Key insights
- Japan's industrial production unexpectedly fell in March due to decreased chemical and fuel output, impacted by Middle East supply disruptions. While Japan holds sufficient inventory, continued disruptions could impact downstream shipments and potentially contribute to global inflationary pressures. The US market may see a slight negative impact due to concerns about global supply chain vulnerabilities and potential knock-on effects on energy prices.
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TOKYO, April 30 (Reuters) - Japan’s factory output unexpectedly fell in March from the previous month, hit by shrinking chemical and fuel product output amid Middle East supply disruptions, government data showed on Thursday.
The country’s industrial production shrank by 0.5%, the Ministry of Economy, Trade and Industry (METI) said, marking the second consecutive month of decreases and disappointing market forecasts for a 1.1% gain.
Petroleum-based goods led the downturn. The production of polyethylene declined 27%, while polypropylene fell by 15% in March. Still, Japan maintains 1.8 months’ worth of inventory for these intermediate chemical products and has largely been able to minimise the impact on downstream shipments, METI said.
Domestic production of fuels was also down across the board in March, with gasoline output falling 7.3% and diesel output declining 14.3%, the data showed.
Japan relies on the Middle East for some 95% of its crude oil, much of which is channelled through the Strait of Hormuz, a waterway that has been effectively shut by Iran after the U.S.-Israeli attack.
Manufacturers surveyed by METI expect output to fall again in April, down 0.7% on an adjusted estimate.