News Article

Posibility of heating fuel shortage as Japan’s feud with South Korea continues

Consumers could suffer higher costs if South Korea decided to ban the export of heating fuel to Japan as trade feuds deepen.

In portable stoves and fan heaters, kerosene is used as a gas, primarily in the hotter southern portion of Japan. Although local manufacturing speaks for 90% of consumption, the majority of exports originate from South Korea. An import prohibition by Seoul— particularly if it is combined with a pipeline breakdown or severe cold — could, according to six traders, trigger starvation and cost increases.

Since the mid last year, the neighbors are in loggerheads for compensating for Koreans compelled to operate in Japanese-run companies during the Second Weltkrieg. In recent decades, the conflict has escalated with Tokyo and Seoul, which have removed each other from desired trading registers and Korean customers who boycott Japanese products.

Peter Lee, a Fitch Solutions Consultant in Singapore, said: “The probable result of any possible prohibition on exporting kerosene from South Korea into Japan will be an era of severe demand tightness. The effect will be magnified if it occurs in summer when Japan depends more on South Korean perishable cargoes, he said.

Some 79 percent of Japanese exports of kerosene originated from South Korea last year, and according to government information, those deliveries accounted for 13 percent of complete demands. Japanese refiners usually begin to store petrol from South Korea in August to brace for summer.

In case of a South Korean prohibition, Japan will probably switch to China and Singapore for kerosene and gasoline exports, said Sushant Gupta, Asia-Pacific Refining Director at Wood Mackenzie Ltd. in Singapore.

While sources of substitution have been made accessible, costly freight expenses and the absence of ability in ships complicate the transportation of petrol, according to several traders who did not want to be appointed because of business strategy.

JXTG Holdings Inc., the largest refiner in Japan, said the increase in conflicts did not cause too much concern.

“There is currently no specific effect on our energy sector, but we must take care of innovations,” said Yoshiaki Ouchi, Senior Vice President of JXTG.

But Idemitsu Kosan Co. said that he has to believe about preparing himself for the deterioration of the political condition. The refiner can produce more kerosene locally, import more from countries outside South Korea, or construct more inventories than usual before the summer, according to executive officer Noriaki Sakai.

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