Wednesday, April 25, 2012

Japan's fuel imports driving up trade deficit to highest on record

As predicted earlier this year, Japan continues to struggle with its energy needs. The chart below shows the recent trend in Japan's imports of residual fuel oil. Residual fuel is used for electricity generation, industrial process and space heating, as well as fuel for large ships. Japan had always bought some fuel oil for shipping and certain industrial processes, but nuclear generators had in the past been the dominant source of electricity. Now the source of power has been replaced by expensive fuel oil.

Source: Joint Organisations Data Initiative

These fuel imports are quickly translating into a rising trade deficit.
AP/WP: - Disaster-battered Japan reported its biggest annual trade deficit ever Thursday, a contrast from decades of surpluses, as a nuclear crisis boosted expensive oil and gas imports.

The Finance Ministry’s preliminary trade data showed a 4.41 trillion yen ($54 billion) trade deficit for the fiscal year that ended March 31.
The chart below shows Japan Merchandise Trade Balance (seasonally adjusted) from the Ministry of Finance. This is not the full trade deficit, but is a strong indicator of trade flows.

Monthly index, SA. Source: Bloomberg/Ministry of Finance
AP/WP: - All but one of Japan’s 54 nuclear power reactors are offline in the aftermath of a nuclear crisis set off in March 2011 by the tsunami in northeastern Japan. That has forced Japan to rely on oil and gas-fired generation to supply electricity.

Although the central government, eager to restart some of the reactors, has been carrying out safety tests on the nuclear plants, local officials have been wary of giving a go-ahead.

The earthquake and tsunami also hurt manufacturing, not only in northeastern Japan but for those companies that had counted on supplies from that area. Exports for the fiscal year dropped 3.7 percent from the previous year, while imports climbed 11.6 percent, according to the Finance Ministry.
The ministry said comparable trade data go back to fiscal 1979, but the latest deficit number was also bigger than those dating back to the Meiji period, starting in 1868.

Japanese companies have also been gradually moving production overseas to curb damage from the strong yen, which erodes the value of export earnings.

Analysts say that if expensive fuel imports continue, Japanese consumers will likely foot higher utility bills, and that could dampen consumer spending, further hurting the economy.

Update from Barclays Capital:
... preliminary data for March show total oil input for electricity generation in Japan averaged 527 thousand b/d, some 300 thousand b/d (150%) higher than a year earlier. Just one nuclear power plant was operating in Japan last month, and from early May, nuclear output will literally be zero. While Japan’s prime minister and other cabinet ministers are currently attempting to persuade local residents of the need to restart nuclear facilities, Argus analysis of the stances of local politicians suggests that as much as 35.2 GW of Japan’s 49.1 GW nuclear fleet could be blocked from restarting indefinitely.
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