The exponentially contracting national gasoline market has
prompted Japan’s biggest crude refiner, JX Holdings, to enter into preliminary
discussions with main rival TonenGeneral Sekiyu
in a possible merger agreement that would assume control of over 50% of the
country’s petroleum market.
JX are currently
expanding abroad and need to shore up domestic earnings under its Eneos brand
of retail gas stations in order to finance the overseas push.
The dominance of JX
is being challenged as their closest rivals, Idemitsu Kosan Co., announced last year they had
a deal in place to takeover Showa Shell Sekiyu KK in a $5 billion deal.
Japan’s economy
ministry, and the finance minister himself, Taro Aso, have been encouraging the
sector to consolidate for many years, and it’s thought the government backing
will be enough to push the two deals through regulatory approval without any
issues.
According to a
report by CITIC Tokyo International, the sector has been suffering as car
engines become increasingly fuel efficient and severe oversupply continues to
have a negative effect not just on the industry at home but also on the
competitiveness of the country’s refiners overseas.
TonenGeneral and JX holdings have projected that their
profits should skyrocket with the merger by about 100 billion yen annually. The
merger is set to be completely finalized by March 2017 and together they will
operate over 15,000 petrol stations domestically.
“Our two businesses recognize the need to eliminate any
overlapping with regard to refineries and other infrastructure, especially in
the current climate,” both companies said in a joint press release.
The opinion has been shared by many large finance firms who
deal with the crude market, including CITIC Tokyo International, who also mentioned
in the report that Japan’s petrol consumption had seen a 3-4% fall over the
past ten years, and prices are at new 5 year lows.
JX Holdings became
the country’s largest refiner in 2010 as a result of a merger between Mining
Holdings and Nippon Oil Corp. and is almost twice the size of TonenGeneral in
terms of market capitalization.
When the current
deal goes through it’s thought the new company will be one of the nations
biggest across all industries.
