Japan's Idemitsu Kosan announced on November 12 it signed a non-binding agreement to merge with Showa Shell Sekiyu K.K., almost four months after buying a third of its rival Japanese refiner, creating the second-largest Japanese crude oil refiner, after JX Holdings Inc., the countrys largest refiner. The companies said in a filing on November 12 to the Tokyo Stock Exchange they will finalize terms of the merger and expect the combined company to start operating between October next year and April 2017.
Idemitsu, presently already the number 2 refiner in Japan, agreed in July to purchase a 33.24 percent stake in Showa Shell Sekiyu K.K., the 5th ranking refiner, for 169 billion yen (US$1.4 billion).
The combined company will have annual sales of approximately ¥7.6 trillion (US$62 billion), still behind industry leader JX Holdings. Idemitsu in fiscal 2014 had sales of ¥4.6 trillion (US$37 billion), while Showa Shell's was ¥3 trillion.
A merger of the two companies would create a new company with about a third of the domestic gasoline market and would result in a need to consolidate some plants as they struggle with lower fuel demand. While Idemitsu and Showa Shell will use their respective brands for the time being, they plan to introduce a new one for gas stations in the future to avoid the impression one company has absorbed the other.
The move comes amid difficulties for refiners, with carmakers developing vehicles that consume less or no gasoline. Falling oil prices have also weighed on their earnings. The government, a backer of industry consolidation, has asked for cuts in processing capacity as the U.S. boosts exports and China floods Asian markets with its surplus supply.
The companies combined have a total of seven oil refineries and about 7,000 service stations.
Idemitsu has a lube base oil plant in Chiba, Japan with the capacity to produce 2,350 bpd of Group I, 2,750 of Group II and 900 bpd of Group III base oils.
Showa Shell has a lube base oil plant in Yokkaichi, Japan with the capacity to produce 5,000 bpd of Group I and 600 bpd of Group III base oils.
