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Japan-Update

Japan oil group JXTG seen topping full-year forecast

Reduced refining capacity improving margins

The energy business has powered JXTG's earnings, led by Eneos and other brands.

TOKYO -- Japanese oil major JXTG Holdings is likely to book an operating profit of around 380 billion yen ($3.32 billion) for the year ending in March, surpassing guidance of 350 billion yen as margins widen on tight supply and better-than-expected resource prices.

Earnings are being driven by the energy business, which handles sales of gasoline, diesel fuel and other oil products under several brands including Eneos. Japan's oil industry has shrunk refinery capacity under a government initiative to encourage oil companies and others to make more efficient use of fossil fuels and promote the shift toward renewables. Supply of petroleum products has fallen as a result, generating bigger margins between crude oil costs and retail prices as the market tightens.

JXTG was born from the merger of JX Holdings and TonenGeneral in April. Although sales volume is likely to suffer as green vehicles and technology spread, JXTG is focused more on profitability as Japan's largest oil company.

Gradually rising natural resource prices will also lift earnings. JXTG pegged Dubai crude at $50 a barrel in its forecast for the current year. Prices stalled over summer but have taken a strong upturn since September on anticipated production cuts by major oil-producing nations, with Dubai crude currently trading at over $50 a barrel.

Profitability of overseas concession rights is also improving more than expected. JXTG's Caserones mine in Chile will contribute to higher profit owing to the higher-than-forecast price of copper.

Synergies from the merger are also contributing significantly. JXTG is integrating its predecessors' assets to streamline logistics and procurement of raw materials, among other improvements.

The Tokyo-based company did not factor inventory valuations into its current full-year forecast due to the uncertain outlook for the oil market through March. JXTG may continue to hold back despite the substantial impact the valuations can have on earnings.

JXTG plans to announce earnings for the April-September half on Friday. Operating profit is expected to come in at about 180 billion yen, beating the company's forecast of 165 billion yen.

(Nikkei)

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