Japanese Chemical Trader blog

Japan Chemical Trading Blog

Current Circumstances of Japanese Refining Manufacturers and the Weak Yen

Today, I am resuming posting on the weblog after a long interval.

During the last six months while I was not posting on the weblog, the slump in the Chinese economy has become apparent. Since China is the biggest consumer of major metals and rare metals, their worldwide surplus tended to increase, while their international market prices fell drastically along with the major impact of other external factors such as the high US dollar rate, the Greek debt crisis and low prices of crude oil. According to the information from a Japanese trading company specialized in chemicals for domestic use, domestic demand for them in the manufacturing of automobiles, building materials and electric wires generally dropped altogether.

On the other hand, the USD/JPY exchange rate has reached USD1=JPY125 owing to the speculation about a rise in U.S. interest rates and the Bank of Japan’s monetary easing policy.

Since the exchange rate a year ago (August 11, 2014) was USD1= JPY102, the yen has dropped more than 20% in a year.

The effect of a weaker yen was so great that it drove away the global/domestic recession and the profits of Japanese refining manufacturers for the April-June period generally improved year on year.

This is because both TC (Treatment Charge) and RC (Refining Charge), processing charge earnings of refining businesses, are paid in USD, and the weaker the yen becomes, the more the earnings become calculated in yen.

In other words, the positive effects of the weaker yen surpassed the negative effects of the international metals market softening.

Ordinary profits of refining manufacturers for the April-June period are as follows:

Sumitomo Metal Industries: approx. 293 million dollars (up 36%)
Mitsubishi Materials: approx. 137 million dollars (down 1.9%)
JX Nippon Mining & Metals Corporation: approx. 125 million dollars (up 59.8%)
Dowa HD: approx. 96 million dollars (up 17.8%)
Mitsui Mining & Smelting: approx. 50 million dollars (up 4.6%)
Nittetsu Mining: approx. 24 million dollars (up 33.1%)
Toho Zinc: approx. 20 million dollars (up 153%)
Furukawa: approx. 17 million dollars (up 69.4%)
(USD1 = JPY125)

The current exchange rate is USD1= JPY125; in 2011 it once reached USD1= JPY75, a devaluation of more than 60%.

On August 10, the Ministry of Finance of Japan announced that the current account surplus for Japan was 8,183.5 billion yen in the first half of this year, the largest after the Great East Japan Earthquake, which caused the trade deficit, to significantly reduce to 422 billion yen.

The weaker yen that resulted from quantitative easing, which the Bank of Japan is adopting to raise Japan consumer prices to realize an inflation rate of about 2%, improved the trade balance of exporting companies in Japan.

However, let’s not forget that this is a policy that has a risk of hyperinflation.

The debt of the Japanese government has already exceeded 1,000 trillion yen.