Thank you for joining the Mitsubishi Chemical Group Corporation earnings conference call for fiscal year ending March 2027, second quarter. Now we would like to begin the briefing. First, Manabu Chikumoto, Representative Corporate Executive Officer, President and CEO, will deliver opening remarks, followed by Minoru Kida, Executive Officer, CFO, who will present the financial results for more details. Including the subsequent Q&A session, the entire meeting is scheduled to last 30 minutes. Before we begin the conference, please be reminded that in the presentation that follows, we may make forward-looking statements based on the current expectations. However, please be aware that these statements involve risks and uncertainties, and actual results may differ significantly from these forecasts. Please also note that the contents of today's briefing will be posted on the company's website. Now, President Chikumoto, over to you.
Good afternoon. Thank you very much for joining us for the first half financial results briefing. Before our CFO, Minoru Kida, explains the details of the financial performance, I'd like to briefly share management's perspective on the results. During the first half, we achieved growth in earnings in our specialty materials business, including semiconductor materials, precision cleaning services, high-performance engineering plastics, and carbon fibers. In addition, results of our ongoing reforms, such as pricing policy, reviewing unprofitable businesses, and optimizing production and reducing fixed costs, have begun to show in our financial performance. We believe this is the result of our underlying earning capacity itself beginning to transform. We will continue to execute reforms to achieve sustainable performance improvement and growth. While steadily continuing the restructuring of our petrochemicals and MMA businesses, we will further accelerate growth of our specialty materials business.
We will build the organization and foster human resources so as to create new value by combining our wide range of technologies. I often tell our people that you must light your own spark yourself. Results can only be achieved when there are people who take initiative and execute. We believe that each individual's challenge-taking is the driving force for our sustainable growth. We will continue to steadily execute these initiatives in the second half and beyond to enhance our corporate value. Thank you very much. We will now hand it over to our CFO, Minoru Kida.
Good afternoon, this is Minoru Kida speaking. Let me discuss the first half results. First is a summary. During the first half of the year, specialty materials industrial gases performed steadily.
Meanwhile, raw material markets remain volatile as naphtha prices have recently rebounded after trending downward from their spike driven by the Middle East situation. In the chemicals business, core operating income was JPY 95.1 billion, up JPY 62 billion over the same period of the previous year. The increase was driven by higher sales volumes, particularly for semiconductor-related products in specialty materials, as well as cost reductions, including workforce optimization in the previous year. In basic chemicals, expanded scale of scheduled maintenance and the influx of low-price products from overseas caused a decline in sales, but core operating income increased due to improvement in inventory valuation with the rise in naphtha prices. Together with solid performance of industrial gases, the overall core operating income for the group increased year-on-year by JPY 76.7 billion to JPY 202.8 billion.
Net income attributable to owners of the parent for the first half came to JPY 90.2 billion. This was a decline of JPY 19.9 billion year-on-year due to the gain on the sale of the former Mitsubishi Tanabe Pharma Corporation in the first half of FY 2025. In the forecast for the full fiscal year, core operating income has been upward revised from JPY 305 billion to JPY 340 billion, and net income attributable to owners of the parent has been upward revised from JPY 127 billion to JPY 145 billion. In the second half, we forecast continued favorable sales for semiconductor-related products, but we also expect the impact of the Kumamoto earthquake, a weakening of demand following the temporary increase in the first half due to growing instability in the Middle East, and ongoing uncertainty regarding the production and supply system in that region. Our dividend forecast remains unchanged.
We are expecting a year-end dividend of JPY 16 per share and an annual dividend of JPY 32 per share. We will continue to rigorously adhere to the three disciplined approaches in business operations, focus our management resources on areas that serve as next generation and growth drivers, and steadily implement proactive growth initiatives to achieve sustainable growth and enhance corporate value. Now, with regard to the consolidated statement of operations. The exchange rate was JPY 160 to the dollar, 10% weakening of the yen. The naphtha price was JPY 108,300 per kL, up 67%. Sales revenue came in at JPY 2 ,0 37.1 billion, up JPY 238 billion or 13% year-on-year.
There was a positive impact of JPY 187 billion from selling prices, a negative impact of JPY 60 billion from sales volume, a positive impact of JPY 109 billion from foreign exchange, and a positive impact of JPY 2 billion from restructuring. Core operating income came to JPY 202.8 billion, up JPY 76.7 billion year-on-year. This outperformed by JPY 8.8 billion the first-half forecast of JPY 194 billion announced in July. Main factors were stronger-than-expected demand for semiconductor-related products and a variance in projected inventory valuation gain and loss due to the smaller decline in naphtha prices. Special items came to a -JPY 3.1 billion. Operating income was JPY 199.7 billion, and income before taxes came to JPY 182.4 billion. Net income attributable to owners of the parent reached JPY 90.2 billion, down JPY 19.9 billion year-on-year.
While net income from continuing operations increased by JPY 89.4 billion year-on-year, the overall result was significantly impacted by previous year's gain of JPY 94.9 billion on the sale of the former Mitsubishi Tanabe Pharma Corporation under net income from discontinued operations. Next, on sales revenue and core operating income by business segment. For chemical business as a whole, sales revenue increased by JPY 151.8 billion, and core operating income increased by JPY 62 billion year-on-year. Sales revenue increased by JPY 151.8 billion. This despite shipment constraints at certain sites due to the Middle East situation and an expanded scope of scheduled maintenance compared to the previous fiscal year, thanks to surging market prices for products, higher selling prices across various products centered on specialty materials, and the foreign exchange.
Core operating income for the chemicals business as a whole increased by JPY 62 billion, significantly driven by strong performance in Specialty Materials, as well as substantial inventory valuation gains in Basic Materials resulting from the rise in naphtha prices. Industrial gases continued to progress stably, I should say, with sales revenue up 13% and core operating income up 16% year-on-year. Further details for each segment will be explained later. This slide shows the breakdown of the JPY 76.7 billion year-on-year increase in core operating income. Prices contributed for a +JPY 26.5 billion, while price gap deteriorated in polyolefins in Basic Materials during the naphtha price surge. Price gap improved overall due to higher selling prices in Specialty Materials and rising market prices for MMA monomer in MMA & Derivatives. Volume had a negative impact of JPY 1 billion.
Although sales volume expanded in Specialty Materials centered on semiconductor-related products, there were shipment constraints from certain sites for MMA stemming from the Middle East situation and extended scale of scheduled or expanded scale of scheduled maintenance in Basic Chemicals compared with the previous fiscal year. Cost reduction provided a +JPY 28.1 billion, as both industrial gases and chemicals accumulated cost-saving benefits in their respective businesses. Others contributed for a +JPY 23.1 billion. This includes an improvement of JPY 50.4 billion in inventory valuation gain and loss in tandem with rising material prices, including but not limited to naphtha. Now, further details by business segment. Please note that major factors for the year-on-year difference have not changed significantly since Q1. In Specialty Materials, core operating income was up JPY 30.7 billion year-on-year. Prices had a +JPY 22 billion impact.
The price factor improved across all sub-segments, particularly semiconductor-related products. Volume had a positive impact of JPY 12 billion. In Composites & Shapes, there was higher sales volume of high-performance engineering plastics for semiconductor manufacturing equipment and carbon fiber composite parts, primarily for robotaxis. In Information Electronics, sales increased for semiconductor-related products, particularly synthetic silica and precision cleaning services. Cost reduction had a positive impact of JPY 10 billion, with labor expenses coming down after last year's workforce optimization and rationalization through the review of production sites in each business. Others had a negative impact of JPY 13.3 billion, mainly due to cost increases accompanying inflation. For MMA & Derivatives, core operating income increased by JPY 5.3 billion. Prices contributed for a +JPY 13.7 billion. Market prices for MMA monomer were higher and widened the spread.
In Functional Chemicals, the price gap improved chiefly for additives with higher selling prices. Volume had a negative impact of JPY 8.8 billion. In MMA, volume declined due to reduced operations and constrained shipments at certain sites due to the Middle East situation.
Basic Materials reported an increase in profit of JPY 22.7 billion year-on-year. The price gap was a -JPY 15.3 billion. In the basic chemicals business, the timing of polyolefin sales price revision was out of sync with the rising naphtha price trend. The volume variance was a -JPY 7.9 billion. In the basic chemicals business, it worsened due to an expansion in the scale of scheduled maintenance and repair, and decline in sales caused by the influx of low-priced products from overseas. Others were positive by JPY 42.4 billion, including a JPY 49.9 billion improvement in inventory valuation resulting from rising naphtha prices. It is about JPY 50 billion. Industrial gas reported an increase in profit of JPY 14.7 billion year-on-year. This was driven by higher sales resulting from growing demand in Asia and Oceania, as well as cost reduction through productivity improvement promoted in various regions. Special items.
Special items for the first half resulted in a net loss of JPY 3.1 billion. We recorded a gain on the sale of property, plant, and equipment of JPY 13.7 billion, primarily from the transfer of land associated with the relocation of Nippon Sanso Holdings headquarters. On the other hand, we also recorded losses related to the implementation of structural reforms and disaster-related losses stemming from Kumamoto earthquake, resulting in a net loss of JPY 3.1 billion. I will now explain the cash flows on this page. Operating cash flow resulted in a net inflow of JPY 157.8 billion. Cash flow from inventory amounted to a net outflow of JPY 76.4 billion, primarily due to rising raw material prices such as naphtha and the buildup of inventory prior to scheduled maintenance and repair.
Other cash flows resulted in a net outflow of JPY 85.9 billion, which included payments of retirement benefits related to the Next-stage Support Program implemented last fiscal year and payment of corporate income taxes. Investing cash flow resulted in an outflow of JPY 94.9 billion. We spent JPY 140 billion on capital expenditure. Growth investment projects in specialty materials, such as capacity expansion for carbon fiber and composite engineering in Italy, are progressing. Cash flow from asset sales was a +JPY 46.4 billion. We recorded proceeds from the sale of cross-shareholdings as well. As a result, free cash flow was +JPY 62.9 billion. Financing cash flow resulted in an outflow of JPY 164 billion, primarily due to the repayment of interest-bearing debts and dividend payments. This is a consolidated statement of financial position.
Total assets amounted to JPY 5, 802.1 billion, down JPY 74.5 billion from the end of the previous fiscal year. Cash and cash equivalents decreased by JPY 103 billion due to the repayment of interest-bearing debts. Foreign exchange effects also contributed to the decrease in total assets. On the other hand, inventory increased by JPY 70.7 billion due to soaring raw material prices. Taking these into account, total assets decreased by JPY 74.5 billion. The net debt-to-equity ratio stood at 0.79x, slight improvement from the end of the previous fiscal year. On this page, we provide supplementary information on the trend in the core operating income from the first to second quarter. The core operating income for the second quarter was JPY 88.7 billion, down JPY 25.4 billion from the previous quarter.
The core operating income for Specialty Materials was JPY 32.1 billion in the second quarter, down JPY 6.2 billion QoQ. Although the semiconductor-related business performed steadily, this decline was driven by a narrowing of spread due to rising raw material prices and pullback in demand following the surge in customer inventory buildup observed in the first quarter. MMA & Derivatives posted JPY 1 billion, down JPY 7 billion. This was primarily due to a narrowing of the price gap resulting from a decline in MMA monomer market prices. Basic Materials posted a loss of JPY 700 million in the second quarter, a decrease of JPY 15.5 billion from the first quarter. Although there was an improvement in the price gap for polyolefins due to a reduction in the scale of scheduled maintenance and repair and decline in naphtha prices, profits fell significantly due to a deterioration in inventory valuation.
The industrial gases segment performed steadily, with core operating income for the second quarter at JPY 53.6 billion, remaining almost flat from the first quarter. Next, I will explain the revision to the full-year forecast for the fiscal year March 2027. The forecast for the second half is based on the exchange rate of JPY 155 to the US dollar and naphtha price of JPY 100,000. Full-year sales revenue is projected to be JPY 4.06 trillion, up 7% from the initial forecast. We are revising our core operating income forecast upward to JPY 340 billion, up 12% from the initial forecast. Details by segment will be explained on the next page. For special items, we have revised the initial forecast of -JPY 5 billion to -JPY 12 billion.
The main reasons are our ongoing business restructuring efforts and the fact that we have factored in losses related to the Kumamoto earthquake. Consequently, we are revising upward our forecast for operating income to JPY 328 billion and net income attributable to the owners of the parent to JPY 145 billion, an increase of JPY 18 billion from the initial forecast and a year-on-year increase of JPY 133.2 billion. I will now explain the full-year core operating income forecast by segment. Specialty Materials is projected to reach JPY 118 billion, up JPY 28 billion from the initial forecast. Although there will be some impact from the Kumamoto earthquake, we expect results to significantly exceed the initial forecast due to increased sales volume of semiconductor-related products and the effects of our ongoing pricing policies. For MMA & Derivatives, we expect JPY 10 billion, down JPY 1 billion from the initial forecast.
Although we are seeing rising MMA monomer market prices and effects of our pricing policies in the Functional Chemicals business, the outlook is expected to fall short of the initial forecast due to impacts on the production and supply systems stemming from this situation in the Middle East. Basic Materials is projected to reach JPY 11 billion, up JPY 16 billion. Although sales have declined due to the influx of low-priced overseas products, significant inventory valuation gains resulting from the rising naphtha prices were recorded in the first half. As this is expected to persist throughout the fiscal year, earnings are projected to significantly exceed the initial forecast. As a result, the core operating income for the chemicals segment is expected to exceed the initial forecast by JPY 35 billion, reaching JPY 135 billion.
However, we anticipate a JPY 55.2 billion decline in profit from the first half to second half. This factors in the negative impact of deterioration of the inventory valuation gains recorded in the first half, the effects of Kumamoto earthquake, and deterioration in the price gap due to rising raw material prices compared to the first half. For the industrial gases, we are maintaining our initial forecast at JPY 205 billion. Last but not least, I would like to discuss dividends. Given that the outlook remains uncertain due to the situation in the Middle East, the board of directors resolved at its meeting today, November 5th, to set the interim dividend per share for the fiscal March 2027 at JPY 16, in line with the previously announced forecast. Furthermore, for the same reasons, we are maintaining the previously announced forecast of JPY 16 for the year-end dividend.
Consequently, the projected annual dividend per share for the fiscal year March 2027 is JPY 32. We will revisit the year-end dividend at the time of the year-end earnings report for this fiscal year. This concludes my presentation. Thank you for your attention.
Thank you very much. We will now take questions from the floor. The first question from Daiwa Securities, Umebayashi-san, please.
Good afternoon. Thank you very much for your presentation. This is Umebayashi from Daiwa Securities. I have a question on specialty materials, and particularly the volume factor. In Q1, the situation in Middle East caused some increase in volume, and you mentioned that there was a reactionary decline in Q2. But what does it look like now? Is it continuing, and we will see more in the second half? That is one part of the question. And for some products, I understand that there will be an impact of the earthquake in Kumamoto. If you could perhaps provide some information, particularly some quantitative information.
Thank you very much for your question.
First, on the Q-on-Q comparison, and the reactionary decline Q-on-Q, I think that has run its course, so we are back to normal for most of products. Having said so, going forward, some customers are still going through inventory adjustment, but generally speaking, in Q2, the reaction or adjustment has run its course. So we are now on normal levels. And with regard to the impact of the Kumamoto earthquake, the earthquake was quite severe, and our production facilities were all damaged, and some of the logistical facilities were damaged. But our inventory, the products in inventory were not so damaged, so we were able to continue to ship the products. But restoration, particularly for OPL, so that is a type of film that we actually produce in Kumamoto, so we are trying to restore that.
OPL, we were preparing for capacity expansion, so there are, we call this [Non-English content]. They have this facility that is the eight, but line nine, we are actually using the parts that we were planning for line nine for line eight, so as to restore the production as soon as possible and minimize the impact on our customers. We are working hard on that. Having said so, if you look at a full-year, there will be expenses incurred. Maybe JPY 4 billion-JPY 5 billion would be the negative impact from the Kumamoto earthquake, and we factored that into our revised forecast. That's where we are.
Thank you very much.
Thank you very much, Mr. Umebayashi. Next, from Morgan Stanley MUFG Securities, Mr. Watabe, please.
Thank you for the presentation. Is President Chikumoto still there?
Yes.
I have a question to the president. As for specialty materials profitability, capability, it is improving significantly. As for direct and indirect materials for semiconductors like cleaning are improving. This organic semiconductor materials growth and inorganic growth, including M&As, what is your thought on this?
As for organic growth, as you can see, we're doing well in terms of growth. As for inorganic growth, we would like to be more proactive.
There are various reports being made. Any comments on those?
For the moment, there is nothing that's official. Even though the media are reporting, it's not finalized, and the numbers are not that finalized, and sometimes that don't make sense. I'm not wondering what, but if there is some direct reports, then we may give you some thoughts.
Thank you very much. I'm sorry for asking this question.
Let's go to Omura-san from UBS Securities.
Good afternoon. This is Omura from UBS Securities. It is related to the first question. I'm also interested in the volumes, and I would hope for further clarification there. For specialty materials and the volume, you talked about JPY 12 billion from volume, but MMA and Basic Materials, jpy 7 billion- JPY 8 billion, that's negative. Could you perhaps explain why the difference is, and what product they are related to, perhaps?
Thank you very much for your question. For the volume part, thank you very much for looking at all the details. For Specialty Materials, there is a volume factor of JPY 12 billion, and I am actually impressed, although I may not be supposed to say this. What is this JPY 12 billion? If you look at the breakdown by segment of this, more than JPY 10 billion comes from Composites & Shapes. Volume contribution from Composites & Shapes, JPY 10 billion out of that JPY 12 billion. JPY 10 billion+ , I should say. Half of that comes from high-performance engineering plastic. We call them stock shapes or engineering shapes. We called it Quadrant business. Why is this volume growth? This is related to semiconductor too. For semiconductor manufacturing equipment, they use high specialty engineering plastic, particularly those with high thermal resistance.
Half comes from that growth. The remaining half comes from carbon fiber composite parts. I am sure we showed you to everyone, and we had this tour for some people. Therefore, we are serving the robotaxis. That is the breakdown of that JPY 10 billion + from Composites & Shapes. If you look at it from a market perspective, JPY 7 billion out of the JPY 12 billion comes from semiconductor-related demand. I talked about Composites & Shapes, and JPY 5 billion is semiconductor-related. The remaining JPY 2 billion comes from Information Electronics. This time, there was a big growth in synthetic quartz, and we are getting a lot of inquiries, but we are trying to now open additional capacity in FY 2028, and the current capacity is running at full capacity.
There is very strong demand here, and the business is doing very well. As I mentioned at the beginning, precision cleaning, that business is also strong. I talked about the materials that supply semiconductor manufacturing equipment, but in relation, the precision cleaning is also getting more orders, and that is contributing to volume. With regard to MMA, there was this JPY 8.8 billion impact, and not all, but part comes from plant trouble, which curved shipments. Most comes from the sales volume reduction in Saudi Arabia. There is this issue of a plant operating or not, and the vessels cannot really get there or get out of there. It is not 100% impossible, but it is very risky. We cannot really ship from that location, and that accounts for the majority of this -JPY 8.8 billion. Another part is Basic Materials.
JPY 7.9 billion is a negative contribution from the volume factor. Of that, one quarter comes from the scheduled maintenance, and there has been some minor troubles or stoppages. That also had a negative impact on volume. The technology licensing fees also included in this volume factor. That also had some contribution. That would be the breakdown of the volume factor. I hope I am answering your question.
Yes, thank you very much. What about film-related OPL and polyester film or SoarnoL? What would be the volume momentum currently?
Thank you very much. I actually wrote that in a comment. For films, MLCC, the ceramic capacitors use films, and we are shipping a lot for that application. That has a positive impact on volumes. Films & Performance Materials, the volume increase accounts for about JPY 1 billion. That is from MLCC. The earthquake in Kumamoto was in August, so the negative impact is only one month worth. The OPL impact was not major in the first half, but there will be more in the second half. We may fall a little short of the plan there, but we are trying to minimize the impact. We are working hard to restore the production facility. We are also trying to make the best use of the inventory available.
Thank you very much.
Thank you very much. Next question from Nomura Securities, Mr. Okazaki, please.
I am Okazaki from Nomura Securities. Thank you very much. I would like to also ask about specialty materials. In the second quarter to the third quarter, the terms of trade, how should we look at this? In the first half and second half, there is a comparison on page 24. From the second quarter to three quarter, for those five sub-segments, on the current assumption, that is the prices, what would be the terms of trade?
Well, thank you very much. As for the terms of trade, in terms of special materials, there is not a special or a fixed formula to decide the prices definitely. Relatively speaking, there is a major trend by customer, but different customers have different trends, and different products have different trends.
From the second to third quarter, if you ask us what would be the products where we would see big changes in the trend, some film products, mostly bulk, something close to what is called bulk products, the film products, this is linked to the raw material prices. As for specialty materials, what would be most affected and then linked, relatively speaking, with naphtha, that is the polypropylene compounds, polypropylene compounds would be affected by naphtha prices. Going forward, what would be the oil prices, and JPY 100,000 is the price assumption now, but this could change, and that could have some impact. We cannot really tell what would be the price of oil, and so is the naphtha prices. It is very difficult to predict because the oil prices have dropped by $8, for instance, this morning.
After the result of midterm elections in the U.S., energy indices may move. We have to closely watch that.
What you said at the outset is the polymer compounds, based on JPY 100,000 naphtha price from Q2 to Q3, you were saying that spread is going to worsen?
For some parts, yes, there could be a deterioration, and as a polymer compounds. A supplemental question. The fuel and raw material prices could go down from now, so it is difficult to tell the timing, but you do not have to reduce the price as much as the fuel and raw materials cost decline. Is that what you feel? As for the formula, the price revision timings are different from customer to customer, and frequencies are different.
Sometimes some customers have just once a year, although very few, but most of them have accepted the price revisions twice a year. The frequency of price revision is different, and also the inventory valuation differences also are related in some of the specialty materials. What is the inventory valuation? The index of, at that time, the price index declined, but our fuel prices are on the average, so the price would decline faster than the cost decline. If the fuel prices are going up, then the product price would go up first, and then cost would catch up later. In the first quarter, there was a more positive gap favorable to us. In the second quarter, the fuel prices and the raw material prices went down. The cost actually caught up afterwards. There is a squeeze of the gap.
The sine curve and cosine curve, and there is a difference. Always the prices are catching up with the cost prices. It is very difficult to see that. For the second quarter, third quarter, what would be the price reduction that we should ask or we should be asked? There is no such information or awareness that we have now.
Nishihira-san from Okasan Securities, please.
This is Nishihira speaking. I have one question. This time, you have upward revised the core operating income forecast for the full-year. Is it just something that is on a comparable basis, or is it something that you have further upside but trying to be conservative? Could you perhaps elaborate on the nature of the upward revision, please?
Thank you very much for the question. Personally, I believe it's a little conservative. There are various risks that we are aware of and we are wary of. For example, with pricing, particularly pricing, perhaps I should say. We try to be conservative. Obviously, this is formulated bottom-up, and the result is this number. We are probably falling short by JPY 15 billion or JPY 10 billion, particularly for chemical. We wouldn't fall short of that, but there's this volatility with regard to energy prices and raw materials, so we really can't be very accurate in our forecast. But these numbers are quite solid numbers.
Thank you very much. That was very clear and easy to understand. Thank you very much.
Thank you very much, Nishihira-san. From Mizuho Securities, Mr. Yamada, please.
Yamada from Mizuho Securities. Thank you very much. You said that you are conservative, maybe not appropriate to ask this question afterwards, but I'd like to ask about Basic Materials more. In the second quarter, there was a slight deficit, almost break-even. From the first to second quarter, the inventory valuation -JPY 1 billion plus, and the purchase unit price is going to go up. The terms of trade is not going to improve. That was the situation that we've seen. In the second half, ideally, the volume is going to recover to some extent, and based on JPY 100,000 assumption, there's no major absolute value negative number in terms of inventory valuation. Why is it going to deteriorate in the operating income in the second quarter times two?
There was more worsening of that. Can you explain more of that? You said that cokes for steel-making will be withdrawn, but there is some continuation of business. Even if you have withdrawn from the cokes, you can still continue with pitch cokes, which are the byproducts. Why is that?
Well, thank you very much. For Basic Materials, honestly speaking, it is very difficult to tell and predict. First of all, in terms of price gap, in the first half, it was a timing difference, and it turned out to be negative to us. There was a time lag, and it is catching up. There is going to be improvement because of this catch-up. In the end, what matters most is the JPY 100,000 assumption, and there will be some inventory valuation gain that will be gone to some extent.
That will be the biggest impact in one word. As for the sales forecast, from second quarter to third quarter or first half to second quarter, there is no major change in the trend that we see. From the last fiscal year, we have been talking about this from time to time, but we are saying that this is a living animal. Ethylene derivatives of the ethylene oxide or ethylene glycol or polypropylene derivative, acrylate, and oxo alcohol or acrylonitrile, those are the products that would see the sales decline, and this is becoming more serious in the long-term trend. If you cannot sell those products, those products have not been imported from overseas, but the customers' products that are using our products as raw materials are actually faced with the competition from the products overseas, and our products are not selling in the end.
That is very clear. Restructuring the plant, downsizing would have to be done more drastically. Otherwise, it would be very difficult to recover from this impact. Restructuring has to be accelerated. That is how we are in the Basic Materials.
What about carbon?
As for the carbon, you asked about this carbon business, right? Carbon materials, right? That we announced today?
Yes.
The carbon materials, we have decided not to stop the business. It is not about carbon materials business that have seen some major changes, but rather than that, derivatives or chain products, like pitch-based carbon fiber, is something that we are seeing very important. As you know, there is a PAN-based and pitch-based, and pitch-based is a very niche product, like elasticity and also strengths coexist, and also thermal conductivity is very high.
The pitch-based fiber, carbon fiber specification is really increasing in terms of pure specialty applications. The pitch-based carbon fiber quality has to be maintained in order to meet that demands. In order to do that, the upstream carbon material production facility would have to be continued to be operated. That is how we decided in the end. That is why we said that we decided not to withdraw from carbon materials. Of course, in the carbon materials, needle cokes business would be continued, and we will work on improvements. Needle cokes is not the reason for this decision this time, but pitch-based carbon fiber increased sales or sales to new applications. These are the things that we are taking possibly, and that is how we got to the decision that we made today.
Thank you. I'm not learning much, but even if your coke oven is stopped for steel-making, the pitch-based carbon can be produced even if it is a chain byproduct. Pitch-based carbon fiber is used for semiconductors production equipment like robot arms. PAN-based carbon fiber cannot be used because of Young's modulus. So it's a very monopoly. But the raw materials that are procured from others cannot make that performance. Vertical integration really has barriers to new entry. Is that something that has been demonstrated?
Well, in terms of technologies, it's just our secret, so we cannot tell you details. There's carbon materials, there's cokes, and then there's tar, the pitch is coming out. From tar, you create carbon materials. Pitch tar and pitch carbon fiber are produced at the same time.
As a flow, pitch is, and then carbon materials and the carbon fiber. The needle cokes and others are intermediate processes, so in the overall workflow. At the most downstream, there is the pitch-based carbon fiber. We would like to just continue with pitch-based carbon fiber, which is the most downstream. But we get back and consider that the intermediate process could affect the quality of our product, the carbon fiber product at the downstream. We learned that, so that's why the intermediate process of carbon materials would not be withdrawn from, but rather to be continued. As Mr. Yamada, you said, the pitch or tar is coming from cokes. That's what you're talking about. But you can actually use tars that has been externally procured. That's what we've learned, and that's why we made this decision that we made today.
Okay, thank you. It's clear now.
Thank you very much. Let's go to Miyamoto-san from SMBC Nikko Securities.
Miyamoto speaking. Thank you very much. I have a question about Composites & Shapes and Q-on-Q difference and the first half, second half difference. Looking at page 25 of the slide set, you looked at the sub-segments are going down on Q-on-Q. Could you explain that? What do you expect for the second half? You are looking at a decline of JPY 5.5 billion. What would that mean for sub-segment? Particularly, what about the composite parts, carbon fiber composite parts for robotaxis?
Miyamoto-san, thank you very much for your question. You are trying to be nice, and you are holding back things as you ask questions. Because I think that between the first half and second half, there's this JPY 5 billion decline. This business, the major battlefield is in Europe. There's this impact of the holiday season, the Christmas season. The production and shipments are always slow. Seasonally, every year, second half is slower than the first half. But even with that, the decline appears quite large, and maybe I shouldn't say that, but I actually thought so too. With regard to robotaxi, compared with the initial expectation at the beginning of the year, the supply chain on the customer side is actually causing us to expect a smaller number than initially expected. But the momentum is not so different.
Rather than that, this is driven more by engineering plastics. There's this low season that we maybe misread. We were expecting the second half to be a little better in earnings. We are expecting that things will be a little better in second half.
What about Q1 to Q2? That would be due to robotaxi, or what about the shipments for robotaxi?
Actually, Q1, Q2, that was increasing. But if you look at first half and second half this year, and the calendar year and the fiscal year, it's a little confusing even for me. Let me see. Q1, Q2 almost same with regard to the number of units. Actually, there will be slight increase into Q3 and Q4. Compared with the first half, second half will be up by 50% in terms of the number of cars.
Thank you. You talked about the client part supply chain. Is that like batteries and other components?
I'm afraid that's a client-side issue. I can't really discuss too much detail. I'm not sure if it's the assembly process or if it's about the procurement of other materials. I'm not privy to all that.
Of the midterm, you don't need to adjust your view?
That's how I think.
Thank you. I have a related question. NHTSA, the exemption, there's this 2,500 units, that's a ceiling. What are you going to look at beyond the 2,500 number and your strategy?
Thank you very much for the question. For the short term, we are trying to increase the number, and that's two years down the road, three years down the road, and there is uncertainty.
We will need to see an increase in the geographical coverage, and we also expect some demand growth. We will need to look at the track record, how safety is confirmed, and that would probably lead to an expansion in the number of cars allowed.
Thank you very much.
Thank you very much. We can take one last question. This will be the second time, but Mr. Okazaki from Nomura Securities, please.
Thank you. Okazaki from Nomura. MMA, like usual, second quarter or second half market assumption and capacity utilization assumption and supply-demand gut feeling and production status. Can you talk about all these? Thank you.
As for the market prices, in the second quarter, $1,700 was mostly the price that they were in. As for the price assumption for the second half, it is expected to go down between $1,700 and $1,600, but upper half of $1,600s is the price assumption that we have. With regard to capacity utilization, it is very difficult to tell. In Saudi Arabia, at least in the third quarter, we will not be able to restart the plant. That is incorporated in the forecast.
In the second quarter, the capacity utilization was 60%. That was assumption. What was the result actually? What will be the assumption for the second half?
As for the second quarter, as you said, 60%. I cannot go into too much detail, but slightly less than 60% was the result of second quarter, globally speaking. In Asia, there was a supply chain disruption, but in other sites, there were some trouble or problems. Relatively speaking, we are expecting a low level. The second half, how are we looking at this? On the average, around 60%, 6-0. Of course, plant by plant, there will be some ups and downs, but overall, 60% in the average.
What about the supply-demand tightness? Is it not different or changed? Changed? No change? Low level?
Supply-demand level is not that low, if you ask us.
Of course, there is an issue of spread in the market prices, but it is close to $1,700, so things will not change that much from now.
Thank you.
Thank you very much, Okazaki-san. We have five more minutes, so I think we can take one final question from Umebayashi-san of Daiwa Securities. If you could make your question short, please.
Thank you very much. This is Umebayashi speaking. It relates to Yamada-san's question earlier. You are no longer withdrawing from some carbon materials, so you will probably have to reverse JPY 9 billion for the provision you took for restructuring. If you look at the annual forecast, if you look at the special items, you are actually downward revising by JPY 7 billion. That would mean you have JPY 16 billion that is something negative in the special items that is not coke.
Yes, thank you very much. There is this JPY 9 billion reversal that we have factored in.
Then the situation in Kumamoto after the earthquake, there are losses that are recognized or factored in. Other than that, we are still continuing our structural reform. The major things have been done or underway, but there are smaller ones that we are continuing. That is probably the normal course of things that we do, and those are included. To be more specifically, what items, what projects, how much, I am afraid at this point in time, we cannot share any further details.
Thank you very much. That is all from me.
Thank you very much. May I? Yamada asked the question, why now the carbon material business and facility is going to be restarted? It is very difficult to understand. I am so sorry. We have announced this first and then withdrew that. It is very important to explain to the customers as well as to the government. We are still in the process of explaining for the next two days. Even if we have decided not to withdraw, it would be worthwhile to do that, and there is a potential enough, large enough for the future as a product. That is why pitch-based carbon fiber expansion is something that we have changed our directions to. For the applications, the thermal management materials or outer space or aerospace, those are the applications that we see.
In the near term, there is a momentum that we see, honestly speaking. It is not that big of a number yet, but our pitch-based coke's quality, I believe, is the world's best. In order to incorporate that world's best quality, we need to continue to have the production facility that is unique to us, and we definitely need to continue to operate that facility and increase the investment as well. That is what we have announced.
Thank you very much, Mr. Chikumoto. That is the last question that we had received, and I would like to ask Mr. Kida to give us closing remarks.
Thank you very much for joining us for this earnings conference call, the busy schedule today. Our first half results showed a significant increase compared to our initial projections at the start of the fiscal year as a result.
But as we explained, there is some inventory valuation gains that is incorporated in this increase. After the midterm election in the U.S., there could be more uncertainty going forward. In this uncertain situation, we would like to get united to meet the expectations from the stakeholders. Thank you very much, and I would like to ask for your kind cooperation. Thank you.
That concludes the conference call, and this will be archived and made available on demand, so you can replay that at any time you like. That concludes our conference call. Thank you for your attendance today.