Wednesday, September 03, 2008


A regular reader mentioned that I have said that Japan is now an oil exporter and that Japan imports about 100% of its oil. The following is my answer. Further down is the explanation of why paper stocks are up.

Both are correct, Japan is an importer and an exporter of oil. We have to be careful with words.

Japan imports about 100% of its crude oil. It refines the oil into oil products. In the past, it had to supplement its purchase of crude oil with the purchase of refined products from other countries. Today, it is a net exporter in the category of finished products. It continues to import almost all of its crude oil.

Japan was the miracle economy, similar to the China of this cycle, back in the 70's and 80's. Japan became the most efficient of manufacturing nations; it learned how produce GDP growth per dollar of energy used. Since the country has been energy efficient for many years, it was surprising that it had room to even become more efficient. The power of $147 per barrel oil is still being felt around the world.

The price will probably not reach $147 again for 20 or 30 years, but those who went without during the run up will have long memories. Just like the General who fights the last war, the public will fight high oil prices for many years to come.

Japan is just getting started. For example, car manufacturers are moving rapidly toward small battery powered or battery aided vehicles. Perhaps the most interesting initiative in Japan is the "mining of the oceans". Genetic engineering holds great promise for growing algae rich in uranium or rich in the sugars needed to produce bio-fuel. Japan is providing leadership in this area. The oceans of the earth hold millions of years worth of carbon fuel and billions of years worth of uranium fuel. There is no energy crisis, just a short term shortage.


The paper story is easy. Big mutual funds, in particular the ones that buy only basic material stocks are stuck in a falling market. They can minimize the damage by getting out of oil stocks and getting into paper, lumber and selected chemical stocks.

It takes a lot of oil to make paper, lumber and selected chemicals. When the price falls, the cost of production falls. In effect, these industries are consumers of energy. The stocks are moving up for those reasons.