By Hina Suzuki, Tamiyuki Kihara and Kaori Kaneko
TOKYO, April 15 (Reuters) - Japanese companies whose output is dependent on naphtha or naphtha-based products are halting orders or slashing production, highlighting a disconnect between official assurances of sufficient supply and realities on the ground.
Over the past week, more than a dozen firms including Toto and Asahi Kasei have flagged disruption in delivery or hiked prices, citing concern over the procurement of materials such as adhesives made
from naphtha - an oil derivative chiefly used as a solvent or diluent.
Manufacturers of thinner-related products such as Kansai Paint, which by law can only hold limited stock of the hazardous material, have also adjusted delivery arrangements and raised prices, clouding the outlook downstream for goods and services as varied as plastic toys and housing construction.
Just 2.7% of companies are able to obtain thinner as usual, showed a survey conducted last week by the Japan Painting Contractors Association.
The picture amounts to a headache for the government, which has sought to prevent disruption by repeating its message that Japan has enough naphtha for the next four months.
The government has said it is working to secure supplies outside the Middle East, from which Japan sourced 40% of its naphtha before the U.S. and Israel attacked Iran on February 28. It has also set up consultation services to help businesses with procurement before they opt for changes in operations.
Even so, Toto this week suspended the acceptance of orders for modular bathroom units requiring adhesives that rely on solvents containing naphtha. Rivals Lixil, Panasonic and Cleanup have similarly flagged delivery impact.
JAPAN FEARS PUBLIC PANIC
Countries including South Korea, Thailand and Bangladesh have responded to disruption in the supply of Middle East oil products by calling on the public to take conservation measures, such as by driving less or even taking shorter showers.
Asked why Japan has not adopted a similar approach, Prime Minister Sanae Takaichi said she did not want to slow economic activity. She has tasked industry minister Ryosei Akazawa with ensuring a steady supply of oil-related products.
On Tuesday, Akazawa said the "blockage" was in the middle of the supply chain, with thinner wholesalers, for example, halving supply to customers in April upon being told that shipments would be uncertain in May.
"For Prime Minister Takaichi, the economy comes first. She doesn't say anything that would be difficult for citizens," a government official involved in economic policy told Reuters, declining to be identified because of the sensitivity of the matter. "This is the administration's policy."
Another government official said the administration and industry ministry are afraid of consumer panic reminiscent of the hoarding of toilet paper and other goods during the 1970s oil crisis.
"We should really be calling on people to save energy now but the prime minister's office has put a stop to that," said the second official on condition of anonymity. "We've already said we have enough supply so if we were to ask for conservation measures, we might invite criticism, and that's the fear."
Shares of naphtha-dependent companies including Toto, Kansai Paint and Mitsubishi Chemical are underperforming Tokyo's benchmark Nikkei share price average, which has now recouped most of the loss suffered since the start of Middle East conflict triggered general risk-off sentiment.
"Even if producers could ramp up output regardless of cost ... they risk being stuck with high-priced inventory if prices eventually drop," said Tomoichiro Kubota, senior market analyst at Matsui Securities.
"The Takaichi administration prioritises economic sentiment. While it has announced support for specific items, such an approach is like a game of whack-a-mole."
(Reporting by Hina Suzuki, Tamiyuki Kihara, Kaori Kaneko, Noriyuki Hirata, Kentaro Okasaka, Mariko Katsumura and Nobuhiro Kubo; Writing by Chang-Ran Kim; Editing by Christopher Cushing)
