Asia oil -Upside risk to our GRM forecast Refining and petrochemicals update :: Macquarie Research,

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Asia oil and petrochemicals
Upside risk to our GRM forecast
Refining and petrochemicals update
 Upside risks to our refining margins forecast: We believe the impact of the
earthquake in Japan points to upside risk to our 2011 US$6.1/bbl Singapore
complex refining margin forecast. We believe the medium-term outlook will be
determined by the length of announced Japanese outages. Coupled with
recent events in Libya and Iraq, global refining utilisations are currently higher
than our previous projections.
 Supply disruption could put upward pressure on PX: While petrochemical
spreads remained largely flat last week, we believe PX prices could spike
further upward as a result of supply disruptions in Japan. QTD, the PX
naphtha spread has averaged US$693/ton, up 108% YoY and 56% QoQ on
strong seasonality, better supply demand fundamentals, and a high cotton
price.
Country-specific developments and views
 Thailand: In our view, Thai refiners are potential beneficiaries of widening PX
spreads, with PTTAR having the biggest exposure to PX (45% of sales),
followed by Thai Oil (25%).
 Korea: With the recent tragic events in Japan, we note that Korean oil
refineries' near-term earnings may be boosted further as a result of support in
regional middle distillate spreads. For petrochemicals, we believe potential
infrastructure replacement demand in Japan will raise long-term demand
growth projections, leading to petrochemical companies with potential
earnings upside. Our preferred picks are GS Holdings, S-Oil and Honam
Petrochemical.
 Taiwan: As our regional analyst has highlighted, the refinery outages as a
result of the Japan earthquake and additional demand for fuel oil (due to
nuclear plant damage) could put upward pressure on refining margins. We
believe the stronger refining margin should benefit FPCC, and we think FPC,
NPC and FCFC should indirectly benefit through their ~25% stake in FPCC.
Meanwhile, we think FCFC should benefit from the uptrend in PX/PTA prices
and margins, as JX Nippon Oil and Energy's PX plants’ shutdown following
the earthquake took about 5.4% out of NE Asia capacity.