(Bloomberg) -- Japan’s chemical companies need to combine their most carbon-intensive businesses into a national “champion” if they are to survive an industry transformation driven by global decarbonization efforts, the chief executive of one of the country’s top chemical firms said. 

Jean-Marc Gilson, the Belgian executive who heads Japan’s Mitsubishi Chemical Holdings Corp., called on Japanese petrochemical makers in the country to follow his lead and combine petroleum assets into a company that can compete globally and invest in emission-reducing technology. 

“Petrochemicals need to go through a transformation -- that will require a lot of capital, and no one by themselves will be able to do it,” Gilson said in an interview with Bloomberg News in Tokyo last week. 

Gilson announced in December that he aims to sell off the firm’s carbon products and petrochemical businesses. In the interview, he stepped up his appeal to domestic rivals, as well as the government, for support. 

Japan needs just “one or two” companies in the sector, he said, envisaging a company worth $15 billion to $20 billion with enough capital to “retool” into using cleaner energy. “This country doesn’t need five -- and all are subscale.” 

Mitsubishi Chemical’s CEO Makes Mark With Petrochemicals Exit

Dirty Chemicals 

Private sector firms globally face pressure to clean up their portfolios and set carbon-neutrality goals. The chemical sector is both the largest industrial consumer of oil and gas, and the biggest consumer of energy, according to the International Energy Agency. 

Mitsubishi Chemical aims to first merge its petro assets with others’ before exiting in a sale or listing. Gilson, a surprise appointment when he took over the chemicals giant last April, said he’d like an agreement with a partner in 12 months, though he declined to identify specific companies. 

He compared the situation facing the industry to others Japan once dominated, such as semiconductors and flat-screen televisions. Depleted by internal scrapping among too many domestic competitors, those sectors eventually consolidated with government backing into the likes of chip firm Renesas Electronics Corp. and display maker Japan Display Inc., but largely failed to capitalize on Japan’s early lead. 

“These companies were created too late -- the problem was right in their face,” Gilson said, warning that as 2030 approaches, chemical firms will encounter greater pressure. “Let’s make a decision when we don’t have our backs against the wall.”

While the plan is positive and would allow Mitsubishi Chemical to focus on its core strengths, executing it will be a tougher ask, according to Horace Chan, an analyst at Bloomberg Intelligence. “Securing a counterparty for the transaction is a formidable task,” he said, “as domestic and international peers and financial investors are also transitioning towards net zero.” 

Gilson also called on the Japanese government to provide better impetus for companies to decarbonize. Japan aims to cut its carbon emissions by 46% versus 2013 levels by 2030, and be carbon neutral by 2050. 

“There is no incentive in Japan,” Gilson said. “There is not much support from the Japanese government, direct support,” particularly compared to Europe, he said.  

Covid Vaccine 

Petrochemicals is just part of the firm’s sweeping portfolio Gilson is looking to overhaul. Another area of focus for investors is health care, after the $4.3 billion buy-out of drugmaking unit Mitsubishi Tanabe Pharma Corp. in 2020. 

Shares dropped in December after Gilson announced the firm would postpone seeking approval for its Muse cell-based regenerative medicine as it plans broader trials. The stock is down more than 10% since then, versus a 3.7% slide in the Topix. 

“It’s a stretch” for the firm to have both a pharma and chemicals business, Gilson acknowledges. However, he insists that in the near-term he’s focused on turning health care around and rebuilding its pipeline, rather than divesting it. 

One immediate source of revenue could be the Covid-19 vaccine developed by Canadian unit Medicago Inc. After positive trial data in December, Gilson expects imminent approval from the Canadian government for the shot, and hopes to gain authorization in Japan, the U.S. and elsewhere. 

“It’s probably one of the last Covid-19 vaccines that’s going to get approved,” Gilson said, expecting the vaccine will develop into a business worth up to $1 billion a year. Despite its late entry to the market, Gilson sees the shot attracting an audience due to the novel, plant-based technology used to grow the vaccine, and anticipates some of those reluctant to take mRNA vaccines will opt for this treatment. 

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