Tokyo preparing to lift ban on exports of oil products Refiners would like to see a hurdle gone


March 31, 1997|By BLOOMBERG NEWS

TOKYO -- In a move that's seen likely to unshackle its domestic oil industry, Japan is poised to lift the stickiest hurdle its refiners face -- a ban on oil exports.

Japan's Petroleum Council, an advisory body of the Ministry of International Trade and Industry, is expected to endorse a proposal later this month to lift the ban on exports of oil products. The lifting of the ban, which was passed over when the country completed the deregulation of the oil industry, could come as early as September.

The ban has prevented refiners from fully using their existing plant and equipment capacity.

"Japanese refiners currently have the worst of both worlds and, until they have complete control over this business, they are little better off than they were under regulation," said Alan Troner of Asia Pacific Energy Consulting. While Japan lets foreign refiners sell oil into the Japanese market, it has largely banned its refiners selling abroad.

Tapping into the unused reservoir -- roughly estimated to be equivalent to about 500,000 barrels a day in refining capacity -- could allow Japanese refiners to become a major force in the Asian refining market.

It may do little to improve refiners' sagging profit margins, though.

"While lifting the export ban will be positive for Japanese refiners, the outlook is still not bullish for profits," said Keiko Sasaki, an analyst with ING Barings Securities (Japan) Ltd.

That's because the ban is just one of the industry's many woes.

Lifting export restrictions will be the latest step in the string of reforms that began in the 1980s and ended last April when the Ministry of International Trade and Industry lifted the ban on gasoline imports, allowing foreigners into the market.

While this has lowered gasoline prices and allowed for the import of almost 25,000 barrels a day of gasoline, the anticipated consolidation of industry has proceeded at a snail's pace.

Some progress has been made through joint supply ventures and facility sharing, such as tie-ups between Nippon Oil Co. and Idemitsu Kosan and Cosmo Oil Co. and Japan Energy, as well as possible merger talks between Showa Shell and Mitsubishi Oil Co. Still, deregulation has thus far brought little progress in reducing one refiner's biggest problem -- a surplus of retail gasoline stations, which analysts think needs to be cut by a third.

While a record number of 682 stations were closed in the first half of the fiscal year ending this month, this is a tiny part of Japan's nearly 57,000 stations.

Heavy competition and over-capacity in the retail sector, where refiners have traditionally made the lion's share of their profits, continue to depress profits, analysts said.

Last week, for example, Showa Shell Sekiyu K.K. reported a fall of 30.8 percent in consolidated current, or pretax, profit to 15.23 billion yen ($130.13 million) for the year ended Dec. 31.

Analysts expect returns for most refiners in the current fiscal year ending today to decline, since the group was able to raise domestic retail prices by only 15 percent in 1996, even though crude oil prices rose 30 percent in the same period.

Problems in the sector show little sign of abating with Miti expected to enact further reforms next year that would allow for the introduction of self-service gas stations, which are currently banned.

"When this happens, price competition [at the gasoline pump] is likely to accelerate," said ING's Sasaki.

Lifting of the export ban could give refiners a way of offsetting lackluster margins at home.

Pub Date: 3/31/97

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