MW: Asia's oil refining shares looking better as supply eases
By V. Phani Kumar
HONG KONG (MarketWatch) -- The outlook for Asian oil refiners, previously hit by a sharp fall in margins, is now improving on a likely ramp-up in demand and slowing capacity expansion for the industry, analysts said.
"Refining margins have fallen 75% since their peak last year. Our quarterly refining demand-supply model now suggests that global refining supply growth is bottoming out," Credit Suisse analysts led by Prashant Gokhale wrote in a report Wednesday.
The brokerage upgraded the Asian refining sector to market-weight from underweight, and raised the rating on India's Reliance Industries to outperform from neutral.
"Absolute demand has bottomed, and a rebound looks imminent," though the magnitude of the bounce-back was "debatable," Credit Suisse said. "Most of Asian capacity growth is in the bag. ... Capacity growth [excluding Asia] could get delayed or pushed out again, especially if margins fall in [the second half of 2009]."
In Wednesday's trading, shares of SK Energy Co. jumped 4.5% in Seoul, with China Petroleum & Chemical Corp., better known as Sinopec (HK:386 6.86, +0.03, +0.44%) (SNP 88.23, +0.23, +0.26%) , gaining 0.3% in Hong Kong and 1.1% in Shanghai. Thai Oil Public Co. (TOIPF 1.27, +0.11, +9.48%) was flat in Bangkok.
Those moves mostly outpaced the wider market action, with the Shanghai Composite flat and Hong Kong's Hang Seng Index down 0.3%. South Korea's Kospi traded down 0.7%, and Thailand's SET Index rose 0.4%. Elsewhere, Australia's S&P/ASX 200 rose 1.3%, and New Zealand's NZX 50 inched up 0.1%.
"The oil refining market is projected to improve in 2010, when the burdens associated with facility expansion will be significantly eased," Daishin Securities analyst Jonathan Ahn wrote in a recent report.
"The production capacity of for oil refining facilities in the Asia-Pacific region surged to 802,000 barrels a day in 2008 and 1.5 million barrels a day in 2009, causing oil refining market conditions to deteriorate," Ahn said. "However, capacity is expected to decrease substantially to 588,000 barrels a day to in 2010 and 846,000 barrels a day in 2011."
