Mitsubishi Materials Corp. (5711), Japan’s second-biggest cement maker, plans to reopen its U.S. import terminal for the first time in seven years and seek acquisitions to expand in the world’s biggest economy.
The company is preparing to restart its terminal in California’s Long Beach as soon as the second half of 2015, Naoki Ono, president of the company’s cement operations, said in an interview in Tokyo. The company is considering a second U.S. terminal in San Diego and is eager to buy existing output plants or ally with others to secure supply, he said.
Mitsubishi Materials, which makes products ranging from refined copper to metal-cutting devices for auto parts, is betting on a construction revival in the U.S. to boost earnings. In Japan, growth is tapering due to labor shortages, hampering Prime Minister Shinzo Abe’s efforts to spend on public works to boost the economy as the nation prepares for the 2020 Tokyo Olympic Games.
“Operating profit growth will largely come from the U.S. operations,” Ono said in the June 11 interview. While the company expects some gains from Japan by cutting costs, “the domestic cement market itself is likely to remain flat in the current year and the pace of growth seen in the previous year won’t likely repeat in the mid-term.”
Mitsubishi Materials, whose cement arm is set to surpass metal as its biggest profit driver in three years, expects annual cement sales in the U.S. to increase by a third to about 2 million metric tons in 2016 from last year’s level, Ono said. Sales in the U.S. sank to as low as 1.1 million tons in 2010 after demand tumbled in the wake of the collapse of Lehman Brothers Holdings Inc. in 2008.
“We forecast cement profit margins will improve through volume and price growth, as the recovery in U.S. demand accelerates and supply/demand tightens,” Tatsuro Ochi, a Tokyo-based analyst at Citigroup Inc., said June 5 in a report. “We understand cement companies are actively pursuing price increases and that price negotiations are progressing well.”
An economic recovery and an increasing number of immigrants are boosting the need for more homes and commercial facilities in the California area. Builders broke ground on 1 million U.S. homes in May, indicating the industry is picking up this quarter after a weather-induced slump to start the year. The number of housing starts last month followed April’s 1.07 million annualized rate that was the most since November, a Commerce Department report showed this week in Washington.
A full recovery for cement demand in southern California will push up the company’s earnings by as much as 30 billion yen ($293 million) from the previous year’s level, analyst Keiju Kurosaka at Mitsubishi UFJ Morgan Stanley said in a June 13 report.
The expansion in the coastal region of the U.S. is part of Mitsubishi Materials’ goal to become “a major player” in the Pacific Rim region. Mitsubishi Materials is also looking to gain a foothold in faster-growing countries in Asia, with Malaysia, Indonesia and Myanmar among targeted markets, Ono said.