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Asia Oil & Gas:China teapot refiner bankruptcies point to another a tough period for refining-150126

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:2015-01-29

China teapot refiner bankruptcies point to another a tough period for refining

It was reported in local Chinese media (21st Century Business Herald) that some Shandong refineries have been beginningthe process of applying for bankruptcy after 2014’s weak demand, poor margins (especially in 4Q14) and utilizations ratesoften well below 40% (FY14 average rate 36.8% vs. 36.7% in FY13); although no indication of the number and size ofcompanies’ filings. The news sends mixed messages regarding the refining outlook in China as it highlights:

1) The anemic local Chinese refining margin environment in 2H14 has been difficult to bear for the industry; andwith 1Q15 theoretical margins looking to be deep in negative territory we see the industry continuing to struggle in1H15.

2) Longer term we may gradually begin to see low efficiency teapot capacity clear from the market, with thoseplayers that are able to produce higher spec products likely having some consolidation.

Our recent trip to China (here) highlighted that the expectations of a strong demand recovery in 2015 are muted withSinopec guiding to slow diesel demand growth (0-1%) and decelerating gasoline demand growth (high single digits),while the prospect of large inventory writedowns (>Rmb10bn) in 4Q14 and possible write downs in 1Q15 put a bearishoutlook on earnings. Although January has started off strong in terms of refinery runs (J.P. Morgan CommoditiesResearch estimates an increase in global runs of c2.0mbd y/y of which just under c1mbd is accounted by China – see linkhere), we continue to see a challenging environment for China GRMs in 1Q15. We remain Neutral Sinopec – H andUnderweight SPC – H.

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