Japan’s exports slump again on weak external demand

Japanese exports fell 1.2 percent year-on-year in February, more than a 0.9 percent decrease expected by economists in a Reuters poll. (Reuters)
Updated 18 March 2019
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Japan’s exports slump again on weak external demand

  • Japan is in a similar situation to much of the rest of the world, where factories have slammed on the brakes and business confidence has plummeted
  • Japan’s still-large surplus with the United States raises concerns among Japanese policymaker
TOKYO: Japan’s exports fell for a third month in February in a sign of growing strain on the trade-reliant economy, suggesting the central bank might be forced to offer more stimulus eventually to temper the effects of slowing external demand and trade frictions.
Slowing global growth, the Sino-US trade war and complications over Britain’s exit from the European Union have already forced many policymakers to shift to an easing stance over recent months.
Japan is in a similar situation to much of the rest of the world, where factories have slammed on the brakes and business confidence has plummeted in the wake of rising global economic uncertainty.
Ministry of Finance data showed on Monday exports fell 1.2 percent year-on-year in February, more than a 0.9 percent decrease expected by economists in a Reuters poll. It followed a sharp 8.4 percent year-on-year drop in January, marking a third straight month of falls due to drops in shipments of cars, steel and semiconductor production equipment.
“Exports to advanced nations like the United States and Europe still held firm, but China- and Asia-bound shipments were clearly sluggish,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Exports will remain in a declining trend for the time being, which could curb capital spending and wages.
Domestic economy will face a severe situation ahead of October’s sales tax hike.” The trade data comes on top of a recent batch of weak indicators, such as factory output and a key gauge of capital spending, which have raised worries that Japan’s record run of postwar growth may come to an end.
Some analysts say a recession cannot be ruled out. The Bank of Japan last week cut its view on exports and output, while keeping policy unchanged.
Yet, extended weakness in exports could put it under pressure to deliver more easing, especially as inflation remains well off its 2 percent target and pressure on businesses and consumers continues to rise.
In the post-policy press conference last week, BOJ Governor Haruhiko Kuroda acknowledged the challenges the economy faced but gave no indication there would be any additional stimulus.
But Kuroda may have to change tack in the face of a run of weak economic indicators.
Many in the BOJ expect Japan’s economy to emerge from the current soft patch in the second half of this year, assuming China’s stimulus plans can revive demand there.
The biggest worry among BOJ policymakers is that weakening exports and output will hurt corporate sentiment, prompting firms to delay capital expenditure and wage hikes.
The trade war between the United States and China — Japan’s largest export markets — has already curbed global trade.
Monday’s trade data showed exports to China, Japan’s biggest trading partner, rose 5.5 percent year-on-year on shipments of semiconductor production equipment and cars, rebounding from a 17.4 percent drop in January.
However, overall trade to the Asian giant remained weak, as even after averaging effects of the Lunar New Year holiday, China-bound shipments declined 6.3 percent in the January-February period from a year earlier.
Seasonally-adjusted overall trade values rose 6.7 percent month-on-month in February, the strongest rise in two years. Export volumes fell 0.6 percent in the year to February after the previous month’s 9.0 percent decline.
“Shifts in the timing of Chinese New Year partly explain the sharp swings in trade volumes at the start of the year so the recent strength in export volumes may unwind before long,” said Marcel Thieliant, senior Japan economist at Capital Economics.
“We still think that net trade will remain a drag on GDP growth both in the first quarter and throughout 2019.” Japan’s shipments to Asia, which account for more than half of overall exports, fell 1.8 percent, down for a fourth straight month.
US-bound exports rose 2.0 percent, but imports from the United States grew 4.9 percent, resulting in Japan’s trade surplus with the country declining 0.9 percent year-on-year to ¥624.9 billion ($5.60 billion) in February.
Yet, Japan’s still-large surplus with the United States raises concerns among Japanese policymakers and auto exporters that Washington may impose hefty duties on its imports.
Imports of Japanese cars make up about two-thirds of Japan’s $69 billion annual trade surplus with the United States, making Tokyo and Beijing targets of criticism by Trump.
In February, Japanese auto exports to the United States rose just 0.5 percent year-on-year to 152,198 units in February, with the value of shipments down 6.8 percent.


Eni issues fraud complaint over suspect Iraqi shipment

Updated 18 July 2019
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Eni issues fraud complaint over suspect Iraqi shipment

  • Italian oil multinational asks if rejected tanker cargo contained Iranian crude targeted by US sanctions

LONDON: Eni has filed a fraud complaint against its former head of oil trading over a suspect Iraqi crude oil shipment, amid concerns inside the Italian oil major that the failed delivery may have included Iranian crude targeted by US sanctions.

In the filing to the Milan prosecutor’s office, Eni accused its former head of trading and operations, Alessandro Des Dorides, of misleading all parties to the deal and hiding the role of a small Italian oil trading firm, Napag.

Two other senior employees were either demoted or suspended as a result of the failed shipment, sources said.

Eni said it had suspended dealings with Napag in February over a separate investigation by Milan prosecutors into suspected obstruction of justice by members of Eni’s former legal team.

Eni said that it fired Des Dorides at the end of May, after he had been in his job about six months, for what it said was an unrelated petrochemical deal with Napag in 2018.

Napag did not respond to an emailed request for comment or answer phone calls.

Des Dorides did not respond to several requests for comment from Reuters via email or LinkedIn. Reuters could not locate legal representation for him.

Eni also declined to comment. Eni said it “does not comment on ongoing investigations and internal due processes.”

The crude arrived aboard the White Moon tanker at the end of May for offloading at the Milazzo refinery in Sicily, which is part-owned by Eni. The Italian oil major, which produces oil in Iraq and is a regular buyer of Iraqi crude, was solely responsible for the cargo.

However, Eni said it rejected the delivery because it did not match the Iraqi Basra Light crude it expected from its counterparty, the Dubai-based trading arm of Nigerian firm Oando.

After sitting offshore for three weeks, the White Moon sailed back to the Gulf. The tanker manager did not respond to a request for comment.

Two sources at Eni said the White Moon’s 1 million barrel cargo created panic within the company over fears the crude could be, at least partially, Iranian.

Handling Iranian oil would have breached sanctions the US reimposed or extended last year after quitting a nuclear deal between Iran and world powers.

Washington aims to reduce Iran’s exports to zero and force the Islamic Republic to renegotiate that nuclear deal, curb its missile program and modify its behavior in the Middle East.

Iran has called on other parties to the accord to shield it from the effects of US sanctions and has sought to circumvent US restrictions by selling more of its oil undercover.

Following the rejection of the White Moon shipment in June, the head of the Italian Senate Industry Committee wrote to Eni Chief Executive Claudio Descalzi to clarify the origin of an oil cargo labelled as coming from Iraq, the head of the committee said.

The head of the committee declined to comment to Reuters on the oil’s possible origins.

Eni said it bought the crude from Nigerian firm Oando, who in turn bought the oil from the London branch of Italy’s Napag.

Oando said it took back the cargo from Eni, but declined to comment further on the origins of the cargo as it was “in the middle of a resolution” over the rejected oil. Oando said the terms of the deal were “normal for the trading industry.”

Italian prosecutors cannot legally comment on any investigation unless there is an exceptional circumstance.

Trading sources familiar with the deal said the offer terms for the crude should have raised alarms internally even before its arrival off Sicily. The offer was at a significant discount to typical Iraqi trades, was paid for in euros and was from a firm that is new to the region, they said. Physical oil is commonly traded in dollars.

Eni said that the mismatch in the crude’s chemical composition “coupled with other red flags led to the decision to terminate the transaction.”

The oil loaded onto the White Moon came via two ship-to-ship transfers that makes the origin harder to track, sources said.

The crude bought from Oando was loaded onto the White Moon from another vessel, the New Prosperity, but that vessel itself had been loaded with oil from a third tanker, the Abyss.

The Abyss makes regular voyages through the Mideast Gulf with its transponder switched off for days at a time, according to Refinitiv Eikon ship tracking. The transponder was switched off between April 24 and May 3 when it transferred oil to the New Prosperity.