Moody's: Regional demand growth to offset capacity overhang for Asian refiners

Asian refiners will see modest earnings growth, but at a slower pace than previously, fuelled by refined products demand from China, says Moody's Investors Service.

Moody's expects the Asian refining and marketing (R&M) EBITDA to grow by around 5% through 2015, with the higher output of refined oil products to meet demand more than offsetting the impact of weak refining margins on earnings.

"China will continue to drive demand for refined products, albeit at a slower pace than in previous years amid softer economic trends," says Vikas Halan, a Moody's Vice President and Senior Credit Officer.

Moody's anticipates China's demand for refined oil products will increase by 3%-5% per annum through 2015, compared to 5%-10% in 2010-2012.

"But that demand will not fully compensate for the refining capacity scheduled to come online over the next 12 months," adds Halan.

This new capacity will exceed 1.8 million barrels per day (bpd), and will outstrip the slowing demand growth of around 0.7 bpd, says Moody's.

This structural oversupply will pressure Asian refining margins over the next 12-18 months. However, Moody's does not anticipate a weakening from current levels because lower effective capacity additionsincluding changes in product mix and lower utilization ratesand refinery delays will shrink bloated supply.

In addition, the recent easing in oil prices will support product demand, notes the rating agency.

Increased competition from Chinese exports and growing self-sufficiency for Asian countries, coupled with the softer demand from China will hurt export-oriented refiners, particularly in Korea, says Moody's.

Refiners also face country-specific challenges; from overcapacity in China to decreased fuel subsidies in India, and energy reforms in Thailand and Indonesia that will move fuel prices closer to international market prices, says the rating agency.

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