Singapore, March 01, 2012 -- Moody's Investors Service says that Asian oil-and-gas
refiners (ex-Japan) will fare much better than their global peers,
despite a challenging operating environment.
"The outperformance of Asian refiners will be led by their higher
proportion of middle-distillate output and China's above-average
demand for refined products," says Simon Wong, a Moody's
Vice President and Senior Analyst.
Wong was speaking at the release of Moody's first bi-annual
outlook report on the Asian oil-and-gas refining and marketing
sector.
China's oil demand growth in 2012 will account for 40% of
incremental growth in global oil demand. The Organization of Petroleum
Exporting Countries forecasts a 4.4% year-on-year
growth for China versus 0.7% for the rest of the world.
Asia's refineries have a high proportion of middle-distillate
output—with Korea at 43%, Thailand 46%,
and Petrochina 70%, which will underpin their above-average
refining margins.
"In the medium term, we expect market fundamentals for diesel
to remain strong, given robust, non-OECD demand from
transport, industrial, and power-generation sectors.
Fuel-subsidy policies in many Asian countries, including
China, India, Indonesia, and Malaysia, will also
continue to drive strong demand for diesel," Wong adds.
However, the oil embargo imposed by the US and Europe on Iran as
a result of political differences over Iran's nuclear programme
could hurt Asian refiners.
"If key importing nations such as China, Japan, India,
and South Korea restrict or reduce crude imports from Iran, the
refiners in these countries will need to source more expensive crude from
elsewhere and may not be able to fully pass on the higher costs,"
Wong says.
In addition, the credit conditions for Asian refiners have peaked.
There are five major risks for the sector: lower refining margins,
regulatory risk, rising crude prices from Middle East tensions,
weakening international demand, and high capital expenditure.
Although weaker demand for refined products, lower refining margins,
and rising crude prices have an adverse impact across all Asian issuers,
regulatory risk and high capex are specific to a country or issuer.
Of the seven issuers rated by Moody's, Indian Oil Corporation
(IOC, Baa3 stable) faces the most risk from a decline in refining
margins and high crude prices, which would likely lower its EBITDA
and raise debt. The company's already elevated leverage and
burden of sharing India's ad hoc fuel subsidies make IOC particularly
vulnerable.
The other companies that Moody's rates in the sector are:
Reliance Industries Ltd (Baa2, positive); Thai Oil Public Company
Ltd (Baa1, stable); IRPC Public Company Ltd (Baa3, stable);
S-OIL Corporation (Baa2, stable); SK Innovation Co.
Ltd (Baa3, stable); GS Caltex Corporation (Baa2, stable).
The report is titled "Oil-and-Gas Industry --
Bi-Annual Outlook for Asian Refining & Marketing" and
can be found at www.moodys.com.
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Simon Wong
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Moody's: Asian refiners (ex-Japan) to outperform global peers