Japan petrochemical exports shrinking; economy deep in recession

SINGAPORE (ICIS)–Japan’s export volumes of key
petrochemicals have shrunk in the first seven
months of 2020, with external demand likely to
stay muted, as the world’s third-biggest
economy wallows in deep recession amid the

Its shipments of benzene, ethylene and
propylene abroad have logged steep contractions
in January-July 2020, according to ICIS Demand
and Supply Database.

Japan export volume (in

Product Jan-July ’20 Jan-July ’19 % change
Benzene 254,654 390,025 -34.7
Ethylene 356,557 451,560 -21.0
Propylene 442,147 553,148 -20.1

2020 Quarterly breakdown

Product Q1 Q2 H1 Total H1 Yr-on-yr % change

Source: ICIS Supply and Demand

Japan, which is the world’s third-biggest
economy, is export-oriented like most of Asia,
with cars – a key downstream market for
petrochemicals – as its major export product.

Initial August data showed continued sharp
contractions in overall exports as external
demand is unlikely to stage a strong recovery
with no clear resolution to the coronavirus
pandemic sweeping across the globe.

Japan’s overall exports in the first 20 days of
August declined by 15.3% year on year to
Japanese yen (Y) 3.03tr, while imports
registered a steeper fall of 17.4% to Y3.23tr,
data from the Ministry of Finance showed.

The outlook on capital spending just dimmed,
with Japanese industries  looking at a
6.8% reduction in the current fiscal year
ending March 2021, with contractions of 23.2%
in ordinary profits and 6.8% in revenues
projected, based on quarterly survey results
released by the Ministry of Finance on Friday.

Manufacturing capital expenditure (capex) is
projected to fall by 4.5%, while
non-manufacturing capex is expected to decline
by 8.1%.

In July, capital spending improved as indicated
by a rebound in machinery orders, which posted
a month-on-month growth for the first time in
the current fiscal year.

The Japanese economy posted a record
contraction in the June quarter, largely as a
result of restrictions on businesses and people
movement to contain the deadly flu-like disease
during the period.

The final reading was deeper 28.1% year-on-year
from the initial estimate, dragged
down by a bigger-than-expected slump in capital
spending and weakness in consumption.

“After the historic contraction in Q2, we
expect the economy will rebound in Q3 as
consumer spending and activity regain ground,”
said Stefan Angrick, senior economist at
research firm Oxford Economics, in a note dated
8 September.

“However, high-frequency data show that growth
is struggling to gain pace, suggesting a very
gradual and protracted recovery after the
initial bounce. The near-term outlook therefore
remains challenging,” Angrick stated.

The Japanese economy “is still in an extremely
severe situation economic activity has shown
signs of a pick-up, although it remains at a
low level”, Japan central bank deputy governor
Wakatabe Masazumi had said on 2 September.

“As with the global economy, however,
preventive measures taken by firms and
households will continue to act as a force
constraining economic activity while vigilance
against COVID-19 [coronavirus disease 2019]
continues,” he added.

Japan’s stimulus package was a hefty Y234tr
($2.2tr), representing 40% of the country’s
GDP,  to cushion the economy from the
beating of the global health crisis.

Global financial stability watchdog – the
International Monetary Fund (IMF) – expects the
world’s third-biggest economy to contract in
2020 by 5.8%, a reversal of the 0.7% growth
posted in the previous year.

A return to pre-pandemic GDP growth for the
country is expected to be around the fiscal
year 2022 based on the baseline scenario of the
Bank of Japan’s July 2020 outlook report.

As of 10 September, Japan has a total of 73,221
confirmed coronavirus cases with 1,406 deaths,
data from the World Health Organization (WHO)

The pandemic that has been raging for months
originated in China in late 2019, and has now
infected more than 27.7m people and killed
nearly 900,000,  according to the data.

Meanwhile, Japan will soon have a new leader as
incumbent Prime Minister Shinzo Abe will
down due to poor health
as soon as his
successor is named.

Government spokesperson Yoshihide Suga is
widely expected to win as the next chief of
Japan’s ruling Liberal Democratic Party, in an
election scheduled on 14 September.

Focus article by Pearl

($1 = Y106.2)

Photo: Yokohama port in Japan. 14 February
2020 (By FRANCK

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