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RIL could benefit from tightening refining and petchem markets
The recent earthquake has led to a shutdown of significant refining and ethylene
capacities in Japan. This could support regional refining margins and
petrochemical spreads in the near term. With more than two-thirds of RIL’s
operating profit being contributed by refining and petchem, strengthening margins
should particularly benefit the company. Hence, we reiterate our Buy on RIL and
expect it to benefit from the improvement in downstream margins over FY11-13.
Capacity shutdown in Japan to support refining margins in the near term
David Hurd, Deutsche Bank Asia oil & gas analyst, in his report Losing capacity
from Japan published today expects the earthquake to have a limited short-term
impact on global refining margins. Four key refineries in Japan (Sendai, Kashima
and Negishi of JX Nippon Oil and Chiba refinery of Cosmo Oil) have been shut
down due to the earthquake. These four refineries have a total capacity of 945k
bpd, about 20.6% of Japan's and 3.4% of Asia's refining capacity (Figure 1).
Petrochemical capacities also hit
Almost 5.2mmtpa or two-thirds of ethylene cracker capacity in Japan could be
adversely impacted by the earthquake, including the 1.8mmtpa or one-fourth
capacity that has reportedly been shut down (Figure 3). The ethylene capacity
shutdown represents 23% of the Japanese capacity and 4% of Asian capacity.
With refinery shutdowns we also expect production of paraxylene (PX) - especially
JX Nippon Oil and Energy’s (unlisted) capacity - to be adversely impacted.
Gasoil spreads could strengthen; naphtha spreads could weaken
Soozhana Choi, Deutsche Bank Head of Asian Commodities Research, in the
Commodities Special report published today says that disruptions to Japanese
refiners will be supportive for the regional gasoil market given its net exporting
status and persistently strong Asian diesel demand growth rates. On the other
hand, ethylene capacity shutdowns in Japan could adversely impact the demand
for naphtha.
Reiterate Buy with INR1,150 target price; worsening global economy key risk
We reiterate our Buy rating on RIL with a target price of INR1,150. Our SOTPbased
target price uses 7.5x FY12E EV/EBITDA for refining and petrochemicals
and a DCF (WACC 10.2%) for KG-D6 and exploration upside. Risks are 1) a
worsening global economy; 2) production outages; and 3) policy vagaries.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
RIL could benefit from tightening refining and petchem markets
The recent earthquake has led to a shutdown of significant refining and ethylene
capacities in Japan. This could support regional refining margins and
petrochemical spreads in the near term. With more than two-thirds of RIL’s
operating profit being contributed by refining and petchem, strengthening margins
should particularly benefit the company. Hence, we reiterate our Buy on RIL and
expect it to benefit from the improvement in downstream margins over FY11-13.
Capacity shutdown in Japan to support refining margins in the near term
David Hurd, Deutsche Bank Asia oil & gas analyst, in his report Losing capacity
from Japan published today expects the earthquake to have a limited short-term
impact on global refining margins. Four key refineries in Japan (Sendai, Kashima
and Negishi of JX Nippon Oil and Chiba refinery of Cosmo Oil) have been shut
down due to the earthquake. These four refineries have a total capacity of 945k
bpd, about 20.6% of Japan's and 3.4% of Asia's refining capacity (Figure 1).
Petrochemical capacities also hit
Almost 5.2mmtpa or two-thirds of ethylene cracker capacity in Japan could be
adversely impacted by the earthquake, including the 1.8mmtpa or one-fourth
capacity that has reportedly been shut down (Figure 3). The ethylene capacity
shutdown represents 23% of the Japanese capacity and 4% of Asian capacity.
With refinery shutdowns we also expect production of paraxylene (PX) - especially
JX Nippon Oil and Energy’s (unlisted) capacity - to be adversely impacted.
Gasoil spreads could strengthen; naphtha spreads could weaken
Soozhana Choi, Deutsche Bank Head of Asian Commodities Research, in the
Commodities Special report published today says that disruptions to Japanese
refiners will be supportive for the regional gasoil market given its net exporting
status and persistently strong Asian diesel demand growth rates. On the other
hand, ethylene capacity shutdowns in Japan could adversely impact the demand
for naphtha.
Reiterate Buy with INR1,150 target price; worsening global economy key risk
We reiterate our Buy rating on RIL with a target price of INR1,150. Our SOTPbased
target price uses 7.5x FY12E EV/EBITDA for refining and petrochemicals
and a DCF (WACC 10.2%) for KG-D6 and exploration upside. Risks are 1) a
worsening global economy; 2) production outages; and 3) policy vagaries.
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