Nippon Oil merger positive for the sector - Fitch

19 March 2008 08:48  [Source: ICIS news]

MUMBAI (ICIS news)--Fitch Ratings on Wednesday said that Japan's Nippon Oil Corporation's planned merger with Kyushu Oil Company is a positive step in the long consolidation of the countries' oil markets.

"Nippon Oil's planned merger with Kyushu Oil is a credit-positive development for the sector, which is suffering from chronic oversupply both in refining capacity and sales distribution," said Fitch's regional co-head Pekka Laitinen.

Kyushu Oil has a refinery with a 160,000bbl/day capacity which is close to the Chinese markets providing a platform for increased exports, while over-lapping distribution networks between both oil companies in Tokyo could be rationalised, he added.

Oil refining and distribution capacity has not reduced, despite a drop in demand for oil products and price competition, thus the continuing high price of crude oil is exerting pressure on Japanese oil companies, Fitch said.

Low profitability will continue until the available capacity is alternatively exported in much bigger quantities, it added.

However, the merged entity aims to improve competitiveness in crude oil procurement, transportation and distribution, the rating agency said.

The merger is likely to strengthen Nippon Oil's business profile; however Fitch doesn’t believe it would be enough to solve the structural problems in the industry.

The combined entity enhances Nippon Oil's strategic positioning as one of the main regional exporters of oil and petrochemical products, Fitch said.

By: Aaron Rodrigues
+65 6780 4359

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