Japan petrochemical shares slump as economy slips into recession

SINGAPORE (ICIS)–Shares of major Japanese petrochemical firms took a beating on Monday as the world’s third-biggest economy slipped into a recession in the third quarter.

At 13:32 Singapore time (05:32 GMT), Asahi Kasei was down 1.20%, Mitsubishi Chemical slipped 1.02%, Mitsui Chemicals was 1.26% lower, JX Holdings down 2.66% and Tosoh Corp slumped 3.14%

The benchmark Nikkei 225 index shed 480.09 points or 2.74% at 17,010.74.

The Japanese economy posted a 1.6% annualised contraction in the third quarter, after shrinking 7.1% in the previous quarter, official data showed.

Consumption in the country significantly declined following a three-percentage point hike in domestic sales tax to 8% was implemented from April this year.

Meanwhile, the country’s petrochemical industry is facing a challenging environment with the proliferation of new capacity globally that is based on low-cost feedstock derived from shale gas from North America, according to the Ministry of Economy, Trade and Industry (METI) of Japan.

METI has issued a report this month that indicated the need for the industry to consolidate facilities and restructure businesses.

Some Japanese petrochemical players have started the process, with Sumitomo Chemical shutting down its cracker in Chiba in the second half of next year, while the crackers of Asahi Kasei Chemicals and Mitsubishi Chemical are due for unification in April 2016.

Japan’s refining sector will see further consolidation amid growing capacity in the Middle East and Asia, while its petrochemical industry must adopt to the shale gas reality in the Americas, according to Nobuo Tanaka, former executive director of Paris-based International Energy Agency (IEA) and now a global associate for the Institute of Energy Economics of Japan, in a recent interview with ICIS.

Tanaka had said that some of the country’s petrochemical companies have started shutting down selected domestic operations while building capacity outside of Japan as a means to cope with the new industry reality.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections