Idemitsu Kosan - Company History

Idemitsu began in June 1911 as a one-man shop in Moji, Fukuoka. The capital was ¥8,000 handed over by an acquaintance, Hida Shigetaro, on terms that shaped everything after: no repayment, no interest, no business reports — only that Idemitsu Sazo stay independent. A graduate of Kobe Higher Commercial School who had chosen an apprenticeship at a tiny oil dealer over a large trading house, he picked machine oil rather than flour because lubricants sell every month. Seniors from Nippon Oil and Standard told him electrification would shrink oil demand and tried to talk him out of it. He went ahead anyway.

His answer to electrification was to chase demand that moved. From 1913 he sold fuel oil to motorized fishing boats out of Shimonoseki; in 1914 he crossed to Manchuria and supplied machine oil to the South Manchuria Railway, then extended store by store into North China, Korea, Taiwan and Central China. Because the business had neither shareholders nor creditors, he could bypass the wholesalers entirely and sell direct to the user — the unorthodox method that would later define the company. Annual oil sales passed ¥10m by 1932. In 1939 he built a tank farm of over 100,000 kilolitres near Shanghai; by 1945 the network ran to more than eighty locations across East Asia, all of it selling, none of it refining.

Incorporation, when it came, was not his idea. In March 1940 the military ordered it, and Idemitsu Kosan Co., Ltd. was formed with ¥4m of capital, taking over the Korean, Taiwanese, Kwantung and home-island assets of the old partnership. Sazo, who regarded the owner-operated shop as the ideal form of a business, kept the shares inside the family and affiliated firms. That capital structure — a company in legal form, closed in substance — would hold almost unchanged for the next sixty years.

Surrender in August 1945 erased the entire business at a stroke: every overseas asset, all eighty-plus stores, all the local subsidiaries. What remained was a head office with nothing to sell and roughly a thousand employees coming home from abroad. Sazo dismissed none of them. With oil still under state control there was no role for a distributor, so for about two years the company survived on pumping residual oil from old navy tanks, radio repair, printing, farming, fishing and fermentation. Re-entry came in October 1947 with the founding of the state petroleum distribution agency; Idemitsu took sales rights in twenty-two locations and immediately handled more volume than any other dealer, and was designated a primary distributor in March 1949.

The defining act came in 1953. Iran had nationalized its oil in 1951, and Anglo-Iranian was using every available means to shut Iranian crude out of world markets; fear of cartel retaliation kept everyone away. In February 1953 Idemitsu signed a nine-year purchase contract with the National Iranian Oil Company, and that May sent its own tanker, the Nissho Maru II, through the blockade to lift crude directly. The ensuing ownership dispute with Anglo-Iranian was settled in August 1954, clearing imports of about 500,000 kilolitres a year. Sazo’s reasoning was arithmetic, not romance: oil is a world commodity trading at a world price, so the only real variables are freight and tax. Deal with the producer directly, and carry the cargo in your own ships, and you own both variables.

In March 1957 the Tokuyama refinery — built on the site of a former naval fuel depot — turned a distributor into a producer, and with it the freedom to choose where crude came from: Soviet crude from 1959, Chinese Daqing crude from 1973, direct-deal contracts through offices in Beirut, Tehran and Kuwait. When the industry moved to voluntary production quotas in 1962, Idemitsu refused. Restricting supply to hold prices up was, Sazo argued, the opposite of the point — cheap oil in unlimited volume was what would lift Japanese industry. Talks broke down and in November 1963 the company walked out of the Petroleum Association of Japan, running alone until the quotas were abandoned in October 1966. The rest of the chain was built to match: Apollo Service for filling stations (1961), Munakata Kaiun and Idemitsu Tanker (1962), the 132,000-tonne Nissho Maru III (1962) and the 210,000-tonne Idemitsu Maru (1966), then the largest ship in the world.

Through the oil shocks the company kept building and kept owning. Refineries followed at Hokkaido (1973) and Aichi (1975); by 1978 the country was divided into twenty-four blocks served by directly operated service stations, with 1,100 of Japan’s 8,100 stations owned outright — a wall against both grey-market product and price collapse. Upstream and overseas assets were added through the 1980s and 1990s: Australian coal mines from 1988, the Snorre field in the Norwegian North Sea from 1992, a US lubricants plant the same year. From about 1991 the capital went into secondary conversion units, because power utilities were switching away from fuel oil and Idemitsu’s Middle Eastern crude ran heavy. Every yen borrowed went into the core business — and by FY1993 group interest-bearing debt passed ¥2tn.

Deregulation then removed the shelter. Import liberalization in 1996 dropped a fully over-built industry into open price competition; Idemitsu cut hiring sharply from 1995 and let group headcount fall from roughly 10,000 in 1994 to about 8,500 by 1998, while still refusing to shed people for the company’s convenience. In September 1998 Moody’s assigned it a speculative-grade B2 rating — unilaterally, after Idemitsu declined to be rated on the grounds that it had neither listed shares nor public bonds and explained itself to its banks. Idemitsu Akira, president since that May, conceded the company would never fit a rating agency’s yardstick and said the only possible rebuttal was better earnings. A month later Nippon Oil and Mitsubishi Oil announced their merger, and the largest seller of fuel oil in Japan found itself the partner nobody wanted: ¥1.3tn of parent-level debt and no public disclosure.

The fix required breaking the founder’s rule. In June 2000 Idemitsu issued preferred shares to five banks and insurers, raising ¥37.8bn in all by March 2001 — the first outside capital since incorporation in 1940, and the first capital increase of any kind in thirty-seven years. The preferred stock carried no votes and brought no bank directors: financial repair without loss of control. When the president floated an eventual listing that May, honorary chairman Idemitsu Sadasuke said there would be no listing and the plan was withdrawn within weeks — a demonstration of where power actually sat. It took a non-family president, Tenbo Akihiko, appointed in 2002, to argue the case through; group interest-bearing debt fell from ¥1,727bn at the end of FY1999 to ¥1,097bn by FY2004 as capacity was cut at Hyogo and Okinawa and the petrochemical subsidiary was reabsorbed in 2004.

The capital structure was rebuilt before the shares were sold. In October 2005 the company retired the preferred stock through a ¥38.6bn capital reduction and raised ¥51.2bn by placing new common shares with its banks, Mitsui Chemicals, Mitsubishi Corporation and its own dealers — pointedly not with the family holding companies. Until then the voting capital had been just ¥1bn, a majority of it effectively held by the founder’s eldest son. In October 2006 Idemitsu listed directly on the First Section of the Tokyo Stock Exchange, unprecedented for a company with ¥2.76tn of annual sales, though equity was still only about 14% of assets against an industry average of 25%. Non-family presidents followed in sequence: Nakano Kazuhisa (2008), Tsukioka Takashi (2012).

Shrinking domestic demand did the rest. In March 2014 Idemitsu shut the 120,000 b/d crude unit at Tokuyama — zeroing out the refining function of the site that had made it an integrated oil company in 1957 — and the FY2014 collapse in crude prices produced an operating loss of $990.2M (¥105bn) and a net loss of $1.3B (¥138bn). In December 2016 the company bought 31.3% of the voting rights in Showa Shell Oil from a Royal Dutch Shell subsidiary. The founding family opposed the merger as a betrayal of the independence principle — and with more than a third of the votes, could block it. Kito Shunichi took over as president in June 2017 to force the issue: a public offering of 48 million shares that July raised ¥119.5bn and cut the family’s voting stake from 33.9% to about 26%, destroying the veto. The family sought an injunction on the grounds of grossly unfair issuance; the Tokyo District Court refused it and the High Court dismissed the appeal.

The family consented in June 2018 in exchange for two board nominations and shareholder-return commitments, and the share exchange completed in April 2019, leaving four domestic refiner-marketers effectively reduced to two. The timing was cruel — COVID and another crude collapse produced losses again in FY2019 — but the merged scale then showed: revenue of ¥6.69tn with net income of ¥279.4bn in FY2021, ¥9.46tn in FY2022, and ¥8.11tn with operating income of ¥212.2bn in FY2025. Capacity continues to come out (the 120,000 b/d Yamaguchi unit in March 2024) while the company buys into the remaining supply structure — stakes in Fuji Oil from Sumitomo Chemical and JERA in 2024 — and edges outside oil, taking full ownership of the agrochemical maker Agro-Kanesho in 2025. Sakai Noriaki has led the company since FY2024.