Hormuz Strait risk could reshape FY2026 earnings outlook for Japan's chemical sector

Overview

This report is JPMorgan's outlook for the Japanese chemical sector's Jan-Mar earnings season and FY2026 prospects. The key variable is the Strait of Hormuz situation: if the strait is effectively blocked, chemical companies will face pressure from surging crude oil and naphtha prices, difficulties in raw-material procurement, and volatility in trade terms and volumes. Under that scenario, the author prefers Shin-Etsu Chemical, which has integrated PVC resin capacity in North America, as well as the electronic materials sub-sector supported by demand for advanced semiconductors.

Core views

The report's core view is that the sector will diverge sharply: first, semiconductor materials remain in a relatively favorable environment, with rising memory prices and resilient shipment value supporting companies such as Shin-Etsu Chemical and Tokyo Ohka Kogyo; second, within specialty chemicals, Toray is a focus because it sits further downstream in the petrochemical chain, faces lower risk of raw-material procurement disruptions than upstream integrated chemical firms, and could benefit from a recovery in aerospace carbon fiber; third, integrated chemicals require close monitoring of naphtha procurement, cracker utilization, and cost pass-through ability, and the sector overall is still not attractive for aggressive positioning; fourth, on shareholder returns, Toray's new medium-term plan and Shin-Etsu Chemical's subsequent capital actions are worth watching, but short-term cash flow pressure at integrated chemical companies may weaken their ability to buy back shares and raise dividends.

Analysis framework

The report compares Bloomberg consensus estimates, JPMorgan forecasts, company guidance, and rating changes to assess the marginal shift in Jan-Mar quarterly and full-year earnings expectations; it also combines TOPIX relative stock performance, the semiconductor shipment cycle, PVC prices, naphtha cracker maintenance, and commercial aircraft delivery data to judge demand, cost, and earnings elasticity across each sub-sector.

Methodology notes

• earnings_forecast_comparisonConsensus estimates, broker forecasts, and company guidance comparison

  Earnings expectation revisions

  By comparing Bloomberg consensus estimates, JPMorgan forecasts, and company guidance, the report identifies changes in quarterly and full-year operating profit expectations for different chemical companies.

• macro_supply_shockStrait of Hormuz scenario analysis

  Crude oil, naphtha, and petrochemical supply shock

  Using a pressure scenario in which a blockade of the strait keeps oil and naphtha prices elevated and supply shortages persistent, the report gauges the impact of raw-material procurement, trade terms, sales, and cost pass-through on company earnings.

• cycle_analysisSemiconductor shipment cycle analysis

  About a 30-month period of year-on-year positive growth

  The report notes that the year-on-year positive growth cycle in semiconductor shipments usually lasts about 30 months; February 2026 is the 28th month of the current cycle, and April will enter the 30th month, so the key question is whether this is a normal cycle or a supercycle.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shin-Etsu Chemical (4063.T)

  Top pick, benefiting from North American integrated PVC resin production system and improved PVC prices

  Strengths

  North American integrated PVC capacity reduces exposure to shocks in Japan's petrochemical chain; the FY2026 and beyond outlook is improving, and a large-scale buyback has already been completed with possible follow-on capital actions.

  Weaknesses

  Still exposed to global chemical demand, raw-material prices, and capital allocation pace.

  Comparison

  Compared with upstream integrated chemical companies, raw-material procurement and cost shocks are relatively manageable in a Hormuz Strait blockade scenario.

  Risks

  Sustained high oil prices, supply-chain disruptions, weaker-than-expected PVC demand, and shareholder returns below market expectations.

• Tokyo Ohka Kogyo (4186.T)

  Semiconductor materials beneficiary

  Strengths

  Supported by growth in advanced semiconductor materials demand, rising memory prices, and resilient semiconductor shipments; the stock has outperformed TOPIX.

  Weaknesses

  Demand is still cyclical in nature.

  Comparison

  Compared with integrated chemicals, the growth story comes more from advanced semiconductor materials than from traditional petrochemical spreads.

  Risks

  Semiconductor cycle peaking, customer inventory adjustments, and AI semiconductor demand below expectations.

• SUMCO (3436.T)

  Semiconductor-related name, but earnings are searching for a bottom

  Strengths

  Part of the semiconductor supply chain and could benefit if the cycle extends.

  Weaknesses

  Customer inventory adjustments and rising depreciation expenses are weighing on earnings.

  Comparison

  Compared with Shin-Etsu Chemical and Tokyo Ohka Kogyo, near-term earnings momentum is weaker.

  Risks

  Inventory adjustments persist, and price and shipment recovery are slower than expected.

• Toray (3402.T)

  Specialty chemicals focus name

  Strengths

  Further downstream in the petrochemical chain, so the risk of raw-material procurement disruption is relatively lower than for upstream integrated chemical companies; aerospace carbon fiber may recover in Jan-Mar; the new medium-term plan may improve capital efficiency and shareholder returns.

  Weaknesses

  Still needs to watch cost pass-through and downstream demand recovery.

  Comparison

  Compared with integrated chemical companies, its position in the supply chain is further downstream and therefore relatively less risky.

  Risks

  Aerospace recovery weaker than expected, insufficient raw-material cost pass-through, and shareholder returns improving less than expected.

• Asahi Kasei (3407.T)

  Relatively low petrochemical-weight name within integrated chemicals

  Strengths

  Among integrated chemical companies, petrochemical exposure is relatively low, and strong healthcare operations support stock performance; bullish rating share is high.

  Weaknesses

  Still must contend with naphtha procurement, cracker utilization, and cost pass-through issues.

  Comparison

  Within integrated chemicals, it is relatively more defensive, but not as clear-cut as semiconductor materials or integrated PVC.

  Risks

  Higher raw-material and fuel prices, weakening healthcare momentum, and insufficient cost pass-through.

• Nippon Paint Holdings (4612.T)

  Cost pass-through watch name

  Strengths

  Downstream coatings business has some brand and distribution characteristics.

  Weaknesses

  The report highlights the need to monitor cost pass-through, and the stock is lagging TOPIX due to concerns about higher oil prices and earnings.

  Comparison

  Compared with semiconductor materials companies, it is more exposed to raw-material cost pressure in the short term.

  Risks

  Insufficient cost pass-through, weak demand, and continued increases in oil and raw-material prices.

• Mitsui Chemicals, Mitsubishi Chemical, Sumitomo Chemical

  Integrated chemicals risk watch basket

  Strengths

  Some companies may be supported by petroleum product prices or non-petrochemical businesses.

  Weaknesses

  Integrated chemicals overall still face rising raw-material and fuel costs, naphtha procurement, cracker utilization, and cost pass-through risks.

  Comparison

  The report explicitly prefers to avoid integrated chemicals and favors semiconductor materials and names with relatively defensive characteristics.

  Risks

  Tightening cash flow, difficulty pursuing buybacks or dividend increases, raw-material supply shortages, and inability to smoothly pass through costs.

Key data

• Shin-Etsu Chemical earnings release date2026-04-27Expected to be the first chemical-sector company to announce Jan-Mar results.
• Shin-Etsu Chemical current price and rating¥6,556 / OWThe reported price is the 2026-04-10 closing price.
• Asahi Kasei bullish rating share85%As of 2026-04-09, the sector-wide bullish rating share was relatively high.
• Shin-Etsu Chemical bullish rating share75%As of 2026-04-09, the share of bearish ratings has declined.
• Mitsubishi Chemical bullish rating share23%The bullish rating share is relatively low within the sector.
• Nippon Paint bullish rating share30%The stock has lagged TOPIX due to concerns about earnings pressure from higher oil prices.
• Semiconductor shipment cycle position28th month in February 2026, 30th month in April 2026The current year-on-year positive growth cycle began in November 2023.
• Naphtha cracker maintenance in Japan2 in 2025, 7 planned for 2026Maintenance schedules affect petrochemical supply and the raw-material chain.
• Commercial aircraft deliveries27 aircraft delivered in October-December 2025, 9 per monthUsed to monitor the recovery in Toray's aerospace carbon fiber demand.
• Shin-Etsu Chemical buyback¥5000亿The company has completed the share repurchase decided in April 2025, and the market is watching for the next capital action.

Impact & implications

For portfolios, the report suggests that the main theme in chemicals is not simply betting on a demand recovery, but identifying assets that remain defensive or structurally growing under oil-price shocks, tight naphtha supply, and cost pass-through pressure. Upstream or integrated chemical companies are more likely to be squeezed by raw-material and fuel costs; companies with regionally integrated capacity, downstream positioning, or exposure to advanced semiconductor materials are relatively more resilient.

Risks

• A worsening Strait of Hormuz situation could amplify supply shocks in crude oil, naphtha, and petrochemical products.
• Even if a ceasefire holds, damage to production facilities in the Persian Gulf could still create volatility in trade terms and sales.
• Higher raw-material and fuel costs may not be passed through smoothly to downstream customers.
• Once the semiconductor shipment cycle approaches 30 months, the market may worry about a cycle peak rather than a supercycle.
• Tighter short-term cash flow at integrated chemical companies could limit buybacks and dividend increases.
• Customer inventory adjustments and rising depreciation expenses could continue to weigh on earnings for semiconductor-related companies such as SUMCO.

What to watch

• Shin-Etsu Chemical's Jan-Mar results and management guidance on April 27.
• U.S.-Iran ceasefire terms, transit through the Strait of Hormuz, and the extent of damage to production facilities in the Persian Gulf.
• Crude oil and naphtha prices, naphtha procurement trends, and utilization and maintenance at Japan's crackers.
• Progress in passing through higher raw-material and fuel costs across chemical companies.
• Whether semiconductor shipment value, memory prices, and demand for advanced AI semiconductors can support a longer cycle.
• Toray's new medium-term plan, shareholder return policy, and recovery in aerospace carbon fiber demand.
• Shin-Etsu Chemical's next capital action after completing the ¥5000亿 buyback.