Tanker Market: Sun Sets on Japan Dirty Imports
The Japanese refining industry has been experiencing challenging circumstances for a number of years, with significant rationalisation of refining capacity, according to Weekly Tanker Market Report by Gibson Shipbrokers.
Reform in the Japanese refining sector is not a particularly new story; however, in March 2017, a government directive will come into effect, forcing refiners to further boost efficiency, whilst enhancing output of higher value clean products such as diesel and jet fuel.
The latest directive is not the first introduced by the government and nor would it appear to be the final phase of the industry restructuring, with further directives potentially announced later this year.
Domestic consumption of petroleum products has been falling in recent years, in part due to a contraction of industrial output, more fuel-efficient vehicles and the introduction of a mandatory blending of ethanol into transportation fuels.
Japan’s shrinking refinery capacity has had implications for the crude tanker market. According to IEA data, crude imports into the country have been falling over the past five years, down by 300,000 b/d since 2012.
Although it represents a notable drop in trade volumes, this had been more than offset by increases in China’s crude buying. Some support to crude tanker demand was also found in a temporary surge in fuel oil imports (on the back of the Fukushima Nuclear disaster in 2011).
With further restructuring directives expected later this year, it would appear that Japan is braced for further reductions in crude oil imports. However, as it was the case in the past, oil demand in other parts of Asia continues to grow, most notably in non-OECD countries.
As such, Japan’s falling demand will most likely will be absorbed by gains in other markets. What this highlights though is the declining importance of Japan in the regional crude tanker market and a growing involvement of a large Japanese fleet in international trade.
