UpdateJapan petchem exports to take hit due to quake, tsunami

(updates, adds details throughout)

By Pearl Bantillo and Judith Wang

LONDON (ICIS)--Asia may have to cope with a lesser supply of petrochemicals from Japan as a number of facilities shut operations following last week’s massive quake and tsunami that struck the country, industry sources said on Monday.

Japan is facing its worst crisis since the Second World War, according to Prime Minister Naoto Kan, as the death toll from the twin catastrophes on Friday 11 March is expected to exceed 10,000. Japan is working overtime to avert a nuclear disaster at its Fukushima plant.

Japanese engineers are working overtime to pump seawater into damaged nuclear reactors at the country's Fukushima plant to prevent a full-scale meltdown. A cooling system breakdown preceded explosions at the plant's reactor 3 on Monday and reactor 1 on Saturday.

Explosions occurred at the Fukushima Daiichi nuclear complex as cooling systems failed after the 9.0-magnitude quake and resulting tsunami. Meanwhile, strong aftershocks continue to rock Japan on Monday.

Global securities and investment banking firm, Jefferies, said it is too early to predict how much Japanese chemical capacity will be affected by recent events, or for how long.

Jeffries said the near-term effect will likely be tighter markets in some petrochemicals, particularly in acrylonitrile and propylene. The group added that there could be indirect effects on specialty chemicals, especially if nuclear outages in Japan tighten natural gas prices outside the US, it said.

US specialty chemicals producer Solutia announced that it had temporarily suspended operations at the company's facility in Kashima, which lost power during Friday's earthquake. No damages were reported at Solutia's manufacturing facility and the company confirmed the safety of all employees and their families in the region over the weekend.

“Solutia's other sites in Asia and around the globe remain fully operational and were not threatened by Friday's earthquake or subsequent tsunami advisories,” it said in a statement.

“The Kashima facility is supplied with a sufficient amount of inventory to support current commitments during this period, especially because it was preparing for a scheduled turnaround that required additional stored inventory,” it added. Overall, Japan accounts for about 4% of Solutia's revenue.

JX Nippon Oil, Mitsui Chemicals and Mitsubishi Chemical halted operations at selected plants in Chiba prefecture, which is near the epicentre of the quake at Sendai in northeastern Japan.

“The earthquake in Japan will tighten the global petrochemical supply and push up prices as Japan is an important petrochemical producer in the world,” said Shenzhen-based Huatai United Securities in a research report.

Japan supplies petrochemical products such as ethylene, styrene monomer and paraxylene to China and South Korea.

Cosmo Oil’s 220,000 bbl/day refinery in Chiba was on fire after the earthquake. Shares of Cosmo Oil plummeted 21.63% on Monday.

Crackers near the quake’s epicentre, such as Maruzen Petrochemical’s 520,000 tonne/year unit in Chiba, and Mitsubishi Chemical’s 375,000 tonne/year unit and 453,000 tonne/year unit in Kashima, were shut.

Most other crackers at various locations in Japan were running at reduced rates, including Tonen’s 515,000 tonne/year cracker in Kawasaki, market sources said.

Operating petrochemical plants were expected to run at reduced rates due to a power crunch in Japan, Huatai United Securities said.

Meanwhile, Japan’s benchmark stock market index - the Nikkei 225 - slumped to close 633.94 points lower or down 6.18% at 9,620.49 on Monday.

The country’s central bank had to pour in yen (Y) 7,000bn ($85.7bn) in liquidity to calm the market in early session. The Bank of Japan said the amount was the largest-ever same-day funds-supplying operation it had conducted.

“The bank will do its utmost to continue ensuring stability in the financial markets and securing smooth settlement of funds, including providing liquidity,” it said.

“The damage of the earthquake has been geographically widespread, and thus, for the time being, production is likely to decline and there is also concern that the sentiment of firms and households might deteriorate,” the bank said in a separate statement explaining its decision to further ease its monetary policy on Monday.

The bank said it had increased the cap of its asset purchase programme by Y5,000bn to Y40,000bn.

Shares in Japanese petrochemical producers were severely battered on Monday, as their operations were disrupted by the natural disasters.

Among them JX Holdings, the parent of JX Nippon Oil, shed 14.94%, Mitsubishi Chemical fell 10.37% and Mitsui Chemicals tumbled 11.15% at the close of trading.

Meanwhile, Japan’s Kashima and Sendai ports have been closed in the wake of the earthquake on 11 March, but major chemical ports in the western and central parts of the country are running. Shipowners said on Monday that the operations at chemical ports on Japan’s west coast have not been affected, but some ports on the country’s east coast were closed.

“We just had a ship berth at Shimotsu this morning and haven’t heard any warnings of potential port closures,” said a shipowner based in Singapore.

In related news, concerns that Japan’s fuel demand would fall in the wake of the twin disasters weighed on crude prices, with US crude futures falling $2.23/bbl to $98.98/bbl as of 08:38 GMT.

But the dampening effect on fuel prices may be very temporary as Japan is likely to need to import more after a third of its refining capacity was affected by the quake, according to Shanghai-based Shenyin & Wanguo Securities.

Japan has 29 refineries which had a total capacity of 4.6m bbl/day as of January 2010, based on data from the US Energy Information Administration.

List of naphtha crackers in Japan and their current operating status

Company	Location	Capacity	Status
Idemitsu Kosan	Chiba	374,000	Running (TBC)
Idemitsu Kosan	Tokuyama	623,000	Running (TBC)
Keiyo Ethylene	Chiba	740,000	70%
Maruzen Petrochemicals	Chiba	520,000	Shut
Mitsubishi Chem	Kashima	375,000	Shut
Mitsubishi Chem	Kashima	453,000	Shut
Mitsubishi Chem	Mizushima	500,000	Running
Mitsui Chem	Chiba	617,000	Reduced rate
Mitsui Chem	Osaka	450,000	95-100%
JX Nippon Oil	Kawasaki	460,000	Shut
Sanyo Petchem	Mizushima	500,000	95-100%
Showa Denko	Oita	690,000	70%
Sumitomo Chem	Chiba	415,000	70%
Tosah	Yokkaichi	527,000	100%
Tonen	Kawasaki	515,000	running

With additional reporting by Peh Soo Hwee, Felicia Loo, Nurluqman Suratman, James Dennis, Heng Hui, Chow Bee Lin and Junie Lin

($1 = €0.72, $1 = Y81.71)