Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Energy
India
Refining cycle: CY2009 revisited. We expect global refining margins to follow a
similar pattern seen in CY2009—(1) margin decline, (2) capacity closures and (3) margin
improvement. We expect global refining margins to improve from current low levels led
by capacity shutdowns of 1.3 mn b/d over the past four months; more will likely follow.
We discuss the implications of the recent weak refining margins for RIL (negative but
we have assumed low multiple in our SOTP valuation) and Indian PSU refiners (not
material in the context of their other problems).
Recent spate of shutdowns to reduce supplies in the refining sector
We expect refining margins to improve from current low levels led by (1) recent announcements of
permanent closure/shutdowns of inefficient refineries in the US and Europe owing to tough
operating conditions and (2) recovery in petrochemical demand; weak demand for naphtha in the
past few months has put pressure on gasoline-naphtha complex. Exhibit 1 shows the list of
refineries, which have announced permanent closures since September 2011 in light of a difficult
competitive environment led by (1) commissioning of more efficient and complex refineries in Asia
and the Middle East over the past few years and (2) weak demand.
Weak refining margins not sustainable for a prolonged period; CY2009 acts as a good guide
We do not expect refining margins to remain at current low levels for a prolonged period of time
as such abysmal margins will result in (1) further reduction in operating rates of existing refineries
and (2) shutdown of inefficient capacities. We highlight that the refining cycle had gone through a
similar phase in CY2009-10 (see Exhibit 2). Singapore complex refining margins had turned
negative in May 2009 led by contraction in all product cracks which, in turn, was driven by
weakness in global oil demand. However, this resulted in shutdown of several refining capacities
and helped refining margins to recover back to positive territories by January 2010. We highlight
that the complex refining margins, which turned negative in mid-November 2011 led by a sharp
contraction in gasoline and naphtha cracks, have already recovered from the trough levels in the
recent weeks.
Downside risks to the IEA’s estimates of oil demand exist though
We would caution that ongoing capacity closures may need to be viewed in conjunction with
possible weaker global oil demand too. We could see weaker margins for a longer period of time
and more capacity closures if global oil demand is weaker versus expectations. We see downside
risks to the IEA’s 1.3 mn b/d per annum increase in global oil demand for CY2012-13E in light of
(1) ongoing turmoil in the Eurozone and (2) economic slowdown in key consumers such as US,
China and India. The IEA’s underlying assumption of global GDP growth of 3.9% for CY2012E
and 4.4% for CY2013E seems quite aggressive to us. Exhibit 3 gives the change in IEA’s global oil
demand estimates over the past three years.
Improvement in supply-demand balance over the next few years
We have revised our estimates for global refining capacity additions in light of (1) shutdown of
several refineries and (2) delay in some refining projects. We estimate net refining capacity
addition of 1.3 mn b/d (2.2 mn b/d previously) and 0.9 mn b/d increase in OPEC NGLs production
in CY2012-13E (see Exhibits 4 and 5). However, we note that the latter will not impact the supplydemand
balance of transportation fuels meaningfully. In fact, middle distillate spreads continue to
be quite robust despite the recent collapse in overall margins.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Energy
India
Refining cycle: CY2009 revisited. We expect global refining margins to follow a
similar pattern seen in CY2009—(1) margin decline, (2) capacity closures and (3) margin
improvement. We expect global refining margins to improve from current low levels led
by capacity shutdowns of 1.3 mn b/d over the past four months; more will likely follow.
We discuss the implications of the recent weak refining margins for RIL (negative but
we have assumed low multiple in our SOTP valuation) and Indian PSU refiners (not
material in the context of their other problems).
Recent spate of shutdowns to reduce supplies in the refining sector
We expect refining margins to improve from current low levels led by (1) recent announcements of
permanent closure/shutdowns of inefficient refineries in the US and Europe owing to tough
operating conditions and (2) recovery in petrochemical demand; weak demand for naphtha in the
past few months has put pressure on gasoline-naphtha complex. Exhibit 1 shows the list of
refineries, which have announced permanent closures since September 2011 in light of a difficult
competitive environment led by (1) commissioning of more efficient and complex refineries in Asia
and the Middle East over the past few years and (2) weak demand.
Weak refining margins not sustainable for a prolonged period; CY2009 acts as a good guide
We do not expect refining margins to remain at current low levels for a prolonged period of time
as such abysmal margins will result in (1) further reduction in operating rates of existing refineries
and (2) shutdown of inefficient capacities. We highlight that the refining cycle had gone through a
similar phase in CY2009-10 (see Exhibit 2). Singapore complex refining margins had turned
negative in May 2009 led by contraction in all product cracks which, in turn, was driven by
weakness in global oil demand. However, this resulted in shutdown of several refining capacities
and helped refining margins to recover back to positive territories by January 2010. We highlight
that the complex refining margins, which turned negative in mid-November 2011 led by a sharp
contraction in gasoline and naphtha cracks, have already recovered from the trough levels in the
recent weeks.
Downside risks to the IEA’s estimates of oil demand exist though
We would caution that ongoing capacity closures may need to be viewed in conjunction with
possible weaker global oil demand too. We could see weaker margins for a longer period of time
and more capacity closures if global oil demand is weaker versus expectations. We see downside
risks to the IEA’s 1.3 mn b/d per annum increase in global oil demand for CY2012-13E in light of
(1) ongoing turmoil in the Eurozone and (2) economic slowdown in key consumers such as US,
China and India. The IEA’s underlying assumption of global GDP growth of 3.9% for CY2012E
and 4.4% for CY2013E seems quite aggressive to us. Exhibit 3 gives the change in IEA’s global oil
demand estimates over the past three years.
Improvement in supply-demand balance over the next few years
We have revised our estimates for global refining capacity additions in light of (1) shutdown of
several refineries and (2) delay in some refining projects. We estimate net refining capacity
addition of 1.3 mn b/d (2.2 mn b/d previously) and 0.9 mn b/d increase in OPEC NGLs production
in CY2012-13E (see Exhibits 4 and 5). However, we note that the latter will not impact the supplydemand
balance of transportation fuels meaningfully. In fact, middle distillate spreads continue to
be quite robust despite the recent collapse in overall margins.
No comments:
Post a Comment