In Hellenic Shipping News 27/02/2017
Japan used to be one of the most important markets for the tanker industry, as crude oil imports, mainly from the Gulf Arab region were the norm for decades. This is beginning to change these days, with shipbroker Gibson noting that “the Japanese refining industry has been experiencing challenging circumstances for a number of years, with significant rationalisation of refining capacity. Reform in the Japanese refining sector is not a particularly new story; however, in March 2017, a government directive will come into effect, forcing refiners to further boost efficiency, whilst enhancing output of higher value clean products such as diesel and jet fuel. The latest directive is not the first introduced by the government and nor would it appear to be the final phase of the industry restructuring, with further directives potentially announced later this year”.
According to Gibson, “domestic consumption of petroleum products has been falling in recent years, in part due to a contraction of industrial output, more fuel-efficient vehicles and the introduction of a mandatory blending of ethanol into transportation fuels. The Petroleum Association of Japan pegged crude oil refining capacity at 3.8 million b/d at the end of 2016, with production spread across 22 facilities. However, over the coming years it can be expected that this figure will come under increasing negative pressure. In an attempt to streamline the industry, a merger between JX Holdings and TonenGeneral, Japan’s largest and third-ranked refiners respectively has been approved for April 2017, creating the new company JXTG Holdings. TonenGeneral has also announced there will be reductions at four refineries in 2017 totalling 71,500 b/d, with capacity already reduced at the companies Kawasaki plant. In addition to this, Idemitsu Kosan Co, the country’s second-biggest refiner, had been in discussions with Showa Shell on the potential of a merger, however, this deal appears to be off the table as it has not won approval from the Idemitsu founding family”, said the shipbroker.
It added that “overall, the March directive is expected to reduce refining capacity to close to 3.57 million b/d, according to Reuters data. The introduction of a third directive, potentially later this year, will further reduce refining capacity and could also aim at reducing the number of major refiners in the country from 5 to 4 by 2020 or 2021, although this has not been confirmed. Japan’s shrinking refinery capacity has had implications for the crude tanker market. According to IEA data, crude imports into the country have been falling over the past five years, down by 300,000 b/d since 2012. Although it represents a notable drop in trade volumes, this had been more than offset by increases in China’s crude buying. Some support to crude tanker demand was also found in a temporary surge in fuel oil imports (on the back of the Fukushima Nuclear disaster in 2011)”.
Gibson says that “with further restructuring directives expected later this year, it would appear that Japan is braced for further reductions in crude oil imports. However, as it was the case in the past, oil demand in other parts of Asia continues to grow, most notably in non-OECD countries. As such, Japan’s falling demand will most likely will be absorbed by gains in other markets. What this highlights though is the declining importance of Japan in the regional crude tanker market and a growing involvement of a large Japanese fleet in international trade”, the shipbroker concluded.
Meanwhile, in the crude tanker market this week, in the Middle East, Gibson said that “despite receiving final March programmes, VLCC Charterers kept to a slow pace, encouraged by easy looking availability through the current and medium term fixing windows. Rates just about held up at the bottom end of the recent range, but there has certainly been damage done and a busier phase is likely to now accelerate the softening trend. Rates operate at down to the very low ws 30’s West and at no higher than ws 70 to the East. Suezmaxes enjoyed better early attention and rates did pick up a little to ws 85 to the East and into the high ws 40’s West, but things quietened later. Aframaxes tightened further to allow rates to edge over 80,000 by ws 115 to Singapore, but Charterers moved onto more populous forward positions in response and to limit onward potential”, the shipbroker concluded.
