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Tighter refining margins likely
By Pan Xiaoyi |
May 13, 2010, Thursday
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Print Edition
Print Edition
A surplus in refining capacity in China and the government's conservative approach toward a rise in domestic fuel prices this year are likely to squeeze Chinese oil refiners' margins, industry analysts said.
"Chinese refining margins in 2010 are believed to be lower than 2009 as refining capacity is being added faster than the growth in demand for refined oil products," Ying Wang, director of Fitch Ratings' Asia-Pacific energy and utilities team, said in a research note.
New capacity of at least 20 million tons annually are due to be added in 2010, on top of the 6 million tons yearly excess in refining capacity at the end of 2009, according to Fitch.
On the demand side Fitch expects domestic sales to increase at a moderate 4 percent to 6 percent annually for the rest of 2010 - insufficient to absorb the refining capacity surplus.
In the first quarter of this year despite domestic sales of refined oil products jumping by an annual 24.3 percent from a low base a year ago and driven by the economic recovery, China's inventory of refined oil products rose by more than 7 percent over the fourth quarter of 2009.
"In addition, Fitch expects the Chinese government to continue to tightly regulate domestic fuel prices which will keep the pressure on refining margins," said Wang.
China raised fuel prices by more than 4 percent in April, the first since November 9. But the increase fell short of the rise in global crude prices as the government tried to strike a balance between world oil prices and the country's inflationary risks.
If crude prices stay between US$70 and US$80 a barrel, it is unlikely fuel prices will rise soon as the government will want to minimize inflation fears and ease the impact on consumers. If crude prices were to keep above US$80, refining margins could be squeezed further, the report said.
"Chinese refining margins in 2010 are believed to be lower than 2009 as refining capacity is being added faster than the growth in demand for refined oil products," Ying Wang, director of Fitch Ratings' Asia-Pacific energy and utilities team, said in a research note.
New capacity of at least 20 million tons annually are due to be added in 2010, on top of the 6 million tons yearly excess in refining capacity at the end of 2009, according to Fitch.
On the demand side Fitch expects domestic sales to increase at a moderate 4 percent to 6 percent annually for the rest of 2010 - insufficient to absorb the refining capacity surplus.
In the first quarter of this year despite domestic sales of refined oil products jumping by an annual 24.3 percent from a low base a year ago and driven by the economic recovery, China's inventory of refined oil products rose by more than 7 percent over the fourth quarter of 2009.
"In addition, Fitch expects the Chinese government to continue to tightly regulate domestic fuel prices which will keep the pressure on refining margins," said Wang.
China raised fuel prices by more than 4 percent in April, the first since November 9. But the increase fell short of the rise in global crude prices as the government tried to strike a balance between world oil prices and the country's inflationary risks.
If crude prices stay between US$70 and US$80 a barrel, it is unlikely fuel prices will rise soon as the government will want to minimize inflation fears and ease the impact on consumers. If crude prices were to keep above US$80, refining margins could be squeezed further, the report said.
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