-Japanese oil demand growth unlikely
-Improved Chinese steel sentiment
-Iron ore purity to feature
-Australian producers currently profitable

By Eva Brocklehurst

Japan's oil demand development is normally low profile as the market focuses squarely on China and India. JP Morgan has looked at what might change in Japan, given the country achieved relatively strong economic growth in the first quarter of 2013, at 4.1% quarter-on-quarter. The upshot of the analysis is that demand will not boom. Japan's economy remains dominated by services, totalling 71% of GDP according to 2010 data. Thus, the commodity intensity of the economic growth is substantially lower than in more manufacturing oriented economies.

JP Morgan's analysis of Japan's income elasticity in demand for oil products leads to lower values for naphtha and gasoline, despite a rising intensity of diesel use. Transient factors that supported oil demand in 2011 and 2012, particularly in power generation, are now reversing. The nuclear outages that followed the 2011 earthquake increased the oil dependency of the power generators but this has been temporary, as the operators shift to cheaper coal and gas-fired capacity. The prospects for a nuclear re-start in 2014 will likely