First Olefins Dept., Olefins & Chlor-Alkali Div.
Basic Materials Business Unit
Naoto Mito trades propylene, a raw material used for plastics among other things. He believes that successful business partnerships are based on trust with all sides emerging as winners.
I'm a product manager trading in propylene. Propylene is a key raw material in the manufacture of plastics, paints and adhesives. In Asia, around 4 million tons are traded every year; Mitsui handles nearly one-fifth of that and is the market leader.
Plastic consumption in developed countries is reckoned to be around 100 kilograms per person per year. As emerging countries industrialize, global demand for plastics is rising. More and more plastics manufacturing plants are being built around the world as a result. While propylene is usually manufactured in downstream plants right next to the oil refineries, the factories of plastics manufacturers and other propylene users could be located anywhere.
That's where Mitsui comes in. Our job is to serve as what we call a "virtual pipeline," connecting the propylene manufactures with the plastics manufacturers. Our virtual pipelines are multifaceted: they're made of the contracts we negotiate with the chemical companies who manufacture the propylene, the suppliers who distribute it, and the manufacturers who turn it into plastic and other propylene derivatives; and then there are the logistics systems we deploy to transport the propylene around Asia.
I'm the leader of a nine-person team in Tokyo. My job is to analyze demand trends, forecast possible future market movements and devise appropriate solutions, manage my team in Tokyo, and, finally, lead Mitsui's global propylene team around the world.
A lot of people dismiss the chemicals industry as a bit dry and dull. They're so wrong. It's an exciting business. You've got the volatility of the propylene price—it can go as high as US$2,000 or as low as US$300 per ton! But more than that, it's a very human business where trust and person-to-person relationships are crucial. In trading, the individual plays a major role and Mitsui believes in giving its employees a lot of latitude.
Our relationship with EverGlory, a fast-growing Chinese propylene distributor is a good example. Dealing with them was memorable for me and exemplifies our virtual pipeline concept.
I joined Mitsui in April 2008 just before the onset of the financial crisis. By 2009, demand for everything—propylene included—had slumped. Our sales contracts with our customers are mostly for a year, but plenty of them simply walked away in the middle of the contract.
EverGlory was one of the few customers prepared to honor its obligations to us. The philosophy of the founder and president is that "harmony"—sound, long-term relationships—is key to business success.
The financial crisis was also difficult for the Japanese petrochemical companies that manufacture propylene. With domestic demand dwindling, they needed to look overseas for new customers. When one large Japanese petrochemical firm approached us hunting for new markets, we went to EverGlory and made the case for a deal. We argued that the financial crisis represented an once-in-a-lifetime opportunity for EverGlory to lock in a stable supply from a trustworthy Japanese supplier and be in a strong position when the market bounced back, which we knew it would. The resulting arrangement between that Japanese petrochemicals firm and is now in its eighth year.
All three parties collaborated to their mutual benefit and for the long-term benefit of the Japanese and Chinese economies. Business shouldn't be a zero sum game, with "winners" and "losers." Over the years, all three parties have had problems—plant outages, Sino-Japanese political tensions disrupting trade, even a massive explosion in the port of Tianjin—but we've supported each other. I like to talk about a "plus-sum game."
More recently, another Japanese petrochemicals company contacted us in 2015. It couldn't find any more domestic buyers for its propylene. The firm produced low purity propylene which is hard to sell into an over-supplied market.
We went to see if EverGlory could find a buyer in their extensive network in China. Sure enough, they found a chemical company in Tianjin that could use this grade of propylene to manufacture adhesives and paints.
I negotiated this deal myself with the president of EverGlory. When the end user demanded a lower price, we managed to bring down costs by using bigger vessels for shipping and by selling off propane which is produced as a by-product of low purity propylene. Our ability to work around obstacles like this is a big part of our ability to build virtual pipelines.
Trading is all about companies sharing similar values, philosophies and history. Some people think concepts like "duty," "trust" and "loyalty" have no place in the hard-nosed world of business, but companies need to be on the same wavelength if they want to grow together for the long term and for the good of society.
Our partnership with EverGlory goes back 20 years now. Over that time, it has grown into a large diversified conglomerate. Japanese petrochemical firms, meanwhile, have managed to develop stable new markets overseas with our help. The ability to build mutually beneficial partnerships like this is one of Mitsui's strengths and explains why we have top market share for propylene.
In the future, I'm confident that the propylene market will continue to grow, swinging in and out of balance as it does so. Our role is to stay flexible, smooth out those imbalances and craft the "virtual pipelines" that help bypass whatever hurdles the market throw in our way.
Posted in Nov 2016