Idemitsu mulls over new pricing formula

Idemitsu Kosan Co., Japan’s third-largest refiner by capacity, is considering to introduce new pricing formulas from October for its domestic oil products sales to better reflect crude oil prices. It would be appropriate to change prices weekly for each area in the country, said Akihiko Tembo, president of Idemitsu. Japanese refiners have been struggling to pass skyrocketing crude oil prices onto their sales prices due to weakening domestic demand and excessive refining capacity. Although many Japanese refiners have posted record high profits over the past few years, a large part of the profits came from inventory valuations. Most of their refining businesses have actually been running in the red or near break-even, according to officials. If the formulas were to be accepted by retailers and traders, it would help improve these refiners’ margins. Tembo is pessimistic about the degree of acceptance. He did not provide details of the possible formulas, but mooted the possibility of linking prices to Tokyo Commodity Exchange oil futures, oil import prices with cost, insurance and freight included, and Singapore spot prices. (July 23, 2008)