It was Diesel which made HY report extraordinary profit in 2017 during Hurricane Harvey

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DIESEL CRACK SPREAD:

https://www.tradingview.com/chart/?symbol=NYMEX%3AGZ1!

and for PETRONM a simple refinery which produces MORE THAN 30% Fuel Oil yield:

FUEL OIL CRACK SPREAD:

https://www.tradingview.com/symbols/NYMEX-SF31!/

I hope i3 members here truly develop some intelligence on the fundamentals and dynamics of these crack spread and its importance to bottom line of these refineries

You guys needs to see bigger picture - Complex refinery like HY can selectively control yield of gasoline and diesel

HY has the ability to produce Diesel at yields of 45%

i suggest you guys monitor DIESEL SPREAD too which shot up by 7 USD/brl today

DIESEL CRACK SPREAD:

https://www.tradingview.com/chart/?symbol=NYMEX%3AGZ1!

a slight lower oil price is good as it would not dampen demand while maintaining high crack

always remember we only need 13 USD/brl average crack spread

and for PETRONM a simple refinery which produces MORE THAN 30% Fuel Oil yield:

FUEL OIL CRACK SPREAD:

https://www.tradingview.com/symbols/NYMEX-SF31!/

I hope i3 members here truly develop some intelligence on the fundamentals and dynamics of these crack spread and its importance to bottom line of these refineries

You guys needs to see bigger picture - Complex refinery like HY can selectively control yield of gasoline and diesel

HY has the ability to produce Diesel at yields of 45%

i suggest you guys monitor DIESEL SPREAD too which shot up by 7 USD/brl today

DIESEL CRACK SPREAD:

https://www.tradingview.com/chart/?symbol=NYMEX%3AGZ1!


a slight lower oil price is good as it would not dampen demand while maintaining high crack

always remember we only need 13 USD/brl average crack spread

Post removed.Why?

EU Council President Charles Michel said the agreement covers more than two-thirds of oil imports from Russia. However, Ursula Von der Leyen, the head of the EU's executive branch, said the punitive move will "effectively cut around 90% of oil imports from Russia to the EU by the end of the year."

Fantastic news:
..............................

Eurobob gasoline cracks hit a fresh record of $52.50/b at the official start of the US driving season on Monday, according to Quantum data, while diesel refiner margins topped a three-week high of $45/b.

Prices higher after EU reaches deal to cut 90% of Russian oil imports Crude Oil Refined Products

6min ago

Crude oil futures in early European trading hours Tuesday were climbing higher after the EU clinched a compromise deal that will potentially see Russian oil flows into Europe drop by 90% by the end of the year.

August ICE Brent futures were trading at $119.70/barrel (0705 GMT), compared to Monday's settle of $117.60/b, while the July contract was trading at $123.50/b ahead of expiry.

At the same time, July NYMEX WTI was trading $118.96/b, versus last Friday's settle of $115.07/b. There was no settlement Monday due to the US holiday.

European Union leaders agreed late Monday to embargo most Russian oil imports into the bloc by year-end as part of the latest round of sanctions aimed at Moscow, reaching a compromise that allows Hungary and others access to pipeline crude.

EU Council President Charles Michel said the agreement covers more than two-thirds of oil imports from Russia. However, Ursula Von der Leyen, the head of the EU's executive branch, said the punitive move will "effectively cut around 90% of oil imports from Russia to the EU by the end of the year."

"This move is supportive for prices. However, the market has had a month to digest the potential ban, and so we suspect it is largely priced in already. This is reflected in the price action in early trading in Asia this morning," said Warren Patterson, head of ING's commodity research.

Oil markets have also been underpinned in the early part of the week after China announced further measures to ease Covid restrictions.

"Crude oil prices gained as the outlook in China improved amid easing restrictions on travel. Shanghai allowed manufacturers to resume operations from June, while officials said Beijing's coronavirus outbreak was under control," said ANZ commodity strategist Daniel Hynes.

Refined products also continued to support crude prices, particularly the squeeze on diesel and gasoline.

Eurobob gasoline cracks hit a fresh record of $52.50/b at the official start of the US driving season on Monday, according to Quantum data, while diesel refiner margins topped a three-week high of $45/b.

Meanwhile, Mexico's 315,000 bpd Salina Cruz refinery on the Pacific coast is in the path of Hurricane Agatha, although the storm is unlikely to be strong enough at landfall to damage the plant.

The US and Mexico are particularly vulnerable to refining disruptions during this year's hurricane season, given the tightness of gasoline and diesel across the Americas.

Justification for crack spread resilience long term (at least at 13 USD/brl):

Refined Oil Exports by Country
..............................

United States: US$60.7 billion (13.9% of refined oil exports)
Russia: $45.4 billion (10.4%)
Netherlands: $34.7 billion (8%)
Singapore: $27.4 billion (6.3%)
India: $26.2 billion (6%)
China: $25.5 billion (5.9%)
South Korea: $23.2 billion (5.3%)
United Arab Emirates: $19.6 billion (4.5%)
Malaysia: $12.8 billion (2.9%)
Belgium: $10.5 billion (2.4%)
Spain: $9.6 billion (2.2%)
Germany: $9.5 billion (2.2%)
Italy: $8.3 billion (1.9%)
United Kingdom: $7.4 billion (1.7%)
Canada: $7.2 billion (1.7%)

....

Imagine you take out Russia from the above supply of REFINED OIL (which is where we are heading) - its just not possible to simply replace the 10% gap even if both China & India double their exports

In the future at most Russia can only sell its crude to India & China, but NOT refined oil...

and India & China cannot simply double their refining capacity to process russian crude

This should be a long term phenomenon provided EU does not change their stance on Russian oil dependence

Not with the intention to discourage, but i must inform you that our friend here sslee had made such attempts earlier, and if i am not mistaken he did not gain much insight.

I assure you that HY management is NOT doing anything with the wrong interest to their shareholders.

Just wait June 22' results (which is basically secured in another months time), provided no wild fluctuation on crude oil price and crack spread from current level, i can assure you that HY will report the best ever EPS in Bursa.

Stay calm - this refining margin rise phenomenon is GLOBAL and HY cant hide it even if they want to do so.

Posted by Subanginvestor > 53 minutes ago | Report Abuse

Valueguru has suggested that investors write to Local HY Corporate to demand answers for the poor Q1 result. I say let's write to HY HQ in Shandong and asks that they look into the following: 1. Why the huge surprise hedging loss again in Q1 22. HY Malaysia has from time to time incur huge hedging losses. It is time to look into this and stop this once for all. All hedging should be conducted by a bigger entity, like HY HQ. HY Malaysia should just focus on what they do best and that is refinery work and their aim is to provide shareholder value and not involve themselves in bets. 2. Huge share price fluctuation followed by huge disappointment in the Q1 result gives the IMPRESSION that somebody in HY is working with outside operators to manipulate price to the detriment of innocent hardworking retail investors. This is against the "Shared Prosperity" principles. Of course it is difficult to prove this criminal activity. But PERCEPTION is very important especially given how well Western Media has painted Chinese owned companies - as not transparent and untrustworthy. HY HQ will do well to remind their Chinese representatives in HY Malaysia (and other Chinese owned companies) that they have even a higher fiduciary standard to perform to. 3. HY HQ should send independent auditors to ascertain why HY quarterly results have been so inconsistent. Compare, for example, with a similar refinery Petron. Petron's quarterly results are far more consistent and predictable and they have been providing dividends to their shareholders, not HY.

@mytwocents, excellent info! Thanks

as far as i know HY had always made good profit when oil price had rise between reporting period right from Shell ownership of the refinery

thats why they have this CCS and FIFO margin calculation on their annual report summary table on performance

On @Investing_Bursa comments, this is something new to me - could be true due new hedging mechanism they had taken (swap, option, futures etc)

i still think HY will gain when oil price rise

may be HY HAD written down the crude contract paid for crude sourced from Russia as Shell had pledged not to buy even refined oil made from crude blended with russian oil

malaysian shell retail likely aligned them self with parent company

https://www.cnbc.com/2022/03/08/shell-apologizes-for-buying-russian-oil-announces-phased-withdrawal.html



Posted by Rehan > May 31, 2022 11:49 AM | Report Abuse

What is surprising is how come they had inventory loss this Qrtr when their raw material as well as product prices went up. Any explanation?

How does one know what will be the derivative gain / loss next qtr. Do we know the current derivative exposure and at what future price. ? They seem to have their hand full in derivatives. Derivatives over long term only ends up paying fees and other expenses. gains / loss should cancel each other over long period.

Asia oil/products:

2h ago

Gasoline
........

Gasoline prices continued to climb, with 92 RON coming within touching distance of multi-year highs hit at the beginning of March. In the cash market, PetroChina offered along the curve and weighed slightly on the structure at the front of the physical market, although moves in the paper curve meant that still translated into a flat price gain of $3.81/b to $149.68/b FOB Singapore. The crack was up another $1.92/b at a one-week high of +$32.92/b.


Jet Fuel
.......

Jet continued to gain amid wider bullishness across distillates and an open arb from Asia and the Middle East to Europe, leaving prices creeping towards a three-month high to start the week. Only BP and Total were in the cash window, the former bidding up through the window and adding another $0.58/b to Quantum’s cash differential assessment to take it to a $3.71/b premium to nearby swaps. That left the flat price up $2.86/b at $149.73/b FOB Singapore as the spot crack to Brent edged another $0.97/b higher to +$32.97/b.


Diesel
......

Diesel markets saw Trafigura and Vitol bid the middle and back of the 10ppm cash window higher and helped to lift Quantum’s cash differential $0.81/b from Friday to a $5.09/b premium to the curve. That left the 10ppm flat price up $3.86/b at a two-week high of $159.86/b FOB Singapore, while the spot crack to Brent gained another $1.97/b to +$43.10/b.

https://www.mercatusenergy.com/blog/bid/72741/an-introduction-to-crack-spread-hedging

closing the shorting done on the refined products. They have to buy the refined oil (their own at high price) which they had sold forward.

This means automatically their next hedging batch will go to a higher margin level. The exact detail mechanism i must admit i dont really know


Posted by GrowthCapitalist > May 30, 2022 9:50 PM | Report Abuse

Just one clarification, when you said buy at higher price is crude or refined oil?

@GrowthCapitalist,

1) On Inventory gain or loss - its straight forward. They need certain minimum inventory in their plant at all time. The valuation difference between reporting periods simply gets reported as inventory gain / loss.
(a portion of their inventory is hedged as i understand - as such the inventory gain or loss effects is dampened).

2) On shorting of the refined products, its like sell forward and have to buyback within a certain period. Imagine they sell at cheap price and later it shot up high...they are forced to buy at a higher price. The refined products shorting and going long for crude is done at the same time to neutralize. So when crude did not rise at the same magnitude the gain from going long on crude is way smaller than the loss in shorting refined products. This is how i roughly understand.

This Israel refinery loss on the first qtr sounds like that.

Refined Oil Exports by Country
..............................

United States: US$60.7 billion (13.9% of refined oil exports)
Russia: $45.4 billion (10.4%)
Netherlands: $34.7 billion (8%)
Singapore: $27.4 billion (6.3%)
India: $26.2 billion (6%)
China: $25.5 billion (5.9%)
South Korea: $23.2 billion (5.3%)
United Arab Emirates: $19.6 billion (4.5%)
Malaysia: $12.8 billion (2.9%)
Belgium: $10.5 billion (2.4%)
Spain: $9.6 billion (2.2%)
Germany: $9.5 billion (2.2%)
Italy: $8.3 billion (1.9%)
United Kingdom: $7.4 billion (1.7%)
Canada: $7.2 billion (1.7%)

....

Imagine you take out Russia from the above supply, its just not possible to simply replace the 10% gap even if both China & India double their exports

In the future at most Russia can only sell its crude to India & China, but NOT REFINED OIL...

and India & China cannot simply double their refining capacity'

This is a long term phenomenon

Very simple:

If hengyuan cannot make money in line with crack spread in the future, then there is no reason for the crack spread chart to exist.

welcome subwayzz, its unfortunate that they did not have inventory gain (this is something i am unable to explain), else everything as per my gut estimate

for Q2, we dont need any inventory gain...just crack spread sustaining above 13 USD/brl will do..thats all we need going forward

In far future when crack spread suddenly reverse to a big drop, the hedging will result as gain during the qtr (reverse of what we see in Q1 now)

now we know HY can consistently sell around 10.7 million barrels per qtr

Q1 its only managed to capture crack spread at 11 USD/brl (hedging done in dec 21')

Q2 they will catch up with at least 22 USD/brl...

It its inevitable

all they need is 13 USD/brl...they will keep hitting EPS above RM 1 every quarter

Interesting to know - moment HY share price turns green all will be whacking.

Posted by Investing_Bursa > May 30, 2022 8:50 PM | Report Abuse

@ probability

Share price of Israel’s Oil Refineries (ORL) (ORL.TA) also rebounded to higher levels in matter of 2-3 days

@cactus81, yes...no doubt about crack spread directly benefitting its margin

hengyuan refinery is no different than any other refinery in the world

The Israeli Oil Refineries posts Q1 loss Refinery margins increase, and refining profits rise

https://astraherald.com/the-israeli-oil-refineries-posts-q1-loss-refinery-margins-increase-and-refining-profits-rise-reuters/

Israel’s Oil Refineries (ORL) (ORL.TA) swung to a loss in the first quarter, as a revaluation of futures contracts offset a jump in revenue amid a steep rise in global oil prices.

ORL, Israel’s largest refining and petrochemicals group also known as Bazan, said on Sunday it lost $18 million in the January-March period compared with a $55 million net profit a year earlier. Revenue rose 77% to $2.26 billion.

Its adjusted refining margin was $9.3 a barrel in the first quarter, compared with $4.3 a year earlier but below Reuters’ quoted Mediterranean Ural Cracking Margin of $10.1.

“The war in Ukraine, which exacerbated the energy crisis in Europe, illustrates for us all the importance of local production for national energy independence,” said Chairman Moshe Kaplinsky.

Chief executive Malachi Alper said that since mid-March ORL has seen “unprecedented refining margins” that are expected to give a significant boost to the firm’s performance later in 2022.

those who sell now instead of waiting a few more weeks or better still till Q2 results come out will really miss out the cheapest stock in Bursa

HY management is not cheating you anything. Its just how refinery business works.

all i can say is Hengyuan not doing any creative accounting - its purely on the way the hedging is done.

When the spread widens, risk due to hedging will disappear

Below is another example of refinery reporting loss on the first quarter 22'' due to the way they hedge:


..........

Israel’s Oil Refineries posts Q1 loss, refining margins rise

https://todaynews.upexampaper.com/israels-oil-refineries-posts-q1-loss-refining-margins-rise-more-trending-news-today/

Israel’s Oil Refineries (ORL) (ORL.TA) swung to a loss in the first quarter, as a revaluation of futures contracts offset a jump in revenue amid a steep rise in global oil prices.

Chief executive Malachi Alper said that since mid-March ORL has seen “unprecedented refining margins” that are expected to give a significant boost to the firm’s performance later in 2022.

what happens if tomorrow red and Wednesday it reverts back to current price looking forward for Q2 22'results?

2 possible reasons...

1) Kerosene has life span. The aviation industry did not took off as expected and was not consumed in time.

2) The Russian crude they bought from russia say in Jan 22'could be the one blocked by Malaysian govn from loading in Mar 22 - resulting in cancellation charges or loss in down payment paid



Posted by OTB > May 30, 2022 7:54 PM | Report Abuse

Posted by ngjack1991 > 2 minutes ago | Report Abuse

Really a creative accounting. Hibiscus is accounting to make profit look much better but hengyuan is opposite. Inventories increase 1.1 billion compared to last quarter and 2 times of last year same quarter. Typical China man company press down profit to avoid tax
------------------
Agreed.
I expect inventory gain and end up show 131 million inventory loss.
Really cannot understand.
Thank you.

hedging is not betting..

Posted by Johnzhang > 1 minute ago | Report Abuse


We don’t know what are their positions in commodity swap and Crack Spread Swap for Q2. Huge hedging losses in Q2 is still possible if bet on the wrong direction.

when your margin expanded, new hedging will be done with expanded crack
their hedging contract size is always 25% of their qtrly revenue

RM 2 plus EPS on coming QTR - just another 3 months away... payback of market capital in 7 months (as i said before). To those who are patient..they will reap

no one can predict the future, but now the future is seen - exploding crack, they will capitalize
Posted by investmalaysia618 > 24 seconds ago | Report Abuse

loss on derivatives meaning their skills not up to standard yet. overvalued

As predicted, they were too aggressive on hedging, and they must have stored quite a bit of accumulated fuel oil. Q2 onwards will definitely be explosive - but market has to be patient.

Posted by ValueInvestor888 > 6 minutes ago | Report Abuse

Lower profit qoq due to fair value loss on derivatives RM 432 million, inventories written down RM 131m.

sure OTB, lets hope for the best. Lets look at Q1 22'as an appetizer, Q2 22 as the main course...

good luck

For Q1 22'i meant

@OTB, just my 2 cents: your previous derivation would be more likely to be accurate.

Despite the sales volume potentially higher say 10.7m the crack spread could be a little lower than your estimate as they will be lagging behind (for simplicity assume 3 weeks) to capture the spread and report in the same period.

precisely the two wrong judgement (prejudice) of market now where if you could somehow see through, you have an edge that will potentially give multi bagger return


we can see the difference between US investors market perception of refinery stocks (from valero share price) and local market who had unique experience of gloves euphoria


Posted by CharlesT > May 29, 2022 10:00 AM | Report Abuse

After glove saga n sad endings for many so called long term value investors during 2021/2022, i doubt Heng Yuan 2.0 will be that sexy like Heng Yuan 1.0

Anyway still hv trading opportunity

Noted OTB..

I just want investors here to still stick to HY despite the worst possible outcome near term (despite the odds being extremely slim), knowing mid & long term performance will be simply outstanding with high certainty than any of the stocks in Bursa.

still have pay back period 7 months

nope, it can still be all right

expect loss making in Q1, but i assure you that Q2 onwards will be spectacular as predicted above

suggest only those who can handle above stay invested in HY

i want traders to be out

@Johnzhang, for PetronM there are two growth drivers to its PAT:

1) The expanding retail sales volume. Here, however my understanding is the margin is fixed. It does not gets affected by crack spread but agreed terms with government and their parent company petron on supply of refined products

2) Its malaysian refinery. As mentioned above, since fuel oil has negative crack spread exceeding - 12 $/brl, the effective capacity of its 88bpd plant is likely below 40%. This portion of its sales volume will benefit from crack spread expansion.

From the above, you can make your judgement on its PAT growth on its next qtr and allocate your weightage on stakes accordingly

understood..thanks

Posted by subwayzzz > May 28, 2022 5:22 PM | Report Abuse

You see?
Triggered

someone, pls help to calculate for stockwin with the following variables

1) Refining margin 26 USD/brl
2) HY sales volume per qtr, 10.7m barrels
3) USD - MYR exchange rate: 4.38

opportunity of a lifetime here where at current margin - it makes its entire market cap in just 7 months

why fear to go in heavily before Q1 results - just because of a potential hedging loss?

just imagine you have money to buy out this company, would you miss such a golden opportunity - payback at half a year?

so what if Q1 22' is a loss

do you not believe Hengyuan can capitalize current refining margin for Q2 and Q3?

Do you not believe how the refinery makes profit from crack spread?


Posted by onlyinvestment > May 28, 2022 3:45 PM | Report Abuse

For me is very simple, I still got some gain in currently price and I don't have too much share. So even though HY back to RM 5 , I will lost money but not too much. So I just wait and see what QR benefit will bring to me once QR announced....

and Hengyuan market cap RM 1.9 billion only compared to Harta at 14.9 billion

Hengyuan will make the cash Harta had made by end of 2022, and its margin will never revert to 2021 level...definitely not like gloves margin erosion due to instant competition