Combining Nippon Oil and Nippon Mining to form JX Holdings (2008)

In a shrinking market, could integration buy time?

The heart of this integration was an attempt, in a mature industry with little prospect of growth, to do two things at once through the concentration of scale: correct the overcapacity and secure the funds for growth investment. With domestic oil demand structurally thinning, capacity cuts that no company would risk alone could be pressed on the industry as a whole from behind an overwhelming share. President Nishio Shinji’s remark that the integration would have happened even without the crisis reveals a mind fixed on buying time against a fall in demand that was arriving on a different plane from the business cycle.

Yet the mechanism that funnelled the cash flow from refining and marketing into upstream resources carried within it the capacity to run in reverse the moment resource prices turned. The losses and impairments that came with cheap crude, and the second integration with TonenGeneral in 2017, show that one round of consolidation did not dissolve the industry’s excess supply. How much sustainable profit can restructuring in pursuit of scale generate in a market that is shrinking? JX’s path is a case that makes one weigh the effect and the limits of consolidation together, in an industry where demand itself is falling away.