The Japanese chemical industry is in a predicament, with a significant increase in imports of Chinese products
Editor's Note: According to the recent report of Nihon Keizai Shimbun, Japan's imports of petrochemical products from China - plastic raw materials and resins - surged 52% year on year from March to July this year. Behind this, the economic and trade relations between China and Japan are undergoing a subtle structural change. On the one hand, due to the ongoing spillover effects of geopolitical conflicts and energy crises in the Middle East, Japan's traditional petrochemical industry has exposed its vulnerability; On the other hand, the Chinese chemical industry is demonstrating strong competitiveness through the resilience of its industrial chain and price advantages. However, this has also touched sensitive nerves in the Japanese industry, with some local industry insiders even describing the increase in imports of Chinese products as a "survival crisis" for Japanese companies. A domestic expert analyzed to reporters that the Japanese industry can only achieve mutual benefit and win-win results by facing up to the industrial gap and adhering to free trade.
To ensure oil supply, Japan holds meetings with multiple Asian countries
Petroleum and key chemical energy reserves have recently become the core of anxiety for Japan's national industrial security. According to the NHK website in Japan on October 8th, in response to the severe situation of increasing reliability of crude oil supply and geopolitical risks in the Middle East, 11 member countries of the "Asian Zero Emission Community", including Japan, Australia, and 9 Southeast Asian countries, held a ministerial meeting in Manila, the capital of the Philippines, focusing on how to comprehensively enhance energy security in the Asia Pacific region. Japan dispatched Vice Minister of Economy, Trade and Industry Kai Takagi as a government representative to attend the conference.
According to the agenda of the meeting, participating countries are expected to reach a consensus and commit to further increasing their domestic oil reserves and exploring the establishment of a collaborative framework for the release of crude oil reserves in case of emergencies, in order to effectively stabilize international market price fluctuations; At the same time, all parties also plan to deepen cooperation in the Asian region and promote joint oil storage projects to share supply risks. In addition, Saudi Arabia and the United Arab Emirates will also participate in a separate parallel meeting, and it is expected that the two core oil producing countries in the Middle East will agree to closely cooperate in oil reserves and supply security.
According to NHK website, during this conference, Japan hopes to avoid the interruption of its own petroleum derivative product imports by supporting initiatives of Asian countries. However, the geopolitical impact has already been transmitted to the domestic petrochemical industry chain in Japan. More than 80% of the naphtha used by Japan comes from the Middle East. With Iran announcing the "blockade" of the Strait of Hormuz, Japan once faced a severe naphtha procurement dilemma. Naphtha, as an important basic raw material in the petrochemical industry, is refined from crude oil and widely used in many pillar areas of the national economy, such as automotive parts, household appliances, and food packaging materials. Although Japan has basically solved the extreme crisis of naphtha supply interruption by expanding procurement channels from outside the Middle East, the procurement prices in the international market still fluctuate at high levels and are extremely unstable.
In this context, the production system adjustment of Japan's petrochemical industry is also struggling to advance. According to Nihon Keizai Shimbun, the operating rate of ethylene production equipment in Japan was 73.5% in August, which has been lower than 90% of the industry boom line for 49 consecutive months.
In January of this year, three major Japanese chemical companies, Asahi Kasei, Mitsui Chemical, and Mitsubishi Chemical, signed an agreement to jointly promote environmental protection and production capacity optimization of the ethylene production system in West Japan. Three companies plan to cease production of ethylene at the Mizushima plant of Mitsubishi Chemical Asahi Kasei Ethylene Company located in Kurashiki City, Okayama Prefecture around 2030, and concentrate production at the equipment of Osaka Petrochemical Company in Takashi City, Osaka Prefecture. Meanwhile, the three companies plan to utilize the technology developed by Asahi Kasei to produce green basic chemicals such as ethylene and propylene using bioethanol, with the goal of achieving commercial production by 2034. Under the internal and external difficulties, Japan's traditional petrochemical industry is trying to find a way out through capacity integration and technological transformation.
Japanese media: Chinese chemical products account for over 50% of Japan's imports
As the Japanese chemical industry continues to be anxious about the instability of the energy supply chain, exports of Chinese chemical products to Japan are significantly increasing. According to the report of Nihon Keizai Shimbun on October 5, the trade statistics of Japan's Ministry of Finance showed that from March to July this year, the number of plastic raw materials and resins imported by Japan from China increased by 52% year on year, and China's proportion in Japan's resin imports rose from 11.8% in the same period last year to 16.1%. In the downstream of the industrial chain in the field of chemical processing products, Japan's imports of products from China also increased by 23% year-on-year, with the largest growth rate among the top ten countries in terms of import volume. According to comprehensive statistics, the share of Chinese products has increased from 47.6% in the same period last year to 51.5%, exceeding half of Japan's imported processed products. The growth rate of basic chemicals is also remarkable. From March to July, Japan imported 54000 tons of six major basic chemicals from China, which is 12.4 times higher than the same period last year.
The report believes that Chinese products have gradually evolved from temporary alternative sources during the crisis to the main supply pillar of the Japanese market, and price advantage is the core driving force for Japanese companies to increase procurement. After the escalation of the Middle East conflict in the first half of this year, the Central Japan Plastic Company, which is engaged in the import and sales of plastic raw materials, will increase its imports from China and Southeast Asia by 2 to 3 times. The head of the company stated that even considering factors such as market fluctuations and the depreciation of the yen, Chinese products are still 10% -20% cheaper than Japanese products. Considering cost-effectiveness, the company will continue to expand its procurement of Chinese products in the future.
Importing cost-effective Chinese chemical products has effectively suppressed high inflation in Japan
As Chinese chemical products continue to enter the Japanese market on a large scale, the Japanese petrochemical industry has publicly expressed a strong sense of crisis. Nihon Keizai Shimbun said that in the context of the continuous instability of Japan's domestic chemical supply chain, Chinese products have become the main alternative source. The Japanese industry is therefore concerned that temporary substitute procurement during the crisis may turn into long-term imports.
The report quoted the President of the Japan Petrochemical Industry Association and the President of Mitsubishi Chemical Corporation, Yuki Chikuma, as saying that Chinese products are "endangering the survival of domestic manufacturers in Japan". Japanese chemical industry insiders also hope that the Japanese government can further strengthen its "organized and systematic response", implying or calling for the use of trade barriers such as tariffs to prevent Chinese products from "squeezing" the local market.
In response to the recent increase in imports of Chinese products in the Japanese petrochemical industry, Professor Chen Zilei, Director of the Japan Economic Research Center at Shanghai University of International Business and Economics, stated in an interview with Global Times that the recent changes in the chemical trade pattern between China and Japan are rooted in the huge differences in global energy price fluctuations and the resilience of the two countries' industrial and supply chains. The energy crisis caused by geopolitical conflicts continues to spread, ultimately exposing the structural weaknesses that have long existed in Japan's traditional petrochemical industry.
Chen Zilei analyzed that the chemical industry is highly dependent on energy supply, and the US Israel Iran conflict has hindered shipping in the Strait of Hormuz, pushing up global energy prices; Japan's energy is highly dependent on imports and the vast majority of it passes through the Strait of Hormuz. The impact of imported inflation has greatly increased domestic chemical production costs, resulting in insufficient production capacity supply, rising product prices, and numerous obstacles to production and operation. In contrast, China has a complete industrial chain system and diversified energy supply channels, which are minimally affected by geopolitical conflicts. The prices of energy and chemical products remain stable, and production capacity continues to be released, filling the supply gap in the Japanese and East Asian markets. Objectively speaking, importing cost-effective Chinese chemical products has effectively suppressed high inflation in Japan and strongly ensured the stable operation of its downstream industrial chain, which is beneficial to the overall Japanese economy, "Chen Zilei analyzed.
Regarding the trade protection demands of some domestic voices calling for increased tariffs in Japan, Chen Zilei stated that as a resource scarce trading nation, Japan's economic operation is highly dependent on the import of raw materials and industrial products. In the chemical industry, Japan has a higher dependence on China. If Japan rashly builds trade barriers and imposes tariffs on Chinese chemical products, it will inevitably lead to China's countermeasures. In the current context of high energy costs and economic pressure in Japan, the backlash caused by trade confrontation is difficult for the Japanese economy to bear, and it will directly push up the production costs of its core downstream industries such as automobiles, electronics, and fine packaging, causing damage to the entire industry chain. The trade of chemical products between China and Japan is a healthy pattern of complementarity and win-win. Zero sum game thinking will only harm the interests of both sides. The Japanese industry can only achieve mutual benefit and win-win by facing up to the industrial gap and adhering to free trade.