Japan oil rivals in merger deal

The new company plans to cut its oil refining capacity by 20%

Japan's top oil refiner, Nippon Oil, is merging with smaller rival Nippon Mining Holding in an attempt to weather falling oil prices and weak demand.

Their shares jumped 14% before the announcement, bringing their combined market value to $8.6bn (£5.7bn).

The new company is expected to cut costs by up to $1.1bn a year, the two firms said.

Oil prices have fallen more than $100 a barrel from their record levels in July because of the global financial crisis.

The two companies plan to reduce their combined oil refining capacity by 400,000 barrels a day, or 20%, by April 2012, Nippon Oil president said.

Nippon Oil and Nippon Mining Holding said they also needed to improve their ecological measures to respond to consumer concerns.

'Positive for industry'

"It is best to bring together our management and strengthen our foundation to survive amid intensifying competition amd be ahead in our responses in structural changes," the two companies said.

Many analysts welcomed the deal.

"Their merger is also positive for the entire industry, because it would create absolute leadership in pricing and thereby help eliminate excess price competition," said Toshinori Ito at UBS.

"It would also help tighten a supply-demand balance in the industry."