Japan's chemical sector ripe for consolidation

The globalization of the chemical industry and the challenges it presents could drive Japan's chemical players to seek acquisitions abroad or consolidate at home. Japanese firms, with solid balance sheets resulting from years of conservative fiscal management, are certainly in a prime position to take advantage. Nevertheless, Japanese mergers have been difficult because M&A activities are not traditionally natural to the Japanese business culture. Ever since the failed merger of Sumitomo Chemical and Mitsui Chemicals that was to have taken place in 2003, Japan's chemical industry has seen little M&A activity.

However, recent reports are emerging from Japan that Mitsubishi Chemical is in talks to acquire Mitsubishi Rayon in what would be a major consolidation of the Japanese chemical industry. Japanese manufactures are under pressure to focus on high-function products and boost their economies of scale to survive global competition as cheap chemical products from the Middle East and China are expected to flood the market from later 2009. Once this happens, consolidations will be discussed and some will materialize.