Denka mulls 'comprehensive measures' for chloroprene business on sluggish demand

TOKYO—Denka Corp. is considering the need for "comprehensive measures" at its chloroprene rubber (CR) business in response to a decline in demand and environmental challenges seen in 2023.

The Japan-based group aims to make a decision by mid-year, "carefully examining" whether demand can recover to pre-COVID levels of around 270,000-290,000 metric tons per year.

As well as demand, Denka will assess factors such as exchange rates and raw materials market trends to determine an "optimal production capacity" for its CR business, Denka said May 10.

The decision will determine the capacities required at the group's plant in Qinghai, China, and its Denka Performance Elastomer L.L.C. (DPE) facility in LaPlace, La.

Denka also noted potential impact of "very stringent" regulations announced by the U.S. Environmental Protection Agency on April 9.

The group, however, said it will decide on fundamental measures for the CR business based on broader factors, particularly demand trends.

For its fiscal year 2023, ended March 31, Denka's elastomers business—which largely comprises the CR operations and cements—reported an operating loss of $595 million (Yen 93 billion), down from a prior-year profit of $70.4 million.

The reversal reflected "global sluggish demand for CR" as well as increased costs at DPE, which led to inventory-valuation losses linked to raised fixed costs, Denka said.

According to the group's results statement, demand has remained sluggish for industrial and adhesive products since the third quarter of fiscal year 2022.

Denka noted a "recovery trend" in demand for automotive applications but said ongoing inventory adjustments in the market have continued, leading to a decline in volumes.

Volumes at the Japanese materials supplier saw further impact from disruptions caused by the Noto Peninsula earthquake on Jan. 1.

Looking ahead, Denka said it expects selling prices to decline due to "intensified competition" in the near-term; however, the group also anticipates a reduction in inventory valuation losses due to demand recovery, thereby narrowing its losses.