Japan Chemical Sector "Chemical sector key point: naphtha price declines..."

Research evidence excerpt

Japan Chemical Sector "Chemical sector key point: naphtha price declines..."

Global Research

26 June 2026ab

Japan Chemical Sector Equities

JapanChemical sector key point: naphtha price

declines and their impact Chemicals

Shunta Omura

Analyst

shunta.omura@ubs.com

Positive over the medium term, but attention should be paid to impact on short- +81-3-5208 6244

term earnings

Currently, domestic naphtha prices are ¥79,000/KL, down 39% from the end-March

peak of ¥131,000/KL. For Japan's chemical industry, which uses approximately 32mn KL

of naphtha annually, this translates into cost savings (savings of approximately ¥32bn

per ¥1,000/KL). This is a positive development. If this trend continues, it will likely

contribute to the medium-term earnings recovery of upstream petrochemical

companies such as Mitsui Chemicals (4183, Sell) and Mitsubishi Chemical Group

(4188, Neutral), as well as midstream companies such as Nippon Paint Holdings

(4612, Neutral), Kansai Paint (4613, Neutral), and Kuraray (3405, Neutral). However,

attention should be paid to short-term earnings performance. Coupled with uncertainty

surrounding crude oil and naphtha prices, downside risks to short-term earnings are

likely suppressing share price advances.

Short-term earnings outlook (1): we expect strong earnings at diversified

chemical firms and weak at mid/downstream chemicals

In the April-June results, earnings of the petrochemical business at diversified chemical

companies will likely improve (Mitsui Chemicals, Mitsubishi Chemical, Sumitomo

Chemical (4005, Neutral), Asahi Kasei (3407, Buy), etc.). This is because petrochemical

spreads are expected to improve, and inventory valuation gains are expected to expand.

On the other hand, some of the mid- and downstream chemical companies may report