Fuji Photo Film, the world?s second largest maker of photographic film, is investing Y100bn in a new factory to expand production of optical films used in liquid crystal display panels.

Fuji Photo said it is acquiring a site in Kumamoto, on the southern island of Kyushu, where it will build its third factory to make triacetyl cellulose (TAC) film, a key component in LCD panels.

The investment highlights the expectations that many manufacturers in Japan have for continued growth in the flat panel display market, despite a huge expansion in capacity and falling prices.

Although Sharp, the world?s largest manufacturer of LCD TVs, recently lowered its forecast for LCD TV sales this year by 10 per cent to 2.7m units, this is still 80 per cent more than it sold last year.

?Flat panel TVs comprise just 3 per cent of the TV market so we believe demand for flat panels will continue to grow strongly,? said a Fuji Photo representative. The growth in the LCD market has fuelled strong demand for TAC film, making it difficult for Fuji Photo to keep up with demand, the group said.

Customers have been concerned about obtaining stable supply of TAC film, Fuji Photo says. Flat panel display manufacturers, which are concentrated in Japan, Taiwan and South Korea, also expect to need more TAC film supply as they bring increased capacity on stream next year.

Fuji Photo, which controls about 80 per cent of the global market for TAC film, raised the price of its TAC film in October after agreeing with customers to use part of the additional proceeds to increase supply.

Since Fuji Photo and Konica are the only two suppliers of TAC film, and the entry barrier to the market is relatively high, the two groups are not expected to come under the kind of pricing pressure that LCD manufacturers face.

Fuji Photo, which has suffered from a decline in demand for conventional photographic film, aims to double its sales from flat panel display components to Y200bn in the year to March 2009. This would represent nearly 6 per cent of its overall sales of Y3,500bn forecast for that year.

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