Asian refining, marketing companies to expect hampered earnings

Regional stress is expected to constrain the earnings of Asian refining and marketing companies in the next 12 months, bringing refiners to increase reliance on short-term financing facilities, according to Moody's Investors Service.

"Asian refiners will likely see their earnings fall in 2019, as higher regional crude prices drive up feedstock cost, and retail fuel price regulation in some countries pressures marketing profits," says Rachel Chua, a Moody's assistant vice-president and analyst.

"These regional headwinds will drive a 3 to 4 percent decline in aggregated earnings before interest, taxes, depreciation and amortization (EBITDA) through 2019. The EBITDA decline would have been higher if not for continuing modest demand growth in Asia," she added.

The falling EBITDA contrasts with Moody's positive outlook for the global R&M sector, with the global outlook reflecting projected EBITDA growth, helped by lower crude prices and strong distillate spreads in North America.

The agency expects that the benchmark Singapore complex refining margin will stay benign, at $5.5 per barrel over the next 12 months, largely in line with the year-to-date average. The projection also accounts for mounting Chinese petroleum exports into the Asian market, which are in direct competition with other export-oriented Asian refiners.

The refiners might have to increase their reliance on short-term debt, as working capital needs rise in tandem with crude prices.