Bubble-era expansion in petrochemicals, and the reaction (1991)

What the expansion and the reaction left behind

This sequence of decisions compresses, into a handful of years, the whole process by which a capital-intensive industry stacks capacity onto a peak of demand and is then crushed by the weight of it. Carried by the momentum of a newly integrated chain, Tosoh pushed on to an aggressive new ethylene plant; the Gulf crisis and the turn in prices delivered the reaction; it cut itself down by withdrawing from ten businesses; and then it narrowed to PVC and resumed investing. A path that swung from expansion to retreat to re-concentration in two or three years shows a company aiming at the front rank of diversified chemicals, wavering between scale and returns.

The choice to bet on PVC — “make the strong stronger” — can be read as the prototype of the route Tosoh would later take: hold the base businesses and sharpen them rather than let them go. But the re-investment of the time did not solve the industry’s underlying problem of PVC overcapacity. Tosoh stood at the centre of the restructuring that followed, taking Taiyo Vinyl as a subsidiary, and its integrated vinyl-and-soda structure exposed its dependence on the commodity cycle all over again when Lehman hit, immediately after the large 2008 investment came on stream. Where a bet on the strong line pays off, and where it swings back — that pendulum has not stopped since.