Toho may build plant in Malaysia

Toho Titanium Co may build a factory outside Japan for the first time as it seeks to escape escalating energy costs brought on by the Fukushima disaster.

The company, whose products are turned into lightweight and corrosion-resistant parts used in everything from Boeing Co’s 787 Dreamliner airplane to desalination plants, may spend several hundred million dollars to build the overseas plant in either Malaysia or another lower-cost site, chief executive officer Kiyonobu Sugiuchi said in a March 8 interview.

"It will be tough for us to operate plants just in Japan," Sugiuchi said in the interview in Chigasaki, south of Tokyo. "We used to insist on staying in Japan."

Toho Titanium’s possible move abroad highlights the challenges facing high-energy consumers such as steelmakers and chemical companies following the shutdown of almost all Japan’s nuclear reactors after Fukushima two years ago. Japan last year paid 6 trillion yen (US$62 billion) for liquefied natural gas imports, or 73 per cent more than two years earlier, as the nation turned to alternative power plants.

Higher titanium ore prices have pushed up raw material costs for the titanium industry. The cost of titanium ore delivered from Australia has tripled to US$1,550 per metric tonne in the past three years, according to Metal Bulletin data.

Ore costs and a higher bill for electricity pushed Toho Titanium’s operating profit down by 1.9 billion yen in the six months ended September 30, the company said in a November 9 statement.

The Japan Titanium Society, together with eight other domestic industry groups, in January urged the nation’s trade ministry to take measures, including subsidies and the resumption of nuclear plants, to alleviate cost increases.

Waning demand for titanium from industrial plant users is making it difficult to pass on increased costs to domestic customers, Sugiuchi said. Titanium ingot prices may fall for the first time in three years or at best match year-ago levels in the fiscal year beginning April 1, Sugiuchi said.

In addition to higher energy and raw material costs, the grounding of Boeing’s 787 Dreamliner since January 16 after battery failures is adding pressure.

Boeing’s new aircraft, which is built with light carbon-fibre materials instead of aluminum to boost efficiency, uses titanium in roughly 14 per cent of the total airframe, according to Boeing’s website.

Titanium use has been expanded in the 787 because it is resistant to corrosion, has minimal fatigue concerns and can withstand comparable loads better than aluminum, Boeing says.

Japanese companies have a record 35 per cent production share of the 787’s body. Mitsubishi Heavy Industries Ltd, IHI Corp, Toray Industries Inc and Osaka Titanium Technologies Co are among companies involved in the plane’s construction.

The possibility that Boeing’s battery woes will tarnish the Dreamliner’s reputation is of great concern, Sugiuchi said.

"If successful, other planes will be made using similar construction methods, leading to greater demand for titanium," Sugiuchi said. "It would be a problem if they don’t succeed with the plane."

The grounding of the 787 will have no immediate impact on earnings because the US planemaker is continuing with production even amid the investigation, Sugiuchi said.

Toho will deepen output cuts to 30 per cent in April and will keep factory operations lower than normal for the next 12 months as it awaits a recovery, Sugiuchi said.-- Bloomberg