sian refiners to ride over storms

Moody's Investors Service says that oil-and-gas refiners in Asia except Japan will fare much better than their global peers, despite a challenging operating environment that include the sanctions against Iran.

"The outperformance of Asian refiners will be led by their higher proportion of middle-distillate output and China’s above-average demand for refined products," said Simon Wong, a Moody’s Vice President and

Senior Analyst.

Moody’s first bi-annual outlook report on the Asian oil-and-gas refining and marketing sector showed that China’s oil demand growth in 2012 will account for 40 per cent of incremental growth in global oil demand. The Organisation of Petroleum Exporting Countries forecasts a 4.4 per cent year-on-year growth for China versus 0.7 per cent for the rest of the world.

Asia’s refineries have a high proportion of middle-distillate output with Korea at 43 per cent, Thailand 46 per cent, and Petrochina 70 per cent, which will underpin their above-average refining margins.

"In the medium term, we expect market fundamentals for diesel to remain strong, given robust, non-OECD demand from transport, industrial, and power-generation sectors. Fuel-subsidy policies in many Asian countries, including China, India, Indonesia, and Malaysia, will also continue to

drive strong demand for diesel," Wong added.

However, the oil embargo imposed by the US and Europe on Iran as a result of political differences over Iran’s nuclear programme could hurt Asian refiners.

"If key importing nations such as China, Japan, India, and South Korea restrict or reduce crude imports from Iran, the refiners in these countries will need to source more expensive crude from elsewhere and may

not be able to fully pass on the higher costs," Wong said.

In addition, the credit conditions for Asian refiners have peaked. There are five major risks for the sector: lower refining margins, regulatory risk, rising crude prices from Middle East tensions, weakening international demand, and high capital expenditure.

Although weaker demand for refined products, lower refining margins, and rising crude prices have an adverse impact across all Asian issuers, regulatory risk and high capex are specific to a country or issuer.

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