Bangkok--17 Mar--Moody's Investors
Moody's Investors Service has negative outlooks for Asia Pacific's exploration and production (E&P), refining and marketing (R&M), and petrochemical sectors over the next 12-18 months.
In a new report, Moody's says that the precipitous fall in energy prices has hit margins and cash flow at E&P issuers, while rapidly falling demand and margins has squeezed profits at R&M and petrochemical issuers, which held higher-cost inventories and face new capacity coming on stream.
The report's lead author, Tony Tsai, a Senior Vice President, says, "Despite the E&P sector's negative outlook, ratings on investment-grade E&P companies in the region are likely to remain stable as their adequate-to-strong financial profiles enable them to withstand such energy-price volatility."
"However, for speculative-grade issuers, downward rating pressure will emerge from their reduced cash flows, the need to replace reserves, and large capex requirements," adds Tsai.
Renee Lam, a Moody's Vice President and contributor to the report, says, "The fall in demand for refined products and the advent of new refining capacity in the region will keep refining margins under pressure and weigh on the operating performance of most refineries."
"The negative industry outlook in the R&M sector is due to demand changes that appear to be structural and enduring, as well as looming over-supply," she adds. As a result, Lam notes that refining margins could drop to low-cycle levels, which could weigh on the ratings and outlooks for some Asian refineries during the next 12 months.
The negative outlook in the Asia-Pacific petrochemical sector reflects petrochemical manufacturers' deteriorating margins, which in turn result from weak demand, a slowing economic environment, and new capacity coming online in the Middle East and China in 2009 and beyond.
In response to weakening global demand, Asia Pacific's petrochemical companies are rapidly shedding inventory and delaying their procurement of feedstock, which has amplified the sector's current down-cycle.
This amplification has occurred during the last few months in Asia's petrochemical market.
The new report is entitled "Asia-Pacific (ex Japan) Oil, Gas, and Petrochemical Sectors: Falling oil prices, weak demand, and new capacity weigh on industry players". It is available at .
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308