India refiners outshine Asia peers with new output, rising local demand

GS Holdings

01/08/2017 10:08

* Indian refiners outperform peers in South Korea, Thailand 
    * India to lead global demand growth -Goldman 
    * Local demand, rising output lift Indian refiners' outlook 
 
    By Florence Tan and Nidhi Verma 
    SINGAPORE/NEW DELHI, Aug 1 (Reuters) - Indian refiners are 
outperforming their competitors in South Korea and Thailand as 
they have ramped up output from new fuel and chemical capacities 
to meet rising domestic demand that could further lift their 
earnings over the next two years.  
    Asia is adding net refining capacity of 360,000 barrels per 
day (bpd) this year, according to Wood Mackenzie, with units 
coming online in China and Vietnam that could keep most of Asia 
well-supplied and weigh on refining margins for export-oriented 
refiners in South Korea and Thailand.  urn:newsml:reuters.com:*:nL4N1IL1OX  
    India, though, where refiners have already ramped up 
capacity that has come online, will likely be shielded from the 
pressure on margins by strong local demand, analysts said.  
    "Indian refiners are a bright spot in Asia because of rising 
fuel demand," Hindustan Petroleum Corp Ltd's  HPCL.NS  Chairman 
M K Surana told Reuters.  
    Surana expects Indian demand growth of about 5 percent a 
year up to 2030 as a rising population and increasing affluence 
drive up oil use in the world's third-largest crude importer.  
    Indian oil minister Dharmendra Pradhan on Monday indicated a 
slower growth pace, but still said the country would consume 226 
million tonnes (4.95 million bpd) of refined products in fiscal 
year 2021/22, up from 205 million tonnes in 2017-2018.      
    "We expect India to lead global oil demand growth, 
contributing to one-third of the growth expected in 2017-2030," 
Goldman Sachs analysts told clients last week.  
    Indian refiners Bharat Petroleum Corp Ltd  BPCL.NS , HPCL 
and Reliance Industries  RELI.NS  could see their shares rising, 
with gains between 11 percent for Reliance and 25 percent for 
BPCL over the next year, the analysts said.  
    Among the refiners that have recently added capacity are 
BPCL, which is ramping up output after an expansion at its Kochi 
refinery, and Indian Oil Corp  IOC.NS , which is planning to run 
its Paradip refinery at full capacity this year.  urn:newsml:reuters.com:*:nL3N1JV3EX  
    Indian oil refiners are being undervalued, the Goldman Sachs 
analysts said.  
    "Multiple re-rating could continue as investors give more 
credit for diminishing regulatory headwinds and sustainable 
earnings growth," the analysts said.  
    Regulatory changes in India that allow refiners to charge 
market rates for fuels, they said, have also improved the 
profitability at domestic refiners.          
    Analysts at Japanese investment bank Nomura said in July 
that their top investment recommendations for Asian refineries 
were IOC, BPCL and HPCL, "owing to refinery volume increase, 
deregulated petrol and diesel prices, and undemanding 
valuations."   
    In contrast, Goldman said added capacities across Asia could 
dampen gross refining margins. The bank expects Singapore 
complex refining margins to drop to $7.70 and $7.30 in 2018 and 
2019, respectively, from $8 this year.  
    That means valuations for Asian refiners are stretched, it 
said, and recommended investors sell SK Innovation  096770.KS , 
owner of South Korea's largest refiner, S-Oil Corp  010950.KS , 
and Thailand's Thai Oil PCL  TOP.BK  and IRPC PCL  IRPC.BK .  
    With low oil prices helping to drive India's demand, though, 
and capacity additions slowing, its market is likely to remain 
snug, said Tushar Tarun Bansal, director at consultancy Ivy 
Global Energy.  
    "Only a few secondary units are expected to come onstream in 
the next five years," he said, while India's strong economic 
growth will continue to drive rising oil demand going forward.  
 
 
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Indian oil refiners seen outperforming regional rivals on higher 
fuel & plastics demand    http://reut.rs/2hjk1Dt 
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 (Reporting by Florence Tan in SINGAPORE and Nidhi Verma in NEW 
DELHI; Editing by Tom Hogue) 
 ((Florence.Tan@thomsonreuters.com; +65 6870 3497; Reuters 
Messaging: florence.tan.thomsonreuters.com@reuters.net)) 
 
Keywords: ASIA INDIA/REFINERIES