Bangkok--27 Oct--Moody's
Moody's Investors Service sees a stableoutlook for the oil & gas refining and marketing (R&M) industry in AsiaPacific, in line with the outlook for the global industry."Moody's changed the R&M outlook to stable from positive in August, indicating that the sector has reached a peak in its business cycle, withonly limited prospects for improvement from current levels, while risksto the downside have risen," says Simon Wong, a Moody's Vice Presidentand Senior Analyst.
"An expected increase in refining capacity worldwide -- combined with aglobal slowdown in economic growth, and resulting in lower demand forrefining products -- will exasperate oversupply as soon as 2012, unlesssufficient demand or the rationalization of capacity materializes," addsWong.
"Generally, in terms of challenges, except for one-off events, refining margins have limited upside potential as the structural overhang inrefining capacity will persist. Nevertheless, continued demand from Chinaand India, which is expected to exceed the global growth trend, willbenefit regional refineries serving intra-Asia markets," says Wong.Wong was speaking on the release of a Moody's special comment on theoutlook for the R&M industry in Asia Pacific, and which was authored byWong and Nino Siu, a Moody's Associate Analyst.The report looks at issues such as key sector trends, the outlook formargins, and capex plans, as well as the implications for rated issuers.
Moody's rates eight R&M companies in Asia Pacific with ratings rangingfrom Baa1 to Baa3. The report's release coincides with the publication ofa separate report on the region's exploration and production industry."Within the rated portfolio, seven of the issuers have stable outlooksand one has a positive outlook. Overall, the issuers' financial metricshave developed some headroom, benefiting from improved margins andutilization during 2011, but ongoing capex will hold back ratings," says
Wong. "The improved metrics of the past 12 months should provide somebuffer from an expected deterioration in the supply-demand balance forrefined products in 2012. Some companies can also defer downstreamprojects, if necessary, as happened during the global financial crisis."
The Moody's report expects overcapacity to constrain Asian refiningmargins over the next 12-18 months, but they will not drop to the extentshown during the global financial crisis.A lot of new capacity will emerge specifically in 2012, and peak in 2014and 2015, while a material rise in conversion capacity will similarlyincrease capacity output of gasoline, diesel, and other distillates.
Potential volatility in crude prices, as occurred during the globalslowdown of 2008-2009, could disrupt management of working capital andliquidity. However, Asian R&M companies generally have strong access todomestic banking and debt capital markets, largely mitigating liquidityrisks, as we have witnessed through the global financial crisis.
The report is entitled Rising Capex, Slowing Demand Constrain CreditProfiles. It can be found at
www.moodys.com