Investors’ Meeting for Current Priority Management Issues and Business Strategy
Q&A Summary
Date and time:
Presenter:Monday, November 27, 3:30 to 5:00 p.m.
Masakazu Tokura, President

Specialty Chemicals
Q. With the exit of competitors in the resorcinol business, your operating
income significantly increased in the first half of fiscal 2017, but I would
like to ask about your plans to increase your production capacity. Inaddition, it appears that there has been a delay in the scale-up in
production volumes of a North American automobile manufacturer, butwhat impact is that having on your separator business? Lastly I would also
like to ask about the expected contributions to your future results ofhigh-purity alumina, liquid crystal polymer (LCP), and polyethersulfone(PES), all of which are expected to grow.
A. We have an annual production capacity of 20,000 tons of resorcinol at ourChiba Works and 10,000 tons at our Oita Works. By expanding the annual
production capacity at our Oita Works to 12,000 tons, we plan to expand ourtotal annual production capacity, including Chiba Works, to 32,000 tons. Inaddition to Indspec Chemical Corp. exiting the business, a competing
manufacturer in China is, out of necessity, running at a low capacity
utilization rate because of the impact of some environmental regulations. As
a result, supplies of resorcinol are very tight in relation to demand, and we,too, are struggling to meet inquiries from our customers. After increasing
the annual capacity at our Oita Works by 2,000 tons, we need to think about
the next steps we should take.
The North American automobile manufacturer expects to be able to meet its
production target of 5,000 cars per week sometime during the first threemonths of 2018. Other automobile manufacturers apparently think it isquite a different matter to go from producing a few tens of thousands ofvehicles to producing several hundreds of thousands of vehicles, but theNorth American automobile manufacturer is confident that it will be able toovercome the hurdles it is facing. For the time being, we will keep ourannual production capacity for separators at its current level of 300 million
m2, but we will increase it up to 400 million m2 while keeping an eye ondemand trends.
Sumitomo Chemical’s PES has a high market share in aircraft applications,but it is also used in automotive and medical applications, and growth isexpected in all applications. For that reason, we are constructing a new
production facility at our Chiba Works to double our existing annualcapacity of 3,000 tons, and we aim to get the new production facility up to
full capacity as quickly as possible after its start of operations next spring.
For automotive applications, we want to leverage our strengths andsignificantly increase sales.
Q. I would like to ask for details about your outlook for your OLED-relatedmaterials businesses, including circularly polarizing film for smartphone
applications, OLED light-emitting materials for large-screen TVs, andfilm-type touchscreen panels. In addition, for each product, how are youviewing your medium-term returns?
A. By 2020, we would like to boost the share of the IT-related Chemical Sector’ssales accounted for by OLED-related products to around 50%. We expect toincrease sales of such products as circularly polarizing film, film-type
touchscreen panels, and window film.
Our newly-developed liquid crystal coated-type circularly polarizing plates
are used in OLED TVs. Amid a trend toward bigger TVs and better picture
quality, OLED TVs, which have higher contrast and a wider viewing angle
compared to LCD TVs, are now starting to spread and their sales a.re
expected to grow. In components and materials for smartphones, whichstarted to be used in OLED panels for high-end models, Sumitomo
Chemical’s circularly polarizing film is widely used, and we expect sales toincrease with the spread of OLED smartphones. In addition, ourmanufacturing technology for touchscreen panels offers a wide choice of film
substrate. With this advantage, our manufacturing technology enables
functional integration of materials and components, such as integration oftouchscreen panels and polarizing films. Accordingly, the touchscreen panel
and other OLED-related materials business is expected to expand in avariety of new areas, and we have great expectations for its future potential.
Moreover, regarding PLED light-emitting materials, one display
manufacturer is considering an investment in mass production using ourmaterials and we are looking forward to it with great anticipation.

Q. The recovery in the methionine market is a bit slower than the pace you
predicted, and I would like to ask about what is behind that. In addition,
how do you see the demand for methionine moving going forward?
A. Compared to the peak price in 2015, the price for methionine has
temporarily fallen to about half its peak. It seems that the price fell as
supply-demand conditions softened and lower prices were anticipatedbecause many companies announced capacity increases in 2015. Thecurrent price has increased by about 10% over the lowest price, and wepredict that the price will rise by about 5% in the fourth quarter, comparedto the third quarter. We do not expect that the price will recover to the levels
it reached at its peak, but the current price is still low compared to past
prices, and we expect the price will recover further.
In 2018 and 2019, both we and our competitors plan to complete methionine
production capacity expansions, which will temporarily expand supply inrelation to demand, but we expect that methionine demand will afterwards
expand, causing a tightening of supply. We think that, as the market islooking at this area coolly, prices will return fairly gradually.
Q. Are you aiming to increase revenue in your methionine business by stealinga march on your competitors and setting up a new plant before themethionine market recovers next year?
A. There may be some differences between the market’s outlook and ouroutlook, but that is what we are aiming to achieve. In around the autumn of
2018, when our new plant will be set up, we are hoping that prices will haverisen.

Q. With regard to your agrichemical business outside Japan, in the recent
second quarter conference call, you said that sales volume would recover inthe second half, but are you seeing concrete signs of a recovery in demand?
In addition, will it become more difficult to compete with geneticallymodified organisms (GMOs) in the next year and beyond? I have heard talkthat GMO demand is increasing, so I would also like to ask about the
impact of that.
A. Sumitomo Chemical is not involved in the GMO business, but resistance toagrichemicals will always emerge. Our product flumioxazin has found a
new application as a countermeasure to resistance, giving rise to use insystemic pest control with Monsanto’s Roundup. Monsanto has launchednext generation products for their pest control system, but we are also
selling products that support the new system, which we hope will becompetitive.
In addition, our forecast for the agrichemical market going forward has notchanged since we announced our results for the second quarter. We see
signs that shipments are increasing due to the slight improvement inBrazil’s economy and the impact of a reduction in inventory in America, aswell, but we think that our performance this year will be in line with ourfull-year forecasts in the second quarter results announcement.

Q. In the life sciences field, I think that the reason you were forced to adopt a
strategy of collaboration with major overseas manufacturers in youragrichemicals business is that you were unable to concentrate management
resources within the agrichemicals business, but were forced to invest in avariety of businesses. Could you please give some details about how you willinvest management resources in the life sciences?
A. Our agrichemicals business is small compared with those of major
manufacturers outside Japan, in terms of revenue, but we believe there are
two major reasons for this. These reasons are that not only have we notbeen involved in the GMO field, we have also not been able to build asufficient global footprint. In order to enhance our global footprint, inaddition to purchasing Excel Crop Care, an agrochemicals company of India,
last year, we have also undertaken initiatives such as expanding ourbusiness collaboration with Nufarm. Building a global footprint is not
something that can be done in a day, and we are currently considering
further acquisitions and other measures. It would be best if we could sell
the excellent agrichemicals we have developed internally entirely on ourown, but in cases where we cannot sell them, we are also collaborating withmajor manufacturers outside Japan to have them sell these products for us.
As for our pharmaceuticals business, we currently own just over 50% ofSumitomo Dainippon Pharma, and we would like to maintain thisownership ratio for the time being. Sumitomo Pharmaceuticals was bornout of Sumitomo Chemical’s pharmaceutical business unit, and merged withDainippon Pharmaceuticals to create Sumitomo Dainippon Pharma.
Thereafter, Sumitomo Dainippon Pharma purchased US-based Sepracor,achieving its current structure.
There are some foundational technologies in common between theagrichemicals business and the pharmaceuticals business. For example, iPS
cell technology is a foundational technology that is used in both theagrichemicals business and the pharmaceuticals business. In addition tobeing used in regenerative and cellular medicine, such as in creating retinas
from iPS cells to treat age-related macular degeneration, this technology
can also be used to check whether there are any side effects of agrichemicals
and pharmaceuticals using structures created from iPS cells. Moreover,Omics technology, which is used to analyze issues such as metabolisms,proteins, and toxicity, is also a foundational technology common to the twoareas. Looked at from a global perspective, Sumitomo Chemical is a
middling player in both agrichemicals and pharmaceuticals, but we would
like to continue to do business as a solid medium-sized manufacturer withunique characteristics.

Bulk Chemicals
Q. For the Petrochemicals & Plastics Sector, over the last six months or so, thebusiness environment for MMA and CPL has changed, so are you notplanning to change your business strategy? In addition, you report that
Petro Rabigh Phase I is going extremely smoothly, but are you not putting
the same level of effort into setting up Phase II as you did when setting up
Phase I? What do you expect the impact will be of the setup of Phase IItaking until next fiscal year?
A. There are a variety of different viewpoints on how long the positive
conditions in the petrochemicals business will last. In 2017-18, a number ofpetrochemical plants using shale gas as a raw material are planned to start
operating in the United States. It is expected that the total production
capacity for ethylene of these plants will exceed that of Japan, and we are
keeping a close eye on the impact this will have on the global supply of
petrochemical products. In addition, we are also focusing on regulatory
trends in China toward petrochemical plants based on environmentalissues. In China, both the central government and regional governments
are tightening environmental regulations, which is becoming a major factor
limiting the supply of a variety of petrochemicals, including not only olefin
and polyolefin, but also CPL, MMA, and AN. We believe the question ofwhether these Chinese environmental regulations will continue going
forward, or whether they will be relaxed after the completion of theNational People’s Congress, will be a key point in this area. It is said thatthe strong business environment for the petrochemicals business willcontinue until the beginning of 2018, but recently there have been somevoices saying the strong business environment will continue throughout thewhole of 2018.
At the moment, the prices of crude oil and naphtha are increasing due to
growing geopolitical risks, reducing margins for polyolefin. Sumitomo
Chemical takes an extremely conservative view of the businessenvironment for the petrochemicals business for the second half of this fiscal
year and for fiscal 2018, and we will have to keep a close eye on margin
trends going forward.
Currently, our MMA monomer and polymer plants in Singapore havestopped one production line each. Because the MMA business is currently
extremely strong, there are those who wonder if we can restart thesuspended lines, but we need to consider business trends in light of a
medium-to-long-term viewpoint, and hold careful deliberations.
CPL is also doing extremely well at present. Because we can manufacture
CPL without ammonium sulfate byproducts using a proprietaryvapor-phase manufacturing method, we have been receiving technicalinquiries from China with regard to strengthening environmental

regulations. Taking this into consideration, we would like to take a close
look at how we should handle the CPL business going forward during theperiod of the current Corporate Business Plan.
As for Petro Rabigh, we expect that Phase I will continue to produce goodresults in fiscal 2018 as well. With regard to Phase II, we are fully utilizing
the lessons learned in Phase I, continuing to dispatch necessary personnel
and transfer technology for Phase II in the process of setting up the plant.
(END)
Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s current plans, estimates,strategies, and beliefs that are not historical facts are forward-looking statements about the future
performance of Sumitomo Chemical. These statements are based on management’s assumptions
and beliefs in light of the information currently available to it, and involve risks and uncertainties.
The important factors that could cause actual results to differ materially from those discussed in theforward-looking statements include, but are not limited to, general economic conditions in Sumitomo
Chemical’s markets; demand for, and competitive pricing pressure on, Sumitomo Chemical’s
products in the marketplace; Sumitomo Chemical’s ability to continue to win acceptance for its
products in these highly competitive markets; and movements of currency exchange rates.