Toho Titanium to maintain stable earnings

2015/05/19

Toho Titanium held the briefing session on their financial results for FY2014 and earnings outlook for FY2015 on May 14 in Tokyo. In order to consolidate their basis to steadily keep operation in black in FY2015, the company announced the growth strategy based on 3 basic measures; earnings recovery, business growth plan and realization of the stable profitability.

The company finally achieved a turnaround in the second half of FY2014, reducing the ordinary loss to 2.6 billion yen. The company expects operating income of 3 billion yen in FY2015. The net income is expected to post a surplus for the first time in seven periods.



In FY2014, despite the continued stagnant titanium market, the deficit was reduced by the increased titanium raw material sales, reforms including cost improvement and the increased sales in catalyst and chemical products such as titanium oxide for Multi-Layer Ceramic Capacitor (MLCC).

The sales in FY2014 were 21.9 billion yen in the titanium metal business and 11.7 billion yen in the catalysts and chemicals business, up 1.1 billion yen and 2.1 billion yen respectively from a year earlier.

As to the operating income in FY2014, the titanium metal business posted a deficit of 3.23 billion yen in consequence of the deficit of 3.49 billion yen occurred during the first half of the year, while the catalysts and chemicals business posted increased it to 2.34 billion yen.

The company plans to have operating income of 3 billion yen in FY2015 as the increased titanium sales, the reforms and the increased sales in in catalyst and chemical products which have continued since the second half of FY2014 are expected to continue. A long term contract has been signed up for the sales for the period from January to December in 2015, but the sales for the period from January to March in 2016 are not yet determined.

The company reduced both the annual sponge refining capacity from 13,200t of previous years to 9,600t and the annual melt capacity from 6,000t to 3,000t in April 2014 at the Chigasaki Plant where electric power cost is higher. The Wakamatsu Plant in Fukuoka prefecture with the annual production of 15,000t is said to have continued almost full production since January.

Sponge titanium inventory adjustment in U.S. to continue through the end of this year
As to their current business environment, inventory optimization is expected to take place in early 2016 due to sufficient scrap inventory in the supply chain of the aircraft industry. There is no sign of progress in inventory adjustment at the moment. Meanwhile, gradual recovery has been seen in the general industry, where China is showing a remarkable rise.

However, the mid-long term sponge demand is expected to continuously grow. According to the companyfs calculation, the demand for sponge titanium is forecasted to increase at an annual average rate of 4.6% between 2015 and 2025 with 5.8% for private aircraft and 2.9% for general industry. Japan has an advantage in the aviation industry.

Having increased continuously since the Q2 of FY2014 (5th consecutive quarterly increase), the shipment of wrought products in the U.S. is recovering. However, Kazuo Kagami, president and representative director of Toho Titanium commented when he visited U.S., gThe shipment of wrought products in U.S. is not bad, but itfs not completely good, not steady.h The increased shipment of wrought products has caused more scrap generation in the U.S. The price of titanium scrap seems not to rise for a while.

Severe conditions to continue in titanium sponge price due to supply-demand gap
Electric power cost is the key factor in production cost after all. The company didnft mention clearly, but it will continue to reduce production in the area such as the Chigasaki Plant where the electric power cost is higher and to increase its production in the area such as the Wakamatsu Plant where the electric power cost is relatively lower. Manufacturing titanium alloy for aircraft will be increased in the joint venture with the Naoetsu Works of Nippon Steel & Sumitomo metal, in which Toho Titanium doesnft need to bear the electric power cost. At the Noaetsu works, they will produce the aircraft engine, too. The certification for titanium alloy ingot used for aircraft is said to be acquired in 2017. The melt capacities of titanium ingot at the Naoetsu Works are 2,500t in a EB furnace and 3,000t in two VAR furnaces per year.

Joint venture of titanium sponge manufacturing with Saudi Arabia, so-called ATTM (AMIC-Toho Titanium Metal Company) will have the worldfs highest competitiveness and produce sponge titanium for aircraft attracting demand in the Middle East. The company has focused on the products used in desalination plant, but it will also expand their products used in aircraft. The establishment of ATTM is scheduled in June. The plant construction has already started this month, which is running 4 months behind schedule due to expansion of sponge production to aircraft industry. The plant will be scheduled to be completed in May 2017 and to start commercial production in December of the year.

The company plans to stabilize its income based on their two main business, titanium metal business and catalysts and chemicals business including propylene polymerization catalyst business. The company forecasts growing needs of environmental-responsive catalyst in the world, expecting the polypropylene demand to grow by an average of 5% per year.

Also, as to the electronic material business, demand for MLCC in which titanium oxide is used is expected to grow by an average of 7% per year widely from high end to low end.

The company says that the operating income from their catalysts and chemicals business will increase to 3 billion yen in FY2015 from 2.3 billion in FY2014.

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