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Asia Oil & Petrochemicals
GRM remains strong
Refining and Petrochemical Update
Refining margins moved back above US$9/bbl last week thanks to strength in
light distillates and fuel oil. A supply disruption in the Middle East supported
gasoline while seasonal petrochemical buying demand lifted naphtha prices.
The most relevant story for the week was yet another fire at Formosa
Petrochemicals over the weekend; this has triggered force majeure for regional
refined product shipments. On the petrochemical sidee, upstream aromatics
including paraxylene, benzene and MEG strengthened materially with rising
demand following the start of the 1.5m tpa Yinsheng PTA facility in China..
Country-specific developments and views
India: Petroleum reforms back in focus: The finance minister stated that the
government is keen to move ahead with diesel and LPG deregulation. Given
high oil prices and high inflation, we believe that immediate diesel deregulation
is difficult. Nevertheless, implementing LPG reforms may be easy
as typically the richer society use the same for cooking purposes.
Implementing cutting subsidised cylinders from an average of 12 per
household currently to the propose 4-6, shall cut subsidy by US$2.5bn pa. Oil
marketing stocks are currently ignored by the market, presenting compelling
value. HPCL IN is our top pick quoting at 7.5x FY11E earnings, which implies
no-growth valuations. We believe the Bhatinda refinery start-up shall trigger a
~30% EBIDTA growth.
Thailand: Earnings season is half way done. Results have surprised on the
upside for IRPC but have been softer than expected for PTTCH and PTTAR.
We await results on BCP, TOP and PTT over the next week and a half.
Overall, with refining margins expected to remain strong and recent signs of
paraxylene price strength, we expect optimism to remain elevated regardless
of 2Q11 results Our preferred names based on upside to TP are Thai Oil and
Esso Thailand.
Japan: Refining margin was down by Y0.1/lt, or 1% WoW, as product selling
price rose more slowly than crude oil input cost. Among the main products,
gasoline spread was down by 16% WoW, kerosene was up by 6% WoW and
diesel was up by 7%. Refining margin is Y8.5/lt, or Y4.0/lt (87%) above the
trough of 4/Mar/11, but Y5.3/lt (38%) below recent peak on 6/May/11.
Taiwan: Formosa Petrochem's #3 refinery caught another fire on Saturday
caused by propylene leakage in refinery #3 plant. Total shut down capacity of
540 bpd accounts for 2% of Asia capacity. As we highlight in our note, our
earnings sensitivity shows that if the plant is shut down for 3 months, FPCC's
FY2011 earnings could be down by 13%. Our positive view on Taiwan's
petrochem sector is mainly driven by the demand pick-up for petrochemical
products in 2H11.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Asia Oil & Petrochemicals
GRM remains strong
Refining and Petrochemical Update
Refining margins moved back above US$9/bbl last week thanks to strength in
light distillates and fuel oil. A supply disruption in the Middle East supported
gasoline while seasonal petrochemical buying demand lifted naphtha prices.
The most relevant story for the week was yet another fire at Formosa
Petrochemicals over the weekend; this has triggered force majeure for regional
refined product shipments. On the petrochemical sidee, upstream aromatics
including paraxylene, benzene and MEG strengthened materially with rising
demand following the start of the 1.5m tpa Yinsheng PTA facility in China..
Country-specific developments and views
India: Petroleum reforms back in focus: The finance minister stated that the
government is keen to move ahead with diesel and LPG deregulation. Given
high oil prices and high inflation, we believe that immediate diesel deregulation
is difficult. Nevertheless, implementing LPG reforms may be easy
as typically the richer society use the same for cooking purposes.
Implementing cutting subsidised cylinders from an average of 12 per
household currently to the propose 4-6, shall cut subsidy by US$2.5bn pa. Oil
marketing stocks are currently ignored by the market, presenting compelling
value. HPCL IN is our top pick quoting at 7.5x FY11E earnings, which implies
no-growth valuations. We believe the Bhatinda refinery start-up shall trigger a
~30% EBIDTA growth.
Thailand: Earnings season is half way done. Results have surprised on the
upside for IRPC but have been softer than expected for PTTCH and PTTAR.
We await results on BCP, TOP and PTT over the next week and a half.
Overall, with refining margins expected to remain strong and recent signs of
paraxylene price strength, we expect optimism to remain elevated regardless
of 2Q11 results Our preferred names based on upside to TP are Thai Oil and
Esso Thailand.
Japan: Refining margin was down by Y0.1/lt, or 1% WoW, as product selling
price rose more slowly than crude oil input cost. Among the main products,
gasoline spread was down by 16% WoW, kerosene was up by 6% WoW and
diesel was up by 7%. Refining margin is Y8.5/lt, or Y4.0/lt (87%) above the
trough of 4/Mar/11, but Y5.3/lt (38%) below recent peak on 6/May/11.
Taiwan: Formosa Petrochem's #3 refinery caught another fire on Saturday
caused by propylene leakage in refinery #3 plant. Total shut down capacity of
540 bpd accounts for 2% of Asia capacity. As we highlight in our note, our
earnings sensitivity shows that if the plant is shut down for 3 months, FPCC's
FY2011 earnings could be down by 13%. Our positive view on Taiwan's
petrochem sector is mainly driven by the demand pick-up for petrochemical
products in 2H11.
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