Japan petchem shares slump as economy slips into recession

(adds closing levels for stocks, crude prices)

By Pearl Bantillo

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 the close of trade, Asahi Kasei fell 1.49%, Mitsubishi Chemical slipped 1.49%, Mitsui Chemicals was 1.58 % lower, JX Holdings was down 2.89% and Tosoh Corp slumped 3.54%.

Toray Industries bucked the trend, surging 4.14%, after bagging a carbon fibre supply deal worth more than yen (Y) 1,000bn ($8.6bn) from US aircraft maker Boeing.

Data on the Japanese economy, which posted a 1.6% annualised contraction in July-September and registered a 0.4% quarter-on-quarter decline, largely depressed the global stocks and commodities markets.

Japan’s benchmark Nikkei 225 index shed 517.03 points or 2.96% to close at 16,973.80 on Monday.

Crude futures declined by more than $1/bbl in late afternoon trade, with US crude for December delivery at $74.78/bbl, and Brent crude for January delivery at $78.25/bbl as of 18:15 Singapore time (10:15 GMT).

Japan is the world’s third-largest oil consumer and its disappointing data heightened concerns about softening demand for crude amid an oversupply.

Japanese consumption significantly declined following a three-percentage point hike in domestic sales tax to 8% was implemented from April this year, causing its economy to shrink an annualised 7.1% in the second quarter.

A technical recession is defined as two quarters of contraction by an economy.

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.