Terrie's Take 496 -- Making the Case for Recycling Monopolies, ebiz news from Japan

Mon Dec 1 00:43:20 JST 2008

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.
(http://www.terrie.com)

General Edition Sunday, November 30, 2008 Issue No. 496

+++ INDEX

- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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+++ WHAT'S NEW

Over the last couple of years, and particularly due to
improved awareness of the negative health and
environmental effects of pollution, global commercial
interest in "clean tech" and "green tech" has been
increasing. We believe the turning point for
environmentally-sensitive technology becoming a viable
business field would have been the recent establishment
of carbon-trading organizations and emerging government
legislation around the world to force companies to
acknowledge their pollutin' ways. We now have the
beginnings of a commercial foundation upon which a
whole new industry will be formed.

No where is the hope to make millions by creating new
ways to extract energy from garbage, reuse resources
instead of manufacturing/mining fresh ones, or make
dangerous by-products safe again, bigger than in Japan.
But the fact is that while there is a burgeoning interest
in such technologies, old habits die hard and
green/clean businesses usually require a lot of supply
infrastructure -- either for the sourcing of the trash or
alternative inputs needed, and a motivated distribution
network that receives and delivers to the consumers the
energy/derivative outputs. Thus, in Japan at least, apart
from government and big corporate fundings of trial programs,
the real opportunities to make money out of such solutions
are still premature.

Instead, where most "green" initiative money is being made
right now is not in sexy world-altering solutions, but
in the rather more mundane activity of re-distributing
trash. One of the biggest partnerships in trash re-distribution
is between Japan and China. Over the last 4-5 years, China
has been buying ship loads of recyclable steel, plastics,
paper, TV tubes, circuit boards, and just about anything
else that can broken down, digested, or leached for
profit.

Prices have soared and trash has become valuable. The
demand is such that in our neighborhood in Tokyo, on
recycling day, before the local government garbage trucks
can get to our valuable bundled newspapers and boxed PET
bottles at the appointed time of 09:00am, a privately owned
truck zips by a couple of hours earlier and hauls the waste
away for transshipping in Chiba or Kawasaki. Elsewhere in
Tokyo, manhole covers, road-side barriers, stainless steel
park fittings, and other public construction materials have
been going missing at a prodigious rate.

But the recession may be about to lay the recycling
business low, returning the ownership of issues such as
how to dispose of paper and other recyclables to the
traditional caretakers -- our non-commercially minded
metropolitan garbage authorities.

[Continued below...]

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[...Article continues]

According to a recent Nikkei Business article, in the last
4-6 weeks there have been veritable mountains of PET
bottles, paper, plastics, steel, and other recyclables
gathering at waste-processing plants around Japan's
major cities, due to the fact that the demand for such
materials from China has suddenly dried up. Industry
players are saying that the falling demand for such waste
is directly related to the reduced demand globally for
Chinese products. In particular, the demand for recyclable
plastics and paper/cardboard has almost ceased.

PET bottles are a case in point. Until several months ago,
there was a high demand for this particular type of
plastic, because it can be recycled into soft fibers
suitable for making plush toys and apparel. 70% of all PET
bottles were purchased by Chinese firms, who typically paid
around JPY30 per kilo. Now, despite the quality of the
Japanese sorted waste and definite cost advantage over
using raw materials from chemicals firms, the price for PET
bottles has fallen to just JPY3/kilo, and industry players say
that from year-end 2008, there may be no demand for PET
bottles from China at all.

If the recession lasts for 2-3 years, as it appears it may,
will the contraction in waste demand from China damage
the current players in the Japanese recycling market?
Not necessarily.

While there is no doubt that the main driver behind the
existing Japan->China trash trade has been almost purely
a cost-reduction exercise, there is another impetus that
is starting to appear -- that of government regulation here
in Japan. Back in 2005, new rules requiring the recycling
of automobiles meant that not only did the Chinese
demand for recycled steel push up demand, but also the
supply side was put in place by willing sellers here. The
result has been thousands of shiploads of crushed vehicles
selling to China for as much as JPY70,000/ton of steel
content as recently as July.

Now, admittedly by last month even recycled steel had
fallen dramatically in volume and price -- with one ton
now fetching JPY10,000/ton or less. However, since the
suppliers here in Japan have a motivation to keep providing
the steel, even if it sells for almost zero yen, it looks
like this area of trade will continue.

Such is the power of a new law.

So it was with interest that we read this week that the
government is likely to introduce compulsory recycling of
cell phone handsets and possibly digital cameras, so as to
facilitate the recovery of rare metals. METI and the
Environment Ministry say that from next year they will
likely require the collection of disabled phones when
customers purchase a new one. The new collection rules will
be backed up with fines and public naming and shaming of
companies not carrying them out.

Now, recovering precious metals from electronic products is
nothing new, and in fact has become a very lucrative
business for some. One of the leaders in the field is
Furuya Metal, which is a JASDAQ-listed company. Furuya is
still relatively small, at around 250 people, but it has a
proprietary in-house process for recovering the element
Ruthenium from old hard disk drives from traded-in and
out-of-lease PCs. The company recovers a surprisingly large
quantity of Ruthenium -- about 28 tons a year, which is
equal to the worldwide annual production of the element
through conventional mining. Ruthenium is used as a
catalyst in the manufacturing of silicon, as well as
various other areas of electronics.

Still, even with a lock on the technology and raw source
material, there is little demand and so the company is
suffering as a result. Furuya's share price has slumped
from a July figure of around JPY20,000/share to just
JPY5,200/share last month. The shares have recovered
a bit since then and are now trading at around JPY9,000.

What can revitalize the recycling industry? As much as we
don't like government getting involved in commerce,
sometimes it can be useful, particularly if there are
strategic issues at stake. In the case of Ruthenium supply,
this exceedingly rare metal is sourced mainly from Russia,
and is extremely important for the Japanese hard disk and
photo-voltaics industries.

Thus, we believe that the government might want to consider
introducing licenses for certain recycling sectors -- picking
those that align with national interest -- such as Ruthenium
for the nation's hard disk industry. Yes, this approach will
give certain companies trading in the field already
unfair commercial advantages, but if they are like Furuya,
then their technology already qualifies them to be part of
a small elite group of chosen suppliers. Licencing them
will force everyone else to do business with them, and so
such companies are more likely to withstand the downturn.

For those recyclables sectors that are not so immediately
strategic, but which will damage Japan's environmental
efforts if the sector collapses, the government should look
at subsidizing the domestic storage and re-processing of
these materials -- by way of tax rebates linked to the
ratio of recyclables used versus raw materials. Such a
program could be timed to tail off once the Chinese market
recovers. In the meantime, these subsidies not only would
keep an increasingly efficient waste collection network alive
and well, it would also reduce the nation's reliance on
politically reactive suppliers -- such as China (Indium),
Russia (Ruthenium), and Peru (Zinc).

**********

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+++ NEWS

- Unemployment falls?
- Mitsubishi Chemical confident over auto Li-ion batteries
- Government's turn-around specialists show how to make a profit
- Japan Post Bank makes money
- Factory output plunges

-> Unemployment falls?

According to government statistics, Japan's unemployment
rate fell a surprising 9% in October, from 4% of the overall
workforce down to 3.7%. Given that October factory
production fell 3.1% in September and that exports fell by
the largest amount in 7 years, some analysts are saying
that the jobless data is misleading. ***Ed: Indeed, one
Goldman Sachs analyst reckons that that the
unemployment numbers are not properly reflecting the fact
that many people are leaving voluntarily from jobs, rather
than being fired. This introduces a delay before they start
applying for unemployment benefits and subsequently
show up on the numbers.** (Source: TT commentary from
google.com, Nov 29, 2008)

http://tinyurl.com/5zj3o2

-> Mitsubishi Chemical confident over Li-ion batteries

The entire Mitsubishi group of companies has obviously
decided to make a humungous bet in backing not only its
struggling group member Mitsubishi Motors, but also the
entire concept of gasoline vehicles being replaced with
electric ones. One indication of this can be found in some
of the otherwise innocuous announcements being made by
group companies. For example, Mitsubishi Chemical has
said that it will invest JPY1bn (US$10.5m) to almost
double a facility which produces the material used to make
the negative electrodes of rechargeable lithium ion
batteries. While the actual financial investment is small,
the fact that they are doubling their output is very
interesting and indicates a healthy level of commitment.
***Ed: So now the Mitsubishi megalith really is kicking
into action. In another 6 months we will be able to see
whether the Mitsubishi Motors i-miev due to go on sale in
July 2009 will sell just the forecast 10,000 units in its
first year, or the 20,000 units or more that the rest of the
group seems to be girding for. We expect to see lots of
growth in these subsidiary companies as things heat up.**
(Source: TT commentary from nikkei.co.jp, Nov 29, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20081128D28JFA07.htm

-> Government's turn-around specialists show how to make a profit

President-elect Obama and his team should be looking to
Japan on how to help government-rescued banks and mortgage
firms make money again -- they don't always have to end in
failure. Apparently the Resolution and Collection
Corporation, the government's resuscitation/turn-around
entity for dealing with bad banks and home lenders, has
reported a net profit of JPY23.3bn for the first half of
2009, despite a recent increase in mortgage firms going
bad. Right now, the RCC has a net positive worth of
JPY79.5bn (US$830m) and will pay about half of that amount
back to the government's Deposit Insurance Corporation.
(Source: TT commentary from nikkei.co.jp, Nov 29, 2008)

http://www.nni.nikkei.co.jp/AC/TNKS/Nni20081128D28JFN06.htm

-> Japan Post Bank makes money

Another government entity which used to be slammed for
being unimaginative is now also reporting a healthy profit
thanks to its lack of involvement in the subprime problems
in the USA. Japan Post Bank is the largest holder of
customer deposits in the world, with JPY181trn (US$1.9trn)
in public savings, and the bank reported a half-year profit
of JPY150.1bn (US$1.5bn). The government is apparently
planning to take Japan Post Bank public in 2010. (Source:
TT commentary from bloomberg.net, Nov 28, 2008)

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aeorvTng.HAA

-> Factory output plunges

Indications of just how bad the recession may become are to
be found in the plummeting rate of Japanese industrial
production. Government figures show that production dropped
3.1% in October over the month earlier, and this is a 30%
worse result than consensus forecasts just a month ago.
Thus, the 3rd Quarter expectation for contraction of
industrial production is now least 8.6% -- a record for
recent times. (Source: TT commentary from reuters.com, Nov
28, 2009)

http://www.reuters.com/article/newsOne/idUSTRE4AR1UU20081128?sp=true

NOTE: Broken links
Many online news sources remove their articles after just a
few days of posting them, thus breaking our links -- we
apologize for the inconvenience.

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+++ CANDIDATE ROUND UP/VACANCIES

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+++ UPCOMING EVENTS/ANNOUNCEMENTS

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Matthew Dons, an active member of the international
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-----------------------------------------------------------

------------ Let Others Enjoy Christmas, Too --------------

Merry Christmas! This Christmas give the gift that keeps on
giving all year long. Make a donation of any amount to The
Japan Helpline, an organization which helps the community 24
hours a day, 365 days a year, anywhere in Japan and throughout
the world.

* To get help yourself, go to www.jhelp.com and click "Help".
* To make a donation, go to
https://www.lincmedia.co.jp/jhelp/index.html?lang=en
and give what you can.

Thank you from the team at JHELP

-----------------------------------------------------------
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For more information, contact sales at japaninc.com

***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

In this section we run comments and corrections submitted
by readers. We encourage you to spot our mistakes and
amplify our points, by email, to editors at terrie.com.

*** No corrections this week.

***********************************************************
END

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+++ ABOUT US

STAFF
Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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