Business

Japan's feud with South Korea threatens heating fuel shortage

Bloomberg

Consumers may pay a higher price to stay warm this winter if South Korea bans exports of heating fuel to Japan as the bilateral trade feud deepens.

Kerosene is used as a fuel in portable stoves and fan heaters, particularly in the colder northern part of Japan. While local production accounts for about 90 percent of consumption, most imports come from South Korea. An export ban by Seoul — especially if accompanied by refinery outages or a severe winter — could cause shortages and price spikes, according to six traders.

The neighbors have been at loggerheads since late last year over compensation for Koreans forced to work in Japanese-run firms during World War II. The dispute has escalated in recent weeks with Tokyo and Seoul removing each other from preferred trading lists and Korean consumers boycotting Japanese products.

“The likely outcome of any potential ban of kerosene exports from South Korea to Japan will be a period of acute supply tightness,” said Peter Lee, an analyst at Fitch Solutions in Singapore. The impact will be magnified if it happens in winter when Japan becomes more reliant on term cargoes from South Korea, he said.

Some 79 percent of Japan’s kerosene imports came from South Korea last year, with those shipments accounting for 13 percent of total requirements, according to government data. Japanese refiners typically start stockpiling fuel from South Korea as early as August to prepare for winter.

Japan would likely turn to China and Singapore for kerosene and gasoline imports in the event of a South Korean ban, said Sushant Gupta, director of Asia-Pacific refining at Wood Mackenzie Ltd. in Singapore.

While replacement supplies are available, expensive freight costs and a lack of receiving capacity at ports make transporting the fuel difficult, according to several of the traders, who did not want to be named due to company policy.

JXTG Holdings Inc., Japan’s biggest refiner, said it was not too concerned about the rise in tensions.

“There’s no particular impact on our energy business for the time being, but we need to pay close attention to developments,” said Yoshiaki Ouchi, JXTG’s senior vice president.

However, Idemitsu Kosan Co. said it has to think about how to prepare if the political situation worsens. The refiner has several options, including producing more kerosene locally, importing more from nations apart from South Korea or building up bigger inventories than usual before winter, executive officer Noriaki Sakai said.