Asian refiners to outperform global peers on higher demand - Moody's

01 March 2012 05:08  [Source: ICIS news]

SINGAPORE (ICIS)--Asian refiners, with the exception of Japan, are expected to outperform their global peers this year on the back of strong demand growth for refined products in the region, ratings firm Moody's Investors Service said on Thursday.

"The outperformance of Asian refiners will be led by their higher proportion of middle-distillate output and China's above-average demand for refined products," said Simon Wong, vice president and senior analyst at Moody’s.

China’s oil demand growth this year will account for 40% of incremental growth in oil demand globally, according to Moody’s.

The Organization of Petroleum Exporting Countries (OPEC) forecasts a 4.4% year-on-year growth in oil demand for China in 2012, versus 0.7% for the rest of the world.

Meanwhile, the high proportion of middle distillate output in refineries in Asia will underpin their above-average refining margins, Moody’s said.

"In the medium term, we expect market fundamentals for diesel to remain strong, given robust, non-OECD [Organisation for Economic Co-operation and Development] demand from transport, industrial, and power-generation sectors,” Wong said.

“Fuel-subsidy policies in many Asian countries, including China, India, Indonesia, and Malaysia, will also continue to drive strong demand for diesel," Wong added.

However, the oil embargo imposed by the US and Europe on Iran over its disputed nuclear programme could hurt Asian refiners, according to Moody’s

"If key importing nations such as China, Japan, India, and South Korea restrict or reduce crude imports from Iran, the refiners in these countries will need to source more expensive crude from elsewhere and may not be able to fully pass on the higher costs," Wong said

Asian refiners face five major hurdles this year: lower refining margins, regulatory risks, rising crude futures on the back of the tensions in the Middle East, waning overseas demand and high capital expenditure, according to Moody’s.

Indian Oil Corporation (IOC) faces the most risk from a decline in refining margins and high crude prices, which will likely lower its earnings before interest, taxes, depreciation and amortisation and raise debt, it said.

“The company's already elevated leverage and burden of sharing India's ad hoc fuel subsidies make IOC particularly vulnerable,” Moody’s added.

By: Nurluqman Suratman

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