Japan's Refining Reaches 10-Week High as Producers Restart Idled Factories
Smoke rises out of a stack at a refinery in Kawasaki City. Photographer: Tomohiro Ohsumi/Bloomberg
Oil refining in Japan, the world’s third-largest consumer of crude, rose to a 10-week high as producers resume operations after maintenance shutdowns.
The nation’s refiners were using more than 75 percent of capacity in the week ended July 17, the highest rate since May 8, according to data from the Petroleum Association of Japan. That compares with this year’s low of less than 62 percent in the week ended June 19.
Japan’s largest crude-oil processor JX Holdings Inc. and competitors are bringing units back online after a drop in demand allowed them to carry out plant repairs and upgrades. Refining margins slumped more than 31 percent between July and August last year as plants started production, according to futures prices on the Tokyo Commodity Exchange.
“Margins aren’t likely to be as good,” said Kawachi Hirofumi, a senior energy analyst at Mizuho Investors Securities Co. in Tokyo. “Refiners’ business results will be potentially affected by the weakening margins.”
Shutdowns helped spur a more than 5 percent increase in refining margins this year as the economy recovered from a 5.2 percent contraction in 2009. The profit from turning crude oil into gasoline climbed to 21.1 yen a liter in April, or 90 cents a gallon, the highest level in 22 months, according to data compiled by the Ministry of Finance and Oil Information Center. In May, the margin was 20.9 yen, up from less than 20 yen at the start of the year and minus 7.6 yen in November 2008.
Margins to Worsen
“Refinery shutdowns concentrated in the April-June period balanced supply and demand,” Tsutomu Sugimori, senior vice president for JX Holdings’ refining unit JX Nippon Oil and Energy Corp., told reporters in Tokyo on June 30. “Those refineries are coming back online and margins are likely to worsen from July onward.”
When idled plants started producing last year, prices tumbled. The profit from turning three barrels of Middle East crude into two of gasoline and one of fuel oil, dropped to 6,290 yen per kiloliter on Aug. 7, from 9,163 yen on July 23, Tokyo Commodity Exchange futures prices show.
Gasoline stockpiles rose by 1 percent in the seven days through July 10, the first weekly gain in seven, Petroleum Association of Japan data showed.
Nippon Oil Corp., which merged with Nippon Mining Holdings Inc. in April to form JX Holdings, posted a pretax loss, excluding inventory-valuation gains, of 111.3 billion yen ($1.3 billion) for its refining business for the year ended March. The Tokyo-based company said margins for gasoline and middle distillates “drastically worsened.”
Share Declines
JX Holdings has lost more than 11 percent since making its share debut in Tokyo on April 2. TonenGeneral Sekiyu K.K., 50 percent owned by Exxon Mobil Corp. and Japan’s second-largest refiner, has dropped 15 percent in the past year. Idemitsu Kosan Co., the third-biggest, has also fallen 15 percent.
“Slowing demand made it difficult for oil-product prices to catch up with the gain in crude-oil prices and tainted refining margins,”Shigeo Hirai, Nippon Oil’s then chief financial officer, told reporters in January.
Crude is up almost 16 percent on the New York Mercantile Exchange in the past 12 months, trading as high as $87.15 a barrel on May 3. It touched $75.90, the lowest level since July 20, after the U.S. Energy Department said today that crude inventories rose 2.1 percent in the week ended July 23.
Heat Waves
Higher-than-normal temperatures in Japan may buoy margins as motorists take to the roads and factories burn more fuel oil to power air conditioners, according to Hirofumi at Mizuho. Weather patterns that caused heat waves from New York to China may be headed for Japan, Hisashi Nakamura, an atmospheric scientist at the University of Tokyo, said on July 16. The temperature in Tokyo’s Otemachi financial district reached 36.3 degrees Celsius (97.3 Fahrenheit) on July 21, the highest this year, according to the Japan Meteorological Agency.
“Concerns over diminishing margins are slightly fading, compared with a few weeks ago, because of the hot weather,” said Hirofumi. “Consumers use more gasoline and power companies burn more fuel oil during a hotter-than-usual summer.”
Sales of gasoline rose 10 percent from a year earlier in July 2004, when Tokyo temperatures reached a record of 39.5 degrees, according Trade Ministry data.
“It’s hard to forecast how margins would change,” Akihiko Tembo, who is chairman of both the Petroleum Association of Japan and refiner Idemitsu Kosan Co., told reporters in Tokyo on July 15. “I wish the margins would remain at the April-June level.”
To contact the reporter on this story: Yuji Okada in Tokyo at yokada6@bloomberg.net
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