July 13 (Bloomberg) -- Ibiden Co., the world's largest maker of filters for diesel engines, plans to raise production as much as 70 percent as tougher environmental regulations force carmakers to control pollution.

The company, based in Gifu, Japan may boost output to as much as 480,000 particulate filter units a month by 2010 from about 280,000 units, said President Hiroki Takenaka in an interview on July 12. The shares surged as much as 7.6 percent.

Ibiden may double production in France and boost output in Hungary by 33 percent as stricter emissions regulations come into effect in Europe in 2009. The company also plans to start making filters at a new factory by 2009 in the U.S., where Honda Motor Co., Japan's second-largest carmaker, will start selling diesel vehicles including Odyssey minivans and Accord sedans.

``Ibiden has a technology required for the future,'' said Makiko Zuercher-Hosaka, who helps manage the equivalent of $30 billion at Clariden Leu AG in Switzerland, including Ibiden shares. ``Diesel is very popular in Europe, so we should see continued growth there.''

Filter demand helped make Ibiden's ceramics division its fastest-growing business segment last year, accounting for 21 percent of sales. Ibiden's diesel particulate filters use silicon carbide, a heat-resistant ceramic material, to trap particulate matter.

Shares of Ibiden rose 6.5 percent, the most in over a year, to close at a record 8,400 yen on the Tokyo Stock Exchange.

Filter Sales

Sales of filters grew 50 percent in the year ended March 31 to 72.5 billion yen ($592 million), from 48.3 billion yen a year earlier. The company's main business is semiconductor packaging, which makes up about half of its sales.

More than half of cars sold in Europe have diesel engines, which emit about 20 percent less carbon dioxide than gasoline models. Diesel engines produce particulate matter, or soot, which creates smog and can cause health problems. In 2009, new regulations, known as Euro 5, will come into effect in Europe.

``The next big break in the market will come in the second half of 2009 with Euro 5,'' said Takenaka. ``By that time, all new small diesel passenger cars sold in Europe will have a particulate filter.''

Denso Corp., the world's largest publicly traded auto parts maker, is building a factory in eastern Europe with Robert Bosch GmbH to make diesel particulate filters using cordierite, a ceramic made from a compound oxide of silicon, magnesium and aluminum.

``New players are entering the field, so the production increase is necesssary for Ibiden to maintain a 50 percent market share in Europe,'' said Masako Nagayasu, a senior analyst in Tokyo at Mizuho Investors Securities Co.

U.S. Market

Diesel-powered cars accounted for 3.6 percent of the light vehicle market in the U.S. in 2006, according to market forecaster J.D. Power & Associates. J.D. Power estimates diesels will account for 5.7 percent of U.S. auto sales by 2010.

There is ``ample room for growth outside Europe beginning in 2010,'' when the U.S. Environmental Protection Agency will implement stricter emissions regulations, Daiki Takayama, an analyst at Goldman, Sachs & Co. in Tokyo, wrote in a report to investors on June 15. Takayama is the top-ranked electronics components analyst in Japan, according to Institutional Investor magazine.

Takayama predicts Ibiden's smaller competitor NGK Insulators Ltd., based in Nagoya, central Japan, will also benefit from the growing demand. Sales of NGK's silicon carbide filters totaled 31.3 billion yen last year, more than double the figure from a year earlier.

Ibiden forecasts total sales will rise 25 percent to 500 billion yen by 2010, from 399 billion last year. The company expects operating profit to rise to 80 billion yen, a 16 percent increase from 69 billion yen last year.

Sales growth has helped increase foreign ownership of the company's shares to about 33 percent, according to the company, from 9 percent just three years ago, according to data compiled by Bloomberg. The stock has gained 61 percent over the past 12 months, outperforming the 15 percent gain in the Topix index.

To contact the reporters on this story: Makiko Kitamura in Tokyo at mkitamura1@bloomberg.net; Tetsuya Komatsu in Tokyo at tkomatsu@bloomberg.net

Last Updated: July 13, 2007 02:12 EDT