Japan refiners maintain profitability in H1, outperform Asian rivals

Cosmo Energy Holdings Co

14/11/2024 08:48

By Yuka Obayashi and Florence Tan
       TOKYO/SINGAPORE, Nov 14 (Reuters) - Net income at
Japanese oil refiners fell in the first half of their fiscal
year, but they maintained profitability and outperformed their
South Korean rivals as strong domestic margins shielded them
from a weak overseas market. 
    Japan's top three refiners - Eneos Holdings  5020.T ,
Idemitsu Kosan  5019.T  and Cosmo Energy Holdings  5021.T  -
reported a 40% to 60% drop in net profit for the six months
ended Sept. 30, compared to the year ago period, primarily
impacted by substantial appraisal losses on oil inventories amid
falling crude prices.
    However, profits excluding inventory-related factors fell by
only 22% to 35%, aided by improved margins for petroleum
products in the domestic market.
    For both Idemitsu and Cosmo, "the strength in core earnings
progress against their guidance appears positive, as underlying
margins remain strong," Thanh Ha Pham, Jefferies' equity
analyst, said in a note.
    Eneos' domestic margins were better than anticipated and
upward revision was a surprise as energy prices and currency
rates were unfavourable in the second quarter, Pham said. 
    "Real margins were solid, as supply and demand have
relatively normalized," Eneos CFO Soichiro Tanaka told reporters
on Wednesday.
    "Export slowed in the first half due to poor overseas market
conditions, but we expect the market to emerge from the bottom
in the second half, leading to an increase in our export
volume."
    Elsewhere in Asia, South Korean refiners, one of the
region's top fuel exporters, reported sharp losses in the third
quarter from oil refining. 
    Global refining margins have dropped in recent months
because of weaker economic activity and the start-up of several
new refineries in Asia and Africa, while oil prices fell 17% in
the third quarter, impacting profits at energy majors such as
Shell  SHEL.L  and TotalEnergies  TTEF.PA .
    Cosmo's earnings materials showed that Japanese gasoline
margins were about 20 yen ($0.13) per litre higher than overseas
margins recently. 
    Over the past couple of decades, Japan consolidated its
refining sector by reducing capacity and merging companies as
oil demand has been declining due to its aging population and as
vehicles become more fuel efficient. That helped support
refiners' profits from domestic fuel sales.
    "Despite falling oil prices and sluggish petroleum product
markets in Asia, our fuel segment has maintained healthy
conditions, supported by optimization of domestic supply
system," Idemitsu CEO Shunichi Kito said. 
    "Additionally, our overseas trading business generated
higher-than-anticipated profits," he said.
        However, Japanese refiners have grappled with unplanned
plant shutdowns in recent years because of its aging facilities.
    Still, Eneos reported an improvement in its unplanned
capacity loss (UCL), reducing it to 5% in the first-half from 8%
a year earlier, thanks to enhanced construction quality during
maintenance and smoother operations during restart periods.
    "Earnings in the next fiscal year are expected to improve as
UCL continues to decline, with additional benefit from our
electric power business through the launch of a new LNG power
plant," Eneos CEO Tomohide Miyata said.
    For the full-year ending next March, Eneos boosted its net
profit forecast by 5%, also supported by higher copper prices in
its metals segment.
              
($1 = 155.8600 yen)

 (Reporting by Yuka Obayashi in Tokyo and Florence Tan in
Singapore; Editing by Christian Schmollinger)
 ((Yuka.Obayashi@thomsonreuters.com; +813-4520-1265;))