SINGAPORE/SEOUL, Oct 22 (Reuters): Equity analysts have cut their earnings forecasts for Asia's oil refiners as a surge in oil tanker freight rates and crude premiums offset an expected boost in refining margins.
With an outlook for slumping profits amid squeezed margins, shares of top Asians refiners such as China Petroleum and Chemical Corp (Sinopec), Japan's JXTG Holdings and South Korea's SK Innovation may come under pressure in the coming months.
Spot market freight rates for crude cargoes from the Middle East to Asia recently surged to a record following US sanctions on Chinese tanker companies on Sept. 25. Meanwhile, crude premiums climbed to their highest in years following an attack on Saudi Arabian oil facilities on Sept 14 that knocked about 5.0 per cent of global supply offline.
The rising costs could offset an expected boost in refining margins in the fourth quarter from strong gasoil and very low-sulphur fuel oil (VLSFO) demand as ships switch to cleaner fuels to comply with the International Maritime organisation's (IMO) mandate for low-sulphur shipping fuel from 2020.
Sinopec, Asia's largest refiner, is the most vulnerable to the higher freight costs as 70 per cent to 80 per cent of its shipping costs are based on spot rates, Citi's refining equity analysts said, adding the company's 2020 earnings could drop by 5.0 per cent if margins fall by $3.0 barrel for a quarter.
The cost of a supertanker carrying 2.0 million barrels of crude from the Middle East to China stabilised this week at about $5.0 a barrel, off from as much as $9.0 a barrel early last week, said a trader who tracks the rates closely.
That is still more than the about $1.70 a barrel before the US sanctions, the trader said.
"The sharp increase in freight rate will negatively impact the refining margin for Sinopec," Citi Analyst Toby Shek said, adding that the impact was likely to be felt in December because of a time lag from when crude is purchased to when the oil is processed for sale.
Another report from London adds: Oil prices rose on Tuesday after China signalled progress in trade talks with the United States, but gains were capped by bearish forecasts of a buildup in US crude stockpiles. Brent crude oil LCOc1 was up 31 cents at $59.27 a barrel by 1021 GMT, while US West Texas Intermediate crude CLc1 was 16 cents higher at $53.47 per barrel.
China and the United States have achieved some progress in their trade talks, Vice Foreign Minister Le Yucheng said on Tuesday, and any problem could be resolved as long as both sides respected each other.
"While the encouraging mood across financial markets will remain stimulated by trade optimism, risk aversion could still make an abrupt return should talks drag on or turn sour," said Lukman Otunuga, analyst at FXTM.
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