Bangkok--1 Mar--Moody's Investors
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, Baa3stable) 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.