India
will surpass China as the fastest-growing petroleum product market in
Asia with fuel consumption rising 6 per cent in 2018, Moody's
Investors Service said today citing EIA data. As economic activity in
China dials back, Moody's said it expects its refined product demand
growth will moderate to 2.5 -3 per cent in 2017-18, compared with
compounded annual growth rate of 5 per cent in 2012-16. "Nonetheless,
in absolute terms, the EIA says China will account for 48% of Asia’s
R&M sector’s demand growth in 2018. In comparison, India will
surpass China as the fastest-growing product market in Asia with
petroleum consumption growing 6 per cent in 2018," it said.
Moody's said the outlook for the Asian oil refining and marketing
sector is stable, with the EBITDA of rated companies growing a modest
5 per cent through 2018. "Driven by China's and India's appetite
for petroleum products and continued capacity rationalisation, we
believe refining margins will remain firm, thereby supporting the
growth in earnings," says Rachel Chua, a Moody's Assistant Vice
President and Analyst. It expected the average Asian refining margins
to be largely in line with the average of USD 6.2 per barrel for the
last three years, but better than USD 5.1 per barrel in 2016. "The
recent forced closure of about a quarter of US refining capacity has
created an undersupply situation, causing fuel prices -- including
gasoline, diesel and jet fuel -- to surge. Nonetheless, we expect the
recent spike in crack spreads and refining margins to temper and
normalise as the supply crunch eases gradually," Chua said. In
its report, "Refining and marketing -- Asia, Outlook stable on
modest EBITDA growth and firm refining margins", Moody's said it
expects the fundamental business conditions in the sector to continue
over the next 12-18 months and have been stable since October 2014,
when Moody's initiated its outlook opinion. Supply and demand will
vary by country, but for the region as a whole, Moody's estimates
that Asia's incremental growth in demand for fuel of around 0.7
million barrels per day (bpd) will outpace net refining capacity
additions of 0.4 -0.5 million bpd over the next 12-18 months. At the
same time, the bulk of the incremental growth in refining capacity
will come from China and Vietnam. "Still, with demand growth
surpassing capacity additions over the last five years, Asia is
likely to remain a net importer of refined petroleum products over at
least the next three years," it said. Asian refiners, it said,
continue to be exposed to the economic slowdown in China, industry
cyclicality and geopolitical risks, despite our stable outlook. "We
could change our outlook to negative if net refining capacity
additions and increasing refinery output in Asia materially outpace
growth in demand, such that our projected EBITDA for the industry
declines by more than 10 per cent; or if demand from China and India
contracts; or if geopolitical developments materially alter operating
conditions," it said. Moody's said it would consider a positive
outlook if regional demand overwhelms capacity additions such that
refining margins exceed USD 8 per barrel on a sustained basis,
leading to raising the EBITDA-growth forecast above 10 per cent.
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