Moody’s: Asian refiners ex-Japan to outperform global peers

KUALA LUMPUR: Asian oil-and-gas refiners (excluding Japan) will fare much better than their global peers despite a challenging operating environment, says Moody's Investors Service.

“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,” Moody's vice president and senior analyst Simon Wong said in Moody's first bi-annual outlook report on the Asian oil-and-gas refining and marketing sector.

Wong said China's oil demand growth in 2012 will account for 40 per cent of incremental growth in global oil demand.

The Organisation of Petroleum Exporting Countries (OPEC) forecasts a 4.4 per cent year-on-year growth for China versus 0.7 per cent for the rest of the world.

Wong said Asia's refineries have a high proportion of middle-distillate output with Korea at 43 per cent, Thailand 46 per cent and Petrochina 70 per cent, 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 the transport, industrial and power-generation sectors,” Wong said.

Meanwhile, he added, fuel-subsidy policies in many Asian countries including China, India, Indonesia and Malaysia, will also continue to drive strong demand for diesel.

However, the oil embargo imposed by the U.S. 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 said adding that the credit conditions for Asian refiners have peaked.

He outlined 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, he added. - BERNAMA