Takaichi Seeks to Reassure Japan Firms Over Naphtha Supply

(Bloomberg) -- Japanese Prime Minister Sanae Takaichi said there will be enough supply of naphtha to meet domestic demand until next year, even as companies raise concerns about supply chain instability following the effective closure of the Strait of Hormuz. 

“Naphtha imports from areas outside the Middle East, such as the US, Algeria, and Peru, will increase threefold by May, compared with levels before the Middle East conflict,” Takaichi posted on social media on Thursday. She said there have been disruptions in the supply chain due to overbuying of petroleum products by some firms.

The comments come as signs of the impact from the Middle East conflict begin to show across Japan’s economy. Japan has relied on the Middle East for about 90% of its oil. The disruption in oil supply is testing Takaichi’s leadership and diplomacy, as the government seeks to soften the economic blow from the war in Iran.

In early April, Takaichi said there was enough naphtha to last Japan over half a year. The assurances of incoming imports and supply lasting until next year suggest an increase in supply, but companies appear wary they may run short of the distilled product, which is used to make everything from tires and clothes to plastic bags and foam packaging.

Supply chain disruptions are beginning to create choke points across Japan’s auto industry, including the network of companies surrounding Toyota Motor Corp. Some smaller suppliers have said they’ll be unable to deliver some parts starting in two weeks, a Toyota executive told reporters on Tuesday. 

Other car parts suppliers have given cautious outlooks during quarterly earnings, saying it’s hard to judge the availability of vital components beyond the short term. 

The outlook for thinners, a naphtha product used in automotive paint, is also becoming increasingly uncertain, the Japan Machine Tool Builders’ Association said earlier this week. 

It echoed concerns from the National General Contractors Association of Japan, an organization representing building contractors across the nation who warned of imminent project cancellations due to the unstable supply of products derived from the material. 

“There are delays and disruptions in the delivery of building materials, and we are coming to a point where we can’t avoid having to delay or cancel construction” projects, the group said in a statement.

Even if the government has secured enough naphtha overall, the types needed by each company are different, said Takahide Kiuchi, an economist at Nomura Research Institute. “Differences in composition and grade can create a mismatch between macro-level supply and micro-level needs,” he said. 

Companies will need to share information to prevent unnecessary fears of shortages, he added.

Takaichi noted on social media that she was aware of supply concerns from the plastic packaging industry, adding that the government will continue to do what it can to ensure there is no disruption to the distribution of food products. 

Plastic packaging makers are already demanding higher prices, according to a report by consultancy Teikoku Databank, leading food manufacturers to pass through costs as early as this summer.

“As production is scaled back at each stage of the naphtha-based supply chain to conserve raw materials, output — particularly of downstream goods such as daily necessities — declines sharply,” said Kiuchi. “This situation is unlikely to ease quickly.” 

In a phone call with Iranian President Masoud Pezeshkian on Thursday that lasted about 20 minutes, Takaichi pressed Iran to ensure the safe passage of vessels through the Strait of Hormuz, according to a statement from Japan’s Foreign Ministry. 

The call came after a Japan-affiliated vessel was allowed passage through the strait on Wednesday. Takaichi expressed strong hopes that Iran and the US would resume talks to reach a final agreement, and the two leaders agreed to continue communicating, according to the statement. 

As Japan heads into a long weekend, Takaichi and other members of her government will travel abroad in what will also likely be a push to shore up supply chains and strengthen energy security. 

Takaichi is set to visit Vietnam and Australia, while Foreign Minister Toshimitsu Motegi is touring Africa. Former Prime Minister Fumio Kishida spoke with Philippine President Ferdinand Marcos Jr. on Thursday, pledging further cooperation on energy security and decarbonization.

(updates with details about the impact on companies)

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