Condensed Transcript of Q&A Session at MGC’s FY2021 Results Briefing
Date/time: May 16, 2022 (Monday) 10:30-11:30am (webcast)
Presenters:
Masashi Fujii, President and Representative Director
Naruyuki Nagaoka, Director, Managing Executive Officer In charge of Basic Chemicals Business Sector
Ryozo Yamaguchi, Managing Executive Officer In charge of Specialty Chemicals Business Sector
Tomoyuki Kiura, Executive Officer and General Manager of Finance and Accounting Division(Note about this transcript)
This transcript was edited for clarity and brevity at the Company’s discretion. Additionally, forward-looking
statements, including plans and targets, contained herein, like those in the briefing’s presentationmaterials, are judgments based on information in the Company’s possession as of the briefing’s date andcertain assumptions deemed reasonable by the Company. Forward-looking statements involve
uncertainty. Actual outcomes may differ substantially from such forward-looking statements as a result ofvarious factors.
Q1: I want to know more about the engineering plastics business’s medium-term strategy. As you steadily
expand your polyacetal (POM) business, what are your plans in terms of growth strategy? Forpolycarbonates (PC), with general-purpose products driving considerable earnings volatility, what is yourtimeline for expansion combined with attenuation of earnings volatility? Lastly, in terms of PC derivatives,
what are your medium/long-term plans with respect to PC produced using CO2 as a feedstock?
A1: Regarding our POM growth strategy, we publicly disclosed a new joint venture in China, the world’s
biggest POM market, on May 12. We will continue to develop our POM business in China. As a result offorming subsidiary Global Polyacetal to manage our POM operations, we added Korea Brand Kepital toour POM product line in addition to our Iupital brand. We are confident the two brands will generatesynergies in their respective application markets and such synergies will better enable us to expand ourpresence globally, especially in Asia.
Regarding your second question, we faced a very adverse operating environment in the PC market in
FY2021. In particular, raw material and fuel prices were very volatile. It was extremely difficult to keep up
with raw material and energy cost inflation. Currently, the raw material and fuel environment is changing
again, with Bisphenol A now declining in price. We want to take advantage of such an operating
environment to rebuild our PC business. Specifically, we aim to boost margins by reducing generalpurpose products’ share of sales, expanding sales of high-value-added products, particularly opticalgrades, and raising prices to pass through cost increases as necessary. In terms of timeline, we believe
we can achieve a major turnaround in FY2022 relative to FY2021. We will expand sales of high-valueadded products as swiftly as possible, not only in China but globally, while restructuring Mitsubishi
Engineering-Plastics (MEP). Regarding PC produced using CO2 as a feedstock, we are establishingfoundational concepts and technologies that we hope to bring to fruition as we advance to the next step.
Q2: To what extent can we expect synergies in the POM business during or after the current mediumterm plan’s term? Will improvement in PC margins have to wait until you roll out a differentiated productmade using CO2 as a feedstock? Is it reasonable to expect you to be able to somehow stabilize the PC
business’s earnings within the next two years?
A2: In the POM business, we can directly bring in more profits by consolidating our Korean subsidiary. Interms of sales synergies, we expect to make solid progress in capturing growth or price markups in theKorean market again in FY2022. Over the next few years, we believe we can add even more value
through cross-pollination of core competencies.
We think PC production that uses CO2 as a feedstock is still a little ways off. Rather than waiting untilusing CO2 as a feedstock is feasible, we will figure out how we can leverage our existing capabilities toshift our PC sales mix away from general-purpose products toward high-performance products whiledelving deeper instead of pursuing scale. Specifically, we believe we must develop new grades or narrow1

down our PC product line to essential grades. We aim to do so within the next few years by steadily
increasing high-value-added products’ share of sales.
Q3: How much do you expect optical polymer sales to recover in FY2022 from their large decline in
FY2021? Also, I think you plan to complete an optical polymer capacity expansion this July orthereabouts. How much is the additional capacity expected to contribute to unit-volume growth or improve
production efficiency/quality?
A3: The optical polymer market experienced heavy inventory destocking in the first half of FY2021. We
have exited this inventory destocking phase in our assessment. However, smartphone production
remains constrained by semiconductor shortages. How smartphone and assembly makers will source
needed semiconductors is a key question going forward, but we expect optical polymer demand toembark on a recovery trend without any more inventory destocking. Additionally, with the market
landscape changing in response to US-China tensions among other catalysts, we will closely track actual
demand from smartphone makers. Regarding your second question about production growth, we are
steadily moving forward with capacity expansion but the current supply-demand imbalance precludes animmediate ramp-up to full-capacity production. We will monitor actual demand and order bookings to mostefficiently balance our production with demand.
Q4: Are you seeing any shifts in market share or new entrants in the optical polymer market? And haveyou been able to maintain sales prices?
A4: In our current assessment based on wide-ranging market research, we believe our optical polymer
products still maintain a competitive advantage. As for pricing, we are not seeing any significant pricemovements at present.
Q5: In the semiconductor materials business, what were the drivers of BT materials’ robust sales growth
in FY2021? I assume their growth may slow a bit in FY2022. If so, what would be the factors behind theslowdown? Also, what is your outlook for chemicals used in semiconductor manufacturing, including inNorth America and Korea?
A5: Regarding BT materials, demand from the semiconductor industry bounced back strongly in FY2021
from its pandemic-induced downturn. Additionally, we saw marked expansion of new semiconductor
applications. These developments were tailwinds for not only our BT materials but also other materials.
General-purpose products that experienced major sales growth in FY2021 may downshift somewhat inFY2022. We have factored the impact of such a slowdown into our outlook.
Demand for chemicals used in semiconductor manufacturing also has been exhibiting tremendous growthin tandem with global semiconductor production. Such demand is still booming even today, particularly inNorth America and Korea. With demand expected to keep growing globally in FY2022, we will increase
production in sync with demand.
Q6: What applications do you expect to drive BT materials sales growth in FY2022–for example, DRAM
for data centers or growth in mobile devices’ 5G-related content, including AiPs? I think BT materials arestarting to be used even in computers. Would you elaborate on your FY2022 outlook, including the newThai plant’s capacity utilization?
A6: With BT materials being used not only in memory chips, their original application, but also logic chips,
we intend to pursue further sales growth. The direction in which the telecom environment is moving is
conducive to growth in smartphones’ content of our materials on a per-unit basis, including AiPs. In suchan environment, we can capitalize on BT’s distinctive properties. We will also functionally upgrade our BT
production operations, including the new capacity we added in Thailand.
Q7: Would you provide more details on your capex plans? You said you are proceeding as planned with¥240 billion of capex, but your FY2021 capex seems to have ended up at around ¥55 billion, below yourinitial budget of ¥70 billion. Am I correct to assume that the shortfall will be carried over to FY2022?
2

FY2022 capex of ¥90 billion implies ¥95 billion of capex in FY2023. Do these numbers jibe with yourplans? Of the ¥240 billion, I think you were planning to invest about ¥90 billion in “differentiatingbusinesses.” Are you now planning to invest more than initially planned in such businesses? Lastly, could
you talk more about the expected increase in periodic maintenance expenses in FY2022?
A7: Investments may get pushed back a little because of, e.g., minor project delays. That said, we
currently see no need to reduce our ¥240 billion capex plan for FY2021-23 because we are adding newinvestments to our plans. Depending on how events unfold, we could conceivably invest more thaninitially planned in differentiating businesses. While inflation in construction and various other costs is aconcern with respect to investment, we are simultaneously working on figuring out how to absorb cost
inflation so it does not materially impact earnings. We intend to respond effectively.
We expect to spend ¥3.5 billion more on maintenance in FY2022 than in FY2021. This ¥3.5 billion, which
is for essential biennial maintenance, is already factored into our medium-term plan.
Q8: Regarding the investment in the polyacetal production plant, will the planned increase in capacityfrom 90,000t to 150,000t/year involve investment of additional funds? And once capacity has increased to150,000t, how do you plan to recover your investment when new capacity expansion plans arise?
A8: The increase in capacity from 90,000t to 150,000t will basically be done by our local joint venture.
Our plan is for the 60,000t capacity addition to basically be handled locally. Any further capacity increases
beyond 150,000t would be subject to thorough due diligence, but we have high hopes for the Chinesemarket’s growth.
Q9: I want to ask about your FY2022 operating profit forecast by business. First, for aromatic chemicals,
you are forecasting a decrease in operating profit. What are the factors behind the projected sequential
decrease in aromatic chemicals’ second-half operating profit? Second, for specialty chemicals, you areforecasting a sizable sequential increase in second-half operating profit. I would like an explanation of thisdifference between first- and second-half operating profit also.
A9: The aromatic chemicals business has periodic maintenance scheduled next February. The sequential
decrease in its second-half operating profit is related to recognition of the maintenance expenses in thesecond half. As mentioned earlier, major biennial maintenance is scheduled in FY2022. We have adopted
a biennial maintenance strategy because it enables us to maximize production while saving money on
maintenance. We consequently expect to spend ¥3.5 billion more on maintenance in FY2022 than in
FY2021.
In the specialty chemicals business, we anticipate improvement in engineering plastics margins in thesecond half. Engineering plastics’ profitability hinges largely on market prices of energy and raw
materials, particularly Bisphenol A. We assume engineering plastics margins will remain under pressurein the first half as we draw down inventories of Bisphenol A purchased in FY2021 at higher than current
prices. Additionally, we expect the feasibility of turning around specialty chemical subsidiaries, mainly in
China, to increase as the year progresses. We are forecasting that their profits will be disproportionately
concentrated in the second half.
Q10: In FY2021, you undertook various business portfolio reforms, including downsizing oftrimethylolpropane (TMP) production. You appear to have made considerable progress in restructuring
unprofitable businesses. Am I correct? Is restructuring of foundation businesses now more or lesscompleted with MEP’s restructuring? Also, how are your new/next-generation businesses shaping up? I
am personally very bullish on OXYCAPT. Please provide an update on your progress in the three
categories of businesses other than differentiating businesses.
A10: We will decisively take action to strengthen differentiating businesses and restructure or liquidate
unprofitable businesses. Recent examples include our decisions to partially discontinue formalin and TMP
production. Among foundation businesses, the biggest is polycarbonates, but we are discussing others as
well. Stay tuned for news on this front. For example, in the methanol business, we recognize that we must3

certainly proceed with commercialization of CO2 feedstock use. In energy businesses, we will likewise
expedite decarbonization initiatives that can contribute to society. Meanwhile, we will make sure suchinitiatives contribute to earnings also.
We are developing new businesses, staffing them with researchers and ramping up R&D spending, butsuch initiatives take time. A case in point is solid electrolytes, which we are developing as an EV battery
material. New BT materials also have promising prospects. Additionally, the antibody-drug contract
manufacturing business has been growing steadily, though it will take a while to reach profitability. We arecommitted to building it into a future pillar of our operations. Another promising new business is lactic-acidbacteria. We have identified extremely efficient bacteria.
Q11: Could you update us on both supplies of methanol, including methanol produced in Russia, andmethanol demand, including for MTO (methanol to olefin)?
A11: Methanol prices have increased from $300-350/t in April 2021 to $400-450/t in April 2022. Last year,
two 1,700kt methanol plants were commissioned into operation, one in the US and the other in Iran, butthey encountered delays in ramping up production. Additionally, some plants shut down for periodic
maintenance in FY2021 and plants in Europe and the US resumed production later than scheduled after
the maintenance. Methanol prices rose in 2021 in response to several catalysts, including supply-demand
imbalances due to hurricane-induced plant shutdowns and an increase in Chinese coal prices last
October. In 2022, no new methanol plants are scheduled to come on line as far as we know. With
demand holding firm, the supply-demand balance remains tight. We expect methanol to average $420/t in
FY2022, up from around $400/t in FY2021.
Russia’s annual methanol production is 4,000kt vs. global methanol demand of 90,000kt. Russia had
been exporting half (2,000kt) of its production to Europe but with Europeans now mostly boycotting
Russian products, Russia has started exporting methanol elsewhere, including India. Given the reduced
demand for Russian products, most of Russia’s methanol production capacity is currently shut downahead of schedule for periodic maintenance. After the maintenance has been completed, the feasibility ofsupplying methanol to India alone is unclear. For suppliers, the supply-demand balance will presumably
be a bit tight.
Regarding MTO, crude oil is currently trading around $100/bbl vs. an average FY2021 price modestly
below $80/bbl. As crude oil prices rise, olefins such as propylene and ethylene naturally rise in price,
making MTO more price-competitive. In April, China’s MTO plants were operating at 80-90% of capacity,up from 60-70% in February-March. In light of such, we expect the supply-demand balance to tighten inFY2022.
Q12: Regarding optical polymers, could you provide an update on the trend toward multiple higherresolution cameras in mobile phones, the state of adoption of new applications such as ToF and nonmobile applications such as automotive and security cameras? Also, what is your outlook for your opticalpolymer business’s medium/long-term growth rate?
A12: The trend toward multi-camera smartphones with ever more functionality will continue. However, thenumber of cameras per phone will not increase indefinitely; it will eventually reach a maximum. We expect
the lenses used in smartphones to be made from increasingly functional materials and smartphone users’
camera needs to continue to become more diverse and sophisticated. Additionally, we anticipate
substantial demand for optical polymers for non-smartphone applications like automotive and security
cameras. We believe such applications in aggregate will definitely end up being a large market at somepoint in the future. We are preparing for future sales expansion. According to media reports and survey
data, the automotive and security camera markets are expected to grow at a double-digit pace. We intend
to use such data as a benchmark as we grow our optical polymer business.

4