TOKYO - Japan's top oil refiner, Nippon Oil Corp, is merging with sixth-ranked Nippon Mining Holdings Inc, as it aims to cut capacity and better cope with falling prices and slowing demand.
The new firm expected to cut crude oil refining capacity by 400,000 barrels per day by April 2012, the president of Nippon Oil told a news conference, reducing their combined capacity by about 20 percent in an industry ripe for a shake-up.
Shares in the two firms surged nearly 14 percent on news of merger talks ahead of the announcement, taking their combined market value to $8.6 billion, as an analyst eyed a further industry consolidation.
"This could trigger consolidation and realignments among local oil refiners, and low oil refining margins in Japan, compared to global levels, may see structural correction," Merrill Lynch analyst Takashi Enomoto said in a note to clients.
The new company, which would also be Japan's top processor of copper, aimed to cut costs by 60 billion yen to 100 billion yen ($643 million to $1.1 billion) a year, the two firms said in a joint statement on their plans to merge by next October.
The new company's name and the merger ratio will be determined at a later date, the companies said.
The global economic slowdown has sent crude oil prices down by around 70 percent from its record high in July and worsened a slowdown in Japan where an aging population and a shift toward renewable energy has dampened demand.
Japan's oil refining sector is saddled with aging plants, weak retail margins and has long been thought to be on the brink of a reorganization.
"This merger is clearly positive for both companies as they can improve the efficiency of their operations and will likely be able to realize the benefits of restructurings in a broad variety of areas," said UBS analyst Toshinori Ito.
"Their merger is also positive for the entire industry, because it would create absolute leadership in pricing and thereby help eliminate excess price competition. It would also help tighten a supply-demand balance in the industry."
Ito said the industry would likely see milder price competition locally thanks to the emergence of a solid pricing leader and reduced supply capacity industrywide.
Japanese refiners with too much capacity for their home market have increasingly turned to exports to keep their plants busy.
The forecast capacity cut includes a plant Nippon Oil has already scheduled to close next year, but the cuts may eventually go beyond 400,000 barrels per day, Nippon Oil head Shinji Nishio told reporters.
Nippon Oil and Nippon Mining have combined sales of 13.15 trillion yen ($141 billion) based on forecasts for the year to next March, which the Nikkei business daily said would rank it the world's eighth-biggest oil firm by sales, helped by their large-volume, low-margin retail businesses.
Major refiners have been slashing crude refining plans in response to the economic slowdown. Japanese oil product sales in October tumbled to their lowest level for the month in 20 years.
Nippon Oil plans to cut its crude runs by 18 percent in December from a year ago and has said it may continue to refine less until January if demand stays weak.
Nippon Oil's stock jumped 13.8 percent to 364 yen while Nippon Mining rose 13.7 percent to 291 yen.
The new firm expected to cut crude oil refining capacity by 400,000 barrels per day by April 2012, the president of Nippon Oil told a news conference, reducing their combined capacity by about 20 percent in an industry ripe for a shake-up.
Shares in the two firms surged nearly 14 percent on news of merger talks ahead of the announcement, taking their combined market value to $8.6 billion, as an analyst eyed a further industry consolidation.
"This could trigger consolidation and realignments among local oil refiners, and low oil refining margins in Japan, compared to global levels, may see structural correction," Merrill Lynch analyst Takashi Enomoto said in a note to clients.
The new company, which would also be Japan's top processor of copper, aimed to cut costs by 60 billion yen to 100 billion yen ($643 million to $1.1 billion) a year, the two firms said in a joint statement on their plans to merge by next October.
The new company's name and the merger ratio will be determined at a later date, the companies said.
The global economic slowdown has sent crude oil prices down by around 70 percent from its record high in July and worsened a slowdown in Japan where an aging population and a shift toward renewable energy has dampened demand.
Japan's oil refining sector is saddled with aging plants, weak retail margins and has long been thought to be on the brink of a reorganization.
"This merger is clearly positive for both companies as they can improve the efficiency of their operations and will likely be able to realize the benefits of restructurings in a broad variety of areas," said UBS analyst Toshinori Ito.
"Their merger is also positive for the entire industry, because it would create absolute leadership in pricing and thereby help eliminate excess price competition. It would also help tighten a supply-demand balance in the industry."
Ito said the industry would likely see milder price competition locally thanks to the emergence of a solid pricing leader and reduced supply capacity industrywide.
Japanese refiners with too much capacity for their home market have increasingly turned to exports to keep their plants busy.
The forecast capacity cut includes a plant Nippon Oil has already scheduled to close next year, but the cuts may eventually go beyond 400,000 barrels per day, Nippon Oil head Shinji Nishio told reporters.
Nippon Oil and Nippon Mining have combined sales of 13.15 trillion yen ($141 billion) based on forecasts for the year to next March, which the Nikkei business daily said would rank it the world's eighth-biggest oil firm by sales, helped by their large-volume, low-margin retail businesses.
Major refiners have been slashing crude refining plans in response to the economic slowdown. Japanese oil product sales in October tumbled to their lowest level for the month in 20 years.
Nippon Oil plans to cut its crude runs by 18 percent in December from a year ago and has said it may continue to refine less until January if demand stays weak.
Nippon Oil's stock jumped 13.8 percent to 364 yen while Nippon Mining rose 13.7 percent to 291 yen.
