The mergers would either require Japans automakers to rely on single suppliers for factory fill lubricants instead of their strategic preference of maintaining two sources, or it will force different original equipment manufacturers to use the same combination of suppliers. According to Adachi, JX Nippon Oil & Energy is the top supplier for major automobile OEMs in Japan, supplying lubricants to Toyota, Nissan, Honda, Subaru, Mazda and Suzuki. Idemitsu Kosan supplies to Nissan, Honda, Subaru, Mazda and Daihatsu, TonenGeneral to Toyota and Showa Shell Sekiyu to Suzuki.

However, experts say a reduction in competition will not lead to foreign lubricant players entering Japan, as the lubricant production know-how needed to meet automotive engines technology or Japanese domestic specifications is still lacking.

The main grades available in the market in Thailand and Malaysia and other countries are different from those sold in the Japanese market, so I do not think there will be any increase in the volume of direct imports from these countries. However, there is a possibility of an increase in imports for high quality base oils, a Japanese industry insider told Lube Report Asia, noting that demand exceeds local supply.

The merger of Idemitsu Kosan and Showa Shell Sekiyu will mean a drop in the number of players, reducing excess competition, and this is something positive for the industry as we can expect the mergers to consolidate their synergies and develop new growth strategies, said Matsumoto Seiichiro, an analyst in the industry research department of Mizuho Bank in an industry report.

For example, Matsumoto said, in terms of marketing networks, Idemitsu Kosan is strong in northern and central Japan (on Hokkaido island and in the regions of Tohoku and Chugoku) while Show Shell Sekiyus strength is in the eastern and central parts (Kanto and Chubu regions).

Combining their networks, can lead to increase efficiency of service stations and expansion of the companies brand presence in the three major metropolitan areas of Kanto, Tokai and Kansai, he explained.

Also, merging the companies may enhance their competitiveness when biding for business and expanding overseas market share. This is especially so when in general, factory fill lubricants are procured based on competitive bid for all OEMs while overseas OEM plants source from multiple sources including local suppliers, Adachi explained.

The lubricant business focuses on brand based on product differentiation and long term relationships with network expansion as the main strategy for overseas market development, added Matsumoto.

A shareholders meeting will be held for JX Nippon and TonenGeneral to approve the business integration at the end of this year and the new corporate group is expected to launch in April 2017. Idemitsu Kosan and Showa Shell Sekiyu are expected to have a shareholdings meeting to approve the merger by the end of this year.