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Asia Oil & Gas:China refining margins at lowest level since June 2012 ... and getting worse

研究机构:摩根大通(亚太) 研究员:Scott L Darling,Michael Stansfield,Parsley Rui Hua 发布时间:2015-01-14

Continuing their sixth straight month of declines, our forecasted theoretical Chinese refining margins in Januaryare trending towards negative US$11.8/bl vs negative cUS$9.0/bl in December (see Figure 1); the slide is intandem with the fall-off in global crude prices since their June highs (Brent down c60% since 19-June) andsubsequent drops in NDRC regulated diesel/gasoline pricing. Additional headwinds to refining profitabilityinclude the third consumption tax hike in two months, which went into effect on 13 Jan (see Table 1); withincremental proceeds being earmarked for environmental production and new energy initiatives.

With no improvement in refining and chemicals profitability in sight (see update here), we see more downsiderisks to earnings for Sinopec (N) with limited visibility on the use of cash proceeds post marketing reform.Additionally, we also see a risk of a large inventory write-down in 4Q14. In 3Q14, Sinopec recorded Rmb3.7bnin refining inventory write-downs on the back of Brent falling c13% during the same period; with Brent futuresdown c40% and NDRC prices for gasoline/diesel down c20% in 4Q14, we believe write-downs could have asubstantial drag on earnings.

While we acknowledge a similar downstream profitability drag, we continue to have a preference forPetroChina (OW), which we believe will benefit from improving natural gas profitability from past price hikes(see here) and corporate restructuring (pipeline, upstream and retail JVs).

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