Singapore refining margins decline; rupee depreciation led to jump in under-recoveries :SBI Cap

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Singapore refining margins decline; rupee depreciation led to jump in under-recoveries

·         During September 2011, Brent crude continued to remain strong and averaged US$110.9/bbl compared to US$110.4/bbl in August 2011. Indian crude oil averaged US$108/bbl compared to US$107.2/bbl in August 2011.

·         Singapore refining margins declined in September and averaged US$8.5/bbl compared to US$9.6/bbl in August 2011. For 2Q/F12, margins averaged US$8.8/bbl compared to US$8/bbl in 1Q/F12 and US$4.84/bbl in 2Q/F11. The end of US driving season resulted into decline in gasoline cracks, leading to softening of refining margins. Margins have firmed up again in first week of October to US$11/bbl on news of fire in Shell’s refinery.

·         HSD and SKO cracks averaged US$16.52/bbl and US$17.3/bbl against US$17.91/bbl and US$19.7/bbl in August 2011, respectively. Gasoline cracks also declined and averaged US$20.1/bbl against US$21.1/bbl in August 2011 (See page 4).

·         Marketing under-recoveries in October 2011 are expected to increase compared to September 2011 levels, due to steep depreciation of rupee. For diesel, LPG and kerosene, we have estimated under-recoveries at`7.3/litre (`5.6/litre), `264/cylinder (`257/cylinder) and `24.4/litre (`22.6/litre), respectively. (See page 5 for trends in under-recoveries).

Petrochemical margin trends

·         Cracker margins declined substantially in September, averaging US$35/tonne compared to US$239/tonne in August 2011. For 2Q/F12, cracker margins averaged US$152/tonne compared to US$178/tonne in 1Q/F12 and US$188/tonne in 2Q/F11. Decline in cracker margins was led by fall in ethylene prices and higher cash costs.

·         Non-integrated PE margins improved and averaged US$368/tonne compared to US$339/tonne in August 2011. For 2Q/F12, margins averaged US$342/tonne compared to US$180/tonne in 1Q/F12 and US$220/tonne in 2Q/F11. Improvement in non-integrated PE margins was due to decline in ethylene prices.

·         Increase in ethylene cash costs due to higher naphtha prices and lower propylene and butadiene prices led to decline in integrated PE margins, which averaged US$497/tonne compared to US$661/tonne in August 2011. For 2Q/F12, integrated PE margins averaged US$576/tonne compared to US$459/tonne in 1Q/F12 and US$493/tonne in 2Q/F11.

·         Polypropylene (PP) margins remained weak and averaged US$50/tonne against US$35/tonne in August 2011. For 2Q/F12, PP margins averaged US$45/tonne compared to US$135/tonne in 1Q/F12 and US$97/tonne in 2Q/F11. Sharp decline in PP margins was led by fall in PP prices and stable propylene prices.

·         In spite of fall in ethylene prices, PVC margins declined because of sharper fall in PVC prices. PVC margins averaged US$410/tonne against US$460/tonne in August 2011. For the quarter, PVC margins averaged US$444/tonne compared to US$440/tonne in 1Q/F12 and US$320/tonne in 2Q/F11.

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