In order cope up with falling prices and low demand, leading oil refiner of Japan, Nippon Oil Corp decided to merge with sixth-ranked Nippon Mining Holdings Inc. The merger is expected to cut crude oil refining capacity by 400,000 barrels per day by April 2012, informed the president of Nippon Oil. The news of merger between the two companies pushed up the shares of the companies by 14 percent. According to Merrill Lynch analyst Takashi Enomoto the proposed merger will boost consolidation and realignments among local oil refiners, and low oil refining margins in Japan.

 

The two companies are yet to decide the merger ratio and the name of the merged unit. UBS analyst Toshinori Ito is of the opinion that merger of the two companies will enable them improve the efficiency of their operations and will likely be able to realize the benefits of restructurings in broader areas. The global economic slowdown has sent crude oil prices down by around 70 percent from its record high in July. Apart from these, the oil refining sector of Japan is burdened with aging plants and weak retail margins.

 

As a result, major refiners have been slashing crude refining plans. Japanese oil product sales in October tumbled to their lowest level for the month in 20 years. Report says that Nippon Oil is planning to reduce its crude oil refining capacity by 18 percent in December from a year ago. The company may also continue to refine less until January if demand stays low.