in November.

Third quarter chloroprene 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 Japan-based 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 said.

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.