REFINING_MARGINS_-_ASIA-2012-09-05.ppt

buy,buy,hold,buy,sell,hold,hold,hold,buy,buy,deutsche bank markets research,asia energy oil & gas,industry refining margins - asia,date 3 september 2012 periodical david hurd, cfa shawn park,closures & restocking,research analyst (+852) 2203 6242 ,research analyst (+82) 2 316 8977 ,margins bounce - economies remain soft no sooner had we lowered our sing complex refining margin estimates for 2012 -13 (30-july: “asia refining model“) than asia cdu capacity started to come off-line (bangchak - fire & jx mizushima - inspections) and margins started to climb - par for the course our estimates for sing complex refining margins 2012-13 are us$ 7.47 / bbl and us$ 7.69/ bbl. these compare to an average 2011 sing margin of us$ 7.66/ bbl. due to continued soft global demand, we are comfortable with our sing margin expectations 2012e. refining in japan,top picks sk innovation (096770.ks),krw163,500.00 thai oil pcl (top.bk),thb65.50 companies featured s-oil corp (010950.ks),krw103,000.00 sk innovation (096770.ks),krw163,500.00 formosa petrochemical,we visited with the japanese refiners recently.,with no hydrocarbon,(6505.tw),twd85.40,resources, high manufacturing costs, an appreciating currency, a declining and ageing population, continued urbanization and years of declining oil demand, there seems to be no way out of japans downward refining spiral. we were trying to find a silver lining, without success. most of the refiners have diversified into oil e&p, chemicals and even metals and mining. a few have,bpcl (bpcl.bo),inr334.85 caltex (ctx.ax),aud15.62 hpcl (hpcl.bo),inr297.85 reliance industries (reli.bo),inr766.40 thai oil pcl (top.bk),thb65.50,taken their refining expertise into joint ventures in lower cost korea, potentially vietnam and other countries. only tonengeneral seems content to stay home and focus on cutting costs. all are reducing domestic capacity to comply with the governments new deep-conversion to cdu ratio (45%) by 2014: 1) jx nippon closed 400k bpd in oct 2010 and will close another 200k by mar 2014; 2) fuji oil closed 52k bpd in oct 2010; 3) showa shell closed 120k bpd in sept 2011; 4) idemitsu will close 120k bpd by march 2014; 5) bloomberg is reporting (30 august) that cosmo oil will shut its 120k bpd sakaide refinery by july 2013; and 6) tonengeneral has yet to disclose its plans to comply with the governments policy. none of the refineries seem interested in adding cracking capacity; none seem interested in exporting product; all seem interested in cutting cdu capacity to support domestic margins. according to two of our hosts, japan has 4.8mm bpd of cdu capacity but only 3.5mm bpd of demand. closures and restocking push up margins - short-term: the bangchak refinery (120k bpd) was hit by a fire 04 july. although the company restarted 40k bpd by end-july the remaining 80k bpd is not expected back until october. the jx nippon, mizushima refinery (205k bpd) was closed 25-july for inspections and is expected to be out of commission until the end of october. the two refineries together represent 1% of asias cdu capacity. after the 2q12 collapse in oil prices, we suspect that part of the recent strength in product spreads / refining margins is due to restocking demand in asia. we are comfortable with our current margin outlook for full year 2012e. valuation and risks we use historical price-to-book values to determine where we stand in the asia refining cycle and pb-to-roe to judge relative value among our asian refiners. we also use a sum-of-the-parts model, particularly in the case of those companies which have several businesses housed under a core refinery. looking full cycle we see asian refinery pb valuations trough to peak of roughly 0.7 to 3.3x. the risks to our asian refiners are: 1) higher/ lower than anticipated oil prices; 2) higher / lower local oil product demand; 3) one-off supply shocks such as fires and / or earthquakes; and 4) local product policies. _ deutsche bank ag/hong kong all prices are those current at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business with companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst certifications are located in appendix 1. mica(p) 072/04/2012.,1,2,4,5,6,7,3 september 2012 oil & gas refining margins - asia figure 1: deutsche bank ratings on asian refiners,ordered by,28-aug-12,target,wm complexity company,ticker,country,db rating,price,price,most complex least complex,1 - reliance inds 2 - formosa pet 3 - caltex 4 - sk innovation 5 - s-oil 6 - thai oil 7 - bpcl 8 - hpcl 9 - essar,reli.bo 6505.tw ctx.ax 096770.ks 010950.ks top.bk bpcl.bo hpcl.bo esro.bo,india taiwan australia s. korea s. korea thailand india india india,buy sell hold buy hold buy hold hold buy,790.05 88.30 15.38 173,000.00 107,000.00 67.75 354.30 313.55 49.95,840.00 65.60 13.30 200,000.00 112,000.00 72.00 270.00 260.00 62.00,ordered by,28-aug-12,target,yld complexity most complex 3 8 least complex 9,company - caltex - thai oil - bpcl - sk innovation - reliance inds - formosa pet - s-oil - essar - hpcl,ticker ctx.ax top.bk bpcl.bo 096770.ks reli.bo 6505.tw 010950.ks esro.bo hpcl.bo,country australia thailand india s. korea india taiwan s. korea india india,db rating hold buy hold buy buy sell hold buy hold,price 15.38 67.75 354.30 173,000.00 790.05 88.30 107,000.00 49.95 313.55,price 13.30 72.00 270.00 200,000.00 840.00 65.60 112,000.00 62.00 260.00,notes: “wm complexity“ is based on complexity ratings as formulated by consultants wood mackenzie “yld complexity“ is based on highest to lowest light product yields source: wood mackenzie, deutsche bank,page 2,deutsche bank ag/hong kong,deutschebankag/hongkong,page3,refiningmargins-asia,oil&gas,3september2012,figure 2: asian refineries complexity based on wood mackenzie rating scale (highest to lowest),1,2,3,4,5,6,7,8,9,10,ril,fpcc,caltex sk innovation,gs,s-oil,top,bpcl,hpcl,essar,totals - lights - others gasoline reformate (etc) kerosene jet diesel naphtha fuel oil bitumen asphalt coke lpg lubes others,100.0% 60.8% 39.2% 16.0% 0.0% 0.0% 6.8% 38.0% 16.0% 0.0% 0.0% 0.0% 7.4% 4.7% 0.0% 11.1%,100.0% 59.2% 40.8% 20.8% 0.0% 0.0% 8.0% 30.4% 20.8% 5.8% 0.0% 0.0% 0.0% 4.1% 0.0% 10.1%,100.0% 99.0% 1.0% 56.0% 0.0% 0.0% 13.0% 30.0% 1.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%,100.0% 62.8% 37.2% 13.5% 0.0% 0.0% 14.1% 35.2% 16.5% 10.3% 0.0% 4.6% 0.0% 3.0% 0.0% 2.8%,100.0% 57.5% 42.5% 13.6% 0.0% 11.7% 0.0% 32.2% 12.0% 15.7% 0.0% 2.1% 0.0% 5.3% 0.0% 7.4%,100.0% 57.7% 42.3% 10.4% 0.0% 20.5% 0.0% 26.8% 18.8% 7.5% 0.0% 2.3% 0.0% 3.2% 0.0% 10.5%,100.0% 73.1% 26.9% 17.6% 0.0% 0.0% 19.8% 35.7% 0.0% 9.7% 0.0% 0.0% 0.0% 4.4% 0.0% 12.8%,100.0% 63.4% 36.6% 10.8% 0.0% 6.9% 5.1% 40.6% 10.9% 14.8% 3.1% 0.0% 0.0% 4.5% 0.0% 3.3%,100.0% 55.6% 44.4% 9.5% 0.0% 6.3% 4.1% 35.7% 10.5% 15.5% 5.3% 0.0% 0.0% 3.7% 0.0% 9.4%,100.0% 60.6% 39.4% 17.6% 0.0% 5.0% 0.0% 38.0% 7.8% 21.9% 0.0% 0.0% 0.0% 0.0% 0.0% 9.7%,wood mac complexity,refinery - capacity (kbd) - wm complexity - nelson complexity,jamgar g 580 13.26 14.8,mailiao 540 8.92 7.51,lytton 108 7.79 7.72,ulsan 840 7.39 7.47,yeosu 760 7.14 8.31,onsan 654 7.09 8.94,sriracha 275 6.61 7.64,kochi 190 5.80 5.76,vizag 166 5.42 6.21,jamgar essar 280 4.51 5.76,refinery - capacity (kbd) - wm complexity - nelson complexity,jamgar r 660 9.54 8.71,kurnell 136 6.96 8.23,incheon 275 3.77 4.37,mumbai 240 4.55 5.67,mumbai 130 4.96 10.31,refinery - capacity (kbd) - wm complexity - nelson complexity note: although lpg is technically a “light“ product, in most asian countries it is not a profitable product as price is often influenced by governments. reliance industries stated nelson complexity is 11.4 for its jamnagar r refinery and 14 for its jamnagar g refinery. source: wood mackenzie, deutsche bank,numaligarh 60 7.3 6.6,page4,deutschebankag/hongkong,refiningmargins-asia,oil&gas,3september2012,figure 3: asian refineries complexity based on product yield (highest to lowest),1,2,3,4,5,6,7,8,9,10,caltex (est),top,bpcl sk innovation,ril (est),fpcc,gs,s-oil,essar,hpcl,totals - lights - others gasoline reformate (etc) kerosene jet diesel lpg naphtha fuel oil bitumen asphalt coke lubes others,100.0% 99.0% 1.0% 56.0% 0.0% 0.0% 13.0% 30.0% 0.0% 1.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%,100.0% 77.5% 22.5% 17.6% 0.0% 0.0% 19.8% 35.7% 4.4% 0.0% 9.7% 0.0% 0.0% 0.0% 0.0% 12.8%,100.0% 67.9% 32.1% 10.8% 0.0% 6.9% 5.1% 40.6% 4.5% 10.9% 14.8% 3.1% 0.0% 0.0% 0.0% 3.3%,100.0% 65.8% 34.2% 13.5% 0.0% 0.0% 14.1% 35.2% 3.0% 16.5% 10.3% 0.0% 4.6% 0.0% 0.0% 2.8%,100.0% 65.5% 34.5% 16.0% 0.0% 0.0% 6.8% 38.0% 4.7% 16.0% 0.0% 0.0% 0.0% 7.4% 0.0% 11.1%,100.0% 63.3% 36.7% 20.8% 0.0% 0.0% 8.0% 30.4% 4.1% 20.8% 5.8% 0.0% 0.0% 0.0% 0.0% 10.1%,100.0% 62.8% 37.2% 13.6% 0.0% 11.7% 0.0% 32.2% 5.3% 12.0% 15.7% 0.0% 2.1% 0.0% 0.0% 7.4%,100.0% 60.9% 39.1% 10.4% 0.0% 20.5% 0.0% 26.8% 3.2% 18.8% 7.5% 0.0% 2.3% 0.0% 0.0% 10.5%,100.0% 60.6% 39.4% 17.6% 0.0% 5.0% 0.0% 38.0% 0.0% 7.8% 21.9% 0.0% 0.0% 0.0% 0.0% 9.7%,100.0% 59.3% 40.7% 9.5% 0.0% 6.3% 4.1% 35.7% 3.7% 10.5% 15.5% 5.3% 0.0% 0.0% 0.0% 9.4%,wood mac complexity,refinery - capacity (kbd) - wm complexity - nelson complexity,lytton 108 7.79 7.72,sriracha 275 6.61 7.64,kochi 190 5.8 5.76,ulsan 840 7.39 7.47,jamgar g 580 13.26 14.8,mailiao 540 8.92 7.51,yeosu 760 7.14 8.31,onsan 654 7.09 8.94,jamgar essar 280 4.51 5.76,vizag 166 5.42 6.21,refinery - capacity (kbd) - wm complexity - nelson complexity,kurnell 136 6.96 8.23,mumbai 240 4.55 5.67,incheon 275 3.77 4.37,jamgar r 660 9.54 8.71,mumbai 130 4.96 10.31,refinery - capacity (kbd) - wm complexity - nelson complexity,numaligarh 60 7.3 6.6,note: although lpg is technically a “light“ product, in most asian countries it is not a profitable product as price is often influenced by governments. reliance industries stated nelson complexity is 11.4 for its jamnagar r refinery and 14 for its jamnagar g refinery. source: wood mackenzie, deutsche bank,3 september 2012 oil & gas refining margins - asia figure 4: global refining margins,us margins,european margins,asian margins,east coast,west coast,gulf coast,gulf coast,nwe margin,nwe margin,singapore,singapore,japan,us$/barrel fy2000 fy2001 fy2002 fy2003 fy2004 fy2005 fy2006 fy2007 fy2008 1q2009 2q2009 3q2009 4q2009 fy2009 1q2010 2q2010 3q2010 4q2010 fy2010 1q2011 2q2011 3q2011 4q2011 fy2011 6-jan-12 13-jan-12 20-jan-12 27-jan-12 3-feb-12 10-feb-12 17-feb-12 24-feb-12 2-mar-12 9-mar-12 16-mar-12 23-mar-12 30-mar-12 1q2012 6-apr-12 13-apr-12 20-apr-12 27-apr-12 4-may-12 11-may-12 18-may-12 25-may-12 1-jun-12 8-jun-12 15-jun-12 22-jun-12 29-jun-12 2q2012 6-jul-12 13-jul-12 20-jul-12 27-jul-12 3-aug-12 10-aug-12 17-aug-12 24-aug-12 current qtd chg w-o-w chg q-o-q chg q-o-q (y-o-y),com plex 9.80 7.96 6.30 9.18 12.77 17.40 17.86 18.74 20.51 12.05 11.32 10.00 9.63 10.71 12.55 12.29 10.55 13.03 11.84 12.89 15.05 15.29 13.52 14.20 14.45 15.50 16.37 18.35 18.19 16.72 14.91 13.45 12.39 11.99 12.84 14.71 15.75 15.05 17.82 19.34 19.48 18.45 18.03 18.33 17.47 17.49 18.36 18.39 21.03 23.66 24.29 19.40 23.98 24.90 23.10 22.00 23.33 23.08 22.31 23.09 23.22 3% 20% 52%,com plex 10.31 8.76 6.75 9.78 18.27 21.19 21.69 24.38 22.11 17.34 15.02 14.23 11.18 14.35 13.98 14.96 15.41 13.92 14.56 15.10 15.26 13.01 15.57 14.74 18.21 15.15 15.26 16.86 16.92 16.37 19.17 23.41 21.34 21.55 18.34 16.97 16.98 18.19 16.07 17.37 18.31 19.14 22.26 25.57 21.74 18.86 19.02 17.21 17.70 18.82 21.64 19.51 20.45 21.08 19.02 15.79 17.37 20.96 19.53 20.70 19.36 6% -1% 49%,lousiana 3.02 3.80 2.97 4.18 5.71 10.05 10.48 10.36 5.58 4.53 4.99 2.99 1.39 3.45 3.52 3.10 1.40 2.55 2.61 1.25 4.02 7.24 2.54 3.79 4.81 8.06 11.07 11.03 11.14 7.43 2.50 1.28 3.08 2.67 3.21 2.60 6.13 5.77 7.82 7.61 6.01 5.81 5.96 7.74 11.02 13.11 16.01 13.56 15.54 12.58 13.16 10.46 13.28 14.76 12.72 13.28 11.29 6.49 4.42 (0.85) 9.42 nm -10% 30%,wti 3.01 3.73 3.06 4.26 5.71 10.46 11.93 13.46 8.35 9.15 6.76 5.29 3.12 6.06 4.76 7.30 4.92 6.78 5.94 14.57 20.06 29.40 19.73 21.04 15.47 18.93 20.68 21.42 23.91 25.91 22.95 20.37 20.60 22.27 24.07 25.50 27.68 22.29 29.58 28.23 24.11 23.00 21.61 23.14 23.51 25.14 27.73 26.62 27.65 25.57 25.59 25.50 26.11 29.87 29.54 30.11 28.69 23.89 21.82 16.55 25.82 -24% 1% -12%,sim ple 0.98 (0.35) (0.79) 1.00 1.48 1.56 0.01 0.71 0.99 1.99 0.17 0.36 (0.68) 0.47 0.30 0.42 0.22 (0.25) 0.16 (2.06) (2.51) (0.41) 0.44 (1.09) 0.05 2.15 1.71 2.41 2.01 0.11 (1.24) (3.07) (3.17) (2.61) (1.82) (2.16) (1.37) (0.54) (0.31) 0.36 1.28 (0.11) 0.29 (0.04) (0.29) (0.39) 0.94 1.07 3.44 5.67 4.55 1.27 4.69 2.81 1.37 0.28 1.00 0.01 (0.08) 1.00 1.39 nm 9% nm,com plex 3.50 1.88 0.89 3.23 5.52 6.18 5.00 6.21 6.69 4.86 3.71 3.49 2.25 3.60 3.75 4.48 3.74 4.22 4.04 2.71 3.38 4.54 4.11 3.71 3.61 5.46 5.25 6.08 6.22 4.34 3.35 1.76 1.86 2.50 3.45 3.18 4.83 3.99 6.22 6.65 7.15 5.02 5.20 4.96 4.39 4.40 5.70 5.73 7.66 10.14 9.27 6.35 9.82 7.93 6.50 5.05 6.09 5.31 5.78 6.80 6.66 18% 5% 47%,sim ple 1.96 0.91 0.83 2.25 4.25 2.94 1.09 3.04 1.84 1.29 (0.38) 0.12 (1.16) (0.06) 1.19 0.42 1.02 0.76 0.87 2.02 2.30 2.92 2.31 2.39 4.43 4.07 4.19 4.89 5.15 4.06 2.25 0.94 (0.26) (0.47) (0.89) (0.63) (0.05) 2.13 0.93 1.18 2.17 2.55 2.23 2.10 1.24 1.68 1.26 1.59 0.71 1.06 0.90 1.51 1.99 2.60 2.86 3.14 3.74 4.53 3.53 3.16 3.19 -11% 112% 9%,com plex 3.59 2.33 2.01 3.95 7.45 6.92 5.65 7.71 7.59 4.37 2.98 3.19 1.51 2.98 4.78 4.27 4.69 4.98 4.67 7.07 8.07 8.51 7.00 7.66 9.11 8.84 8.92 9.60 10.00 9.16 7.61 6.29 5.15 4.99 4.92 5.07 5.81 7.34 7.09 7.01 7.82 8.16 8.07 7.46 6.44 6.82 6.41 6.83 5.31 5.09 4.97 6.73 6.42 7.67 8.36 8.73 9.65 10.95 10.10 9.32 8.90 -8% 32% 5%,com plex 5.09 3.77 2.86 4.31 8.18 7.67 7.52 6.40 6.27 5.99 2.27 0.34 (0.93) 1.89 1.97 3.34 4.35 3.57 3.32 4.97 5.03 6.59 5.61 5.40 5.39 5.15 4.87 5.08 6.24 4.91 3.27 2.36 2.65 2.68 2.16 2.07 1.87 3.75 2.79 2.98 4.09 4.14 4.48 4.71 3.46 5.10 5.08 5.86 5.71 6.22 5.29 4.61 5.90 6.91 6.69 6.94 6.93 7.42 6.35 7.19 6.79 13% 47% 3%,notes: east coast complex=(moiny93p/100*358/8.51)*0.45)+(dieinypr/100*306/7.29)*0.23)+(jetinypr/100*331/7.89)*0.23)+(no2inypr/100*281/6.7)*0.09) -eucrbrdt west coast complex=(moglcb91/100*358/8.51)*0.45)+(dieilaam/100*306/7.29)*0.23)+(jetflapl/100*331/7.89)*0.23)+(no2inypr/100*281/6.7)*0.09) eucrbrdt gulf coast louisiana=(moigc93p/100*42*0.519+dieigulp/100*42*0.286+jetigcpr /100*42*0.1+n6gf3.0*0.043+lpgsmbme/100*42*0.052)-uscrllss gulf coast wti=(moigc93p/100*42*0.519+dieigulp/100*42*0.286+jetigcpr /100*42*0.1+n6gf3.0*0.043+lpgsmbme/100*42*0.052)-uscrwtic nwe simple=(moge95fc/8.53*0.17)+(naphnefb/8.5*0.0649)+(jet1nefc/7.93*0.0939)+(dien10fc/7.46*0.3598)+(nf03fcar/6.66*0.2841)-eucrbrdt nwe complex=(moge95fc/8.53*0.2856)+(naphnefb/8.5*0.0908)+(jet1nefc/7.93*0.0888)+(dien10fc/7.46*0.3745)+(nf03fcar/6.66*0.1436)-eucrbrdt singapore simple =(0.1191*mogfc95s)+(0.1216*naphsinf)+(0.0999*jetksifc)+(0.2938*gaslsicf)+(0.3413*n6shs380) pgcrduba singapore complex = (0.2656 * mogfc95s) + (0.0741* naphsinf) + (0.0396 * jetksifc) + (0.3855 * gaslsicf) + 0.2225* (n6shs380/6.66) pgcrduba japan complex=(0.25*0#jgl)+(0.06*naphjpnc/9.04)+(0.15*jetkjpcf)+(0.30*gasljpcf)+(0.14*n6shs380/6.66)+(0.02*lpgijpbt/11.54)-pgcrduba symbol “0#jgl“ is a reuters code for regular gasoline of jis k2202, grade 2, from the tokyo commodities exchange. for japan fuel oil data, singapore residual fuel oil index has been used as a benchmark for japan fuel oil, due to non availability of data. source: deutsche bank, reuters, bloomberg finance lp,deutsche bank ag/hong kong,page 5,us$/barrel,us$/barrel,3 september 2012 oil & gas refining margins - asia asian refining margins figure 5: asian refining margins singapore complex,16.00,global tight refining capacity,2005: hurricane rita and katrina gom,2004 : china demand - hurricane ivan gom,2008: tropical storm hanna,14.00,12.00 10.00 8.00 6.00 4.00 2.00 -,build up to us driving season global excess refining capacity,jan,feb,mar,apr,may,jun,jul,aug,sep,oct,nov,dec,(2.00),2000 2005 2010,2001 2006 2011,2002 2007 2012,2003 2008 avg 2000-11,2004 2009,source: deutsche bank, reuters, bloomberg finance lp figure 6: asian refining margins japan complex 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 -,(2.00),jan,feb,mar,apr,may,jun,jul,aug,sep,oct,nov,dec,(4.00),2000 2005 2010,2001 2006 2011,2002 2007 2012,2003 2008 avg 2000-11,2004 2009,source: deutsche bank, reuters, bloomberg finance lp,page 6,deutsche bank ag/hong kong,us$/barrel,us$/barrel,3 september 2012 oil & gas refining margins - asia us and european refining margins figure 7: us refining margins west coast complex 41.00 36.00 31.00 26.00 21.00 16.00 11.00 6.00 1.00,(4.00) jan,feb,mar,apr,may,jun,jul,aug,sep,oct,nov,dec,2000 2005 2010,2001 2006 2011,2002 2007 2012,2003 2008 avg 2000-11,2004 2009,source: deutsche bank, bloomberg finance lp figure 8: european refining margins nwe complex 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 -,jan,feb,mar,apr,may,jun,jul,aug,sep,oct,nov,dec,(2.00),2000 2005 2010,2001 2006 2011,2002 2007 2012,2003 2008 avg 2000-11,2004 2009,source: deutsche bank, reuters, bloomberg finance lp,deutsche bank ag/hong kong,page 7,us$/barrel,ytd12,2002,2003,2004,2005,2006,2007,2008,2009,2010,2011,-,3 september 2012 oil & gas refining margins - asia figure 9: average refining margins in different regions (historical full-year average vs. ytd 2012) 26.00 24.39 24.00,22.00 20.00,21.15,21.70,22.13,18.95,18.37 18.00,16.00,14.32,14.58,15.00,14.00 12.00,10.00,9.84,8.00 6.00,6.75,7.49 5.56,6.95 6.16,5.66 4.97,7.74 6.18,7.62 6.57,4.68,7.