as a hydrotreater with 30% Fuel Oil output, the negative crack spread would have wiped out whatever positive spread from gasoline and diesel (another 30%)

https://klse.i3investor.com/web/blog/detail/Insight1/2018-02-03-story146257-DIFFERENCE_between_PETRONM_and_HENGYUAN?_gl=1*1ytqwcz*_ga*MTA3NDE2NTcwNi4xNjA4NTU5NDY5*_ga_MNBHX2J50S*MTY1MzcxMTI4NC4xODguMS4xNjUzNzE4OTE1LjA.

effectively you can assume its Malaysian refinery capacity of products with positive crack is only about 40%.

Between Q3 21 to Q4 21' PetronM PAT margin barely rose from 1.5% to 2.04%

whilst, Hengyuan had expansion from -1.7% to 4.4%

PetronM could not benefit from crack spread expansion and does not intend to...as its more of a retail player

it must hedge in small batches as it receives from its parent company at such thin margin

you can see their net profit margin has barely changed from previous qtr...at such thin margin between outsourced refined products from parent company and retail price (pre-agreed terms with Petron Philippines), they cannot capitalize the rise in refined products price at the end of Mar 22'

the crack expansion was solely benefitted by the refinery (parent company) with fat margin

makes sense and possible

on the other hand, i also wonder could they have hedge on the refined products side more as they outsource these (from parent company petron) with a certain fixed margin and the explosion on the refined products price at the end of Mar 22'' would have reflected as lost opportunity on capitalizing these margin expansion due to hedging

if they had not hedged, the profit would have been explosive basically


Posted by Johnzhang > May 28, 2022 1:35 PM | Report Abuse

@Sslee, the derivative loss is certainly in commodity swap. I think Petronm hedged too aggressively the crude (raw material) they need for refining. Bear in mind that crude Brent price swung wildly in the qtr. It started (3rd Jan) at around USD78 and increased all the way to around USD124 (8th Mar) and plunged to USD96 (16th Mac) and it ended at USD103 on 31 Mac. When the Ukraine war broke out, oil traders in PetronM might have taken big position at high end of the price (eg USD124) thinking that Brent could scaled beyond USD124. Unfortunately, Brent came off drastically after peaking at USD124 around 8th march.

Its inventory also expanded really big end of Q4 21' to support sales in excess of production in Q1 22'...lets see

The Company recorded higher year-on-year revenue for the fourth quarter (“4Q 2021”) and financial year ended 31 December 2021 (“FY2021”) as a result of a surge in market oil product price and higher sales volume due to increased oil demand from local customers after the relaxation of Movement Control Order in September 2021. The market price during 4Q 2021 and FY2021 spiked up to an average of USD92 per barrel and USD79 per barrel respectively, as compared to the average price of USD49 per barrel and USD48 per barrel in the comparative periods in 2020.

Sales volumes for 4Q 2021 and FY2021 were 10.7 million barrels and 36.3 million barrels respectively, compared with 9.0 million barrels and 35.1 million barrels recorded in the corresponding periods in 2020.

.....

Looking at Petron Q1 22' boost in sales volume, perhaps its possible for Hengyuan to repeat Q4 21'sales volume of 10.7 m barrels in Q1 22'

https://www.businesstoday.in/markets/company-stock/story/mangalore-refinery-stock-rises-multibagger-net-profit-q4-sales-sensex-335388-2022-05-27

Post removed.Why?

Crack spread for Diesel again shot up!

since mid Mar 22' till to date end of May 22', the average refining margin (considering exploding diesel crack) is more than $ 24/brl.

That means April and May alone already contributed EPS of almost RM 2 (each month RM 1). I am using 10.7m barrels per qtr as per Q4 21' sales volume.

As such....

EVEN IF Q1 22' has ZERO profit (due to some blatant judgement for hedging or production breakdown), Q2 ALREADY contributed RM 1 on behalf of Q1 and it has also contributed RM 1 for Q2....this is for sure.

and yet we have not accounted June sales yet....

It means RM 2 EPS as a minimum already in Hengyuan's pocket now - NTA almost RM 9.


Hengyuan trading at current price is grossly undervalued.

https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/052422-saudi-arabia-sees-no-crude-oil-shortage-blames-lack-of-refinery-investment-for-fuel-squeeze

Column: Hurricane season menaces already stretched U.S Diesel supply

https://www.reuters.com/markets/commodities/hurricane-season-menaces-already-stretched-us-diesel-supply-2022-05-26/

no matter how much they raise oil output - only absolute price will come down, but refinery bottle neck and margin will always be there


Posted by petramaises > May 27, 2022 10:17 AM | Report Abuse

energy demand is rising and yet no new refinery is being built. A bottle neck which will take years to resolve

'in order to mitigate the risks of margin erosion to an acceptable level'

Its logical that you hedge only for those product where the margin is thin

@abc333, From Q4 21' financial statement

A17 Commodity prices and foreign currency exchange exposures
......

The Company’s margins and financial performance are exposed to the risk of crude and refined product price fluctuations, driven by geopolitical forces and global economic changes. The Company aims to match the average price of its crude oil intake to the planned production of refined oil products in order to mitigate the risks of margin erosion to an acceptable level.

The Company may enter into futures, swaps and option derivatives to mitigate margin risks, but only whilst achieving an adequate balance between paper and physical positions

Those who want to compare GLOVES with Refinery margin rise phenomenon are TOTALLY BLIND - no way margin will dip like it happened for gloves

simple reason - no one investing in new refinery & takes half a decade to built

Another 1 more possible explanation for the depressed price is that foreign investors who bought and pushed up the price earlier may have changed their mind and started disposing - reason could be due to the fact that EU recently announced that its planning to stop consuming even refined oil produced with russian crude.

These foreign investors will have issues investing on Hengyuan as part of above policy.



Posted by probability > May 27, 2022 9:32 AM | Report Abuse X

what do you need worry on Hengyuan Q1? - only hedging / derivatives loss

but why so concern about derivatives loss now? Hedging is only done when margin is thin, Q2 onwards expect no more hedging loss...

The gain in Q2 will offset whatever loss may be reported in Q1...

the rise in margin is a long term phenomenon which will last

all you need $13/brl and it will keep delivering more than RM 1 EPS per qtr...

looking at the rise in oil price even Q2 will have inventory gain looks like... NTA of Hengyuan by end June 22 would risen to at least RM 10 already

what do you need worry on Hengyuan Q1? - only hedging / derivatives loss

but why so concern about derivatives loss now? Hedging is only done when margin is thin, Q2 onwards expect no more hedging loss...

The gain in Q2 will offset whatever loss may be reported in Q1...

the rise in margin is a long term phenomenon which will last

all you need $13/brl and it will keep delivering more than RM 1 EPS per qtr...

From below article - Hengyuan refinery falls under Deep Conversion and since PetronM does not even have a Catalytic Cracker it falls under Hydroskimmer category

Check out Fuel Oil portion of the yield


https://klse.i3investor.com/web/blog/detail/Insight1/2018-02-03-story146257-DIFFERENCE_between_PETRONM_and_HENGYUAN

From below article - Hengyuan refinery falls under Deep Conversion and since PetronM does not even have a Catalytic Cracker it falls under Hydroskimmer category

Check out Fuel Oil portion of the yield


https://klse.i3investor.com/web/blog/detail/Insight1/2018-02-03-story146257-DIFFERENCE_between_PETRONM_and_HENGYUAN

Post removed.Why?

Look at Fuel Oil spread on March 22'

https://www.tradingview.com/chart/?symbol=NYMEX%3ASF31!

Hengyuan is a complex refiner which produces 35% diesel + 40% gasoline with almost 0% fuel oil (with the rest Jet Fuel & LPG)

PetronM is a simple refiner which produces almost 10% Fuel Oil..

Crack Spread of Fuel Oil is NEGATIVE.

This is a critical difference between Hengyuan & PetronM majority do not know and will always fail to know (on top of the real refining throughput of these refiners)

Look at Fuel Oil spread on March 22'

https://www.tradingview.com/chart/?symbol=NYMEX%3ASF31!

Hengyuan is a complex refiner which produces 35% diesel + 40% gasoline with almost 0% fuel oil (with the rest Jet Fuel & LPG)

PetronM is a simple refiner which produces almost 10% Fuel Oil..

Crack Spread of Fuel Oil is NEGATIVE.

This is a critical difference between Hengyuan & PetronM majority do not know and will always fail to know (on top of the real refining throughput of these refiners).

so far not a single useful information shared here on why hengyuan earnings will not be good going forward to explain the reason why the price is depressed recently

keep talking about people, sifu, IB intention, technical analysis etc...all are pure speculation

to those who had done homework...be patient, ignore the noise which often comes when price seems volatile - a natural product of emotions lacking fundamental insights / assurance

Oil futures: Prices climb on US gasoline stocks draw, Russian sanctions talks

Crude oil futures in Asian trading hours Wednesday were climbing higher as a sharp fall in US gasoline inventories and the impending fresh sanctions on Russian oil underpinned sentiment.

Front-month July ICE Brent futures were trading at $114.34/barrel (0515 GMT), compared to Tuesday’s settle of $113.56/b.

At the same time July NYMEX WTI was trading $110.64/b, versus Tuesday’s settle of $109.77/b.

The American Petroleum Institute (API) reported a 0.57 million barrel build in crude stocks last week, while gasoline inventories dropped 4.22 million barrel and distillate stocks were down 0.95 million barrels.

Traders focused on the already tight gasoline market as the US heads into the summer driving season with the upcoming Memorial Day.

On Tuesday, US weather forecasters said the 2022 Atlantic hurricane season was expected to be above average, raising concerns that a major storm such as last year’s Ida could tip the delicate supply/demand balance.

Germany's economy minister expects the EU to agree to a ban on Russian oil imports soon, with the bloc working on measures to cap price rises that came in the wake of previous sanctions against Moscow.

“Given the EU embargo on Russian oil is a “when” not an “if” question, even if Hungary fails to fall into line; it is clear that Russian exports are under pressure and will continue to be so on the back of the EU nations that support the ban,” said Stephen Innes, managing partner SPI Asset Management.

France’s new foreign minister also expressed confidence in a proposed EU sanctions plan that would prohibit Russia from importing oil.

“We must adopt the sixth package of sanctions as soon as possible to ensure the gradual cessation of Russian oil imports and to remove any residual reservations,” Catherine Colonna said.

The EU is scheduled to meet next at the end of the month to try and break the deadlock but the laggards, led by Hungary, are pushing for concessions before backing the proposal to phase out Russian oil by the end of the year.

do not hope anything in the near future including Q1 results...

Q2 onwards it will keep delivering extraordinary earnings...

Crack spread even at $13/brl, Hengyuan will deliver more than RM 1 EPS per qtr

We may never see crack spread returning to 'that low' level for more than half a decade...

EU & US will never accept russian oil till its nuclear policy is changed.

aim long term

@Investing_Bursa, well said

German minister says Russia oil embargo possible in coming days
Crude Oil

5min ago

Germany's economy minister expects the EU to agree to a ban on Russian oil imports soon, with the bloc working on measures to cap price rises that came in the wake of previous sanctions against Moscow.

Robert Habeck told broadcaster ZDF on Monday that he foresees a breakthrough on the issue "within days" when asked about prospects for a Europe-wide embargo on Russia's oil, with recent holdouts.

Germany initially opposed a ban but has softened its stance in recent weeks.

The minister added that the EU and US are working to find a way to cap the upside on oil prices and prevent Russia from enjoying potential benefits from an uptick in oil prices that an embargo would likely bring.

"This is an unusual measure, but we live in unusual times," Habeck said.

Habeck lashed out at Hungary at a World Economic Forum panel in Davos on Monday, describing Budapest's holdout as an example of "the worst of Europe".

Hungary has repeatedly said it needs more money from the EU to invest in energy infrastructure if it is to give up existing energy contracts.

It has been pushing Brussels for concessions that would allow it to keep receiving pipeline oil from Russia, keeping oil flowing to its MOL-owned Dunai refinery in Budapest and not risk abandoning a cosier relationship with Moscow than most other European states enjoy.

.........

If the above happened, giant refinery Schwedt will likely shut its operation (being fully owned by Rosneft)

https://www.nytimes.com/2022/05/23/world/europe/germany-russia-oil-embargo.html

Even if Q1 is a loss, market should now look forward for Q2 results and onwards.

I maintain all you need is $13/brl margin for TP 24 with PE 5. You can't go wrong...

Good luck guys

By the way, these Indian refiners are actually reducing supply of refined oil to their local market so that they can export to US to the extent of shortage is emerging at their local petrol kiosks

If Hengyuan start exporting US, we Malaysians again same Raya dilemma

Looks like its at $30/brl now

Asia gasoline crack slides as S-Oil says Ulsan unit back online
Refined Products

12 min ago

Asian gasoline cracks retreated from record highs at the start of the week after South Korea’s S-Oil announced it had resumed production at the No.2 residue fluidised catalytic cracking (RFCC) unit at its Onsan refinery after an explosion and fire last week.

The world’s fifth-largest refinery, a Thursday explosion at the 580,000 bpd site in Ulsan killed one and injured at least nine more. Investigations are underway as to its cause.

The incident meant gasoline cracks in Asia rocketed on Friday after S-Oil said that operations at several processing units had been suspended, but without providing details of which units may have been damaged.

Quantum data has showed the regional 92 RON spot crack to Brent hitting an all-time high of +$38.74/b on Friday.

However, the refining margin collapsed $8.64/b on Monday to +$30.10/b FOB Singapore after news of the restart emerged.

Sources said that if the blast had occurred in the RFCC, it would likely take months of repair work, creating a squeeze on gasoline supplies. The RFCC converts heavy fuels into lighter products, including gasoline.

But the prompt restart suggests there has been little damage to core units, hence Monday’s correction in Singapore gasoline cracks.

In addition to supplying domestic demand, the Saudi-operated plant also exports to Japan and southeast Asia, along with the Australian market, which is increasingly reliant on imports of gasoline and diesel after closing much of its refining capacity.

S-Oil said in the filing it plans to resume production at its No.1 paraxylene (PX) unit following scheduled maintenance between June 8 and July 15. It did not say if the petrochemicals processor had been damaged by the blast.

Exactly pang72....stay tuned as summer is just beginning in US.. and Europe have not completely blocked russian oil yet....

Next 6 months will be full of shocks

I think crack dropped to 26$/brl now... its a volatile instrument.
Always remember we only need $13/brl to give TP RM 24 at PE 5. Even it drops to $13, it will continue delivering more than RM 1 eps every quarter.... relax and look forward for Q2

S-Oil resumes production at No.2 RFCC on after fire incident -filing

https://www.reuters.com/article/s-oil-fire-southkorea/s-oil-resumes-production-at-no-2-rfcc-on-after-fire-incident-filing-idUSS6N2WQ009

South Korea’s third-largest refiner said it plans to resume production at its No.1 paraxylene (PX) unit after scheduled maintenance between June 8 and July 15.
.....

At least it will be running at half the capacity for another 1.5 months

Bad news for the 2022 hurricane season: The Loop Current, a fueler of monster storms, is looking a lot like it did in 2005, the year of Katrina

https://theconversation.com/bad-news-for-the-2022-hurricane-season-the-loop-current-a-fueler-of-monster-storms-is-looking-a-lot-like-it-did-in-2005-the-year-of-katrina-183197

The Atlantic hurricane season starts on June 1, and the Gulf of Mexico is already warmer than average. Even more worrying is a current of warm tropical water that is looping unusually far into the Gulf for this time of year, with the power to turn tropical storms into monster hurricanes.

It’s called the Loop Current, and it’s the 800-pound gorilla of Gulf hurricane risks.

When the Loop Current reaches this far north this early in the hurricane season – especially during what’s forecast to be a busy season – it can spell disaster for folks along the Northern Gulf Coast, from Texas to Florida.

This year, the Loop Current looks remarkably similar to the way it did in 2005, the year Hurricane Katrina crossed the Loop Current before devastating New Orleans.

Of the 27 named storms that year, seven became major hurricanes. Wilma and Rita also crossed the Loop Current that year and became two of the most intense Atlantic hurricanes on record.

Just nice after Q2 results

https://www.visualcapitalist.com/wp-content/uploads/2021/09/Hurricane-Season-article-.jpg

https://en.wikipedia.org/wiki/2022_Atlantic_hurricane_season#:~:text=sometimes%20also%20considered.-,Pre%2Dseason%20forecasts,index%20of%20about%20124%20units.

Pre-season forecasts
...................

On December 9, 2021, CSU issued an extended range forecast for the 2022 hurricane season, predicting slightly above-average activity with 13–16 named storms, 6–8 hurricanes, 2–3 major hurricanes

On April 14, 2022, University of Arizona (UA) issued its seasonal prediction for a slightly above-average hurricane season, with 14 named storms, seven hurricanes, three major hurricanes

North Carolina State University (NCSU) made its prediction for the season on April 20, calling for an above-average season with 17 to 21 named storms, 7 to 9 hurricanes, and 3 to 5 major hurricanes.[11]

.......

3 Major Hurricane? Only 1 would do...

good article

High Gasoline And Diesel Prices Are Here To Stay

https://finance.yahoo.com/news/high-gasoline-diesel-prices-stay-000000470.html

"I wouldn't be surprised to see diesel being rationed on the East Coast this summer," John Catsimatidis, CEO at United Refining, told Bloomberg in an interview last week.

...

Like i said earlier, heavy vehicle user better store some diesel in drums...

On Friday the buyer might of thought that refinery is completely gone..LOL! 5th Largest refinery in the world is no joke

the crack will reflect the perception on the scale of the damage and how fast buyers think S-Oil will be back in production..

may be it wont show similar spike on the futures pang72 (which is now showing 30.5$...i dont know for sure)

as it could be a momentary panic that day (Friday)

however, the longer the shut down persist...it will keep going up from current level..

Posted by pang72 > May 22, 2022 1:16 PM | Report Abuse

Just wonder how high hengyuan can go on Monday on record/crazy high usd38 crack spread.
The eps for Q2 is out of my calculator screen to calculate. I better don't count. Too excited!!

Just see how sensitive it is...one small fire can cause panic like Hurricane Harvey in 2017, crack jump by 8 $/brl

even after so many refinery refinery shutdown in US due to Hurricane in 2017, the crack only rose from 9 to 16 $/brl...

now refined oil inventory is continuously declining...


Posted by information > May 21, 2022 4:32 PM | Report Abuse

Asian gasoline cracks scale new heights following Ulsan refinery explosion.

Asian gasoline cracks soared to new highs on Friday after an explosion at a South Korean refinery compounded an already-tight regional supply picture.

Trade Friday saw a 92 RON cargo for loading 20-25 days ahead sold by Total to Vitol at $148.90/b. PetroChina sold 95 RON to Vitol for the same laycan at $157.20/b FOB.

Taken as value, the deals lifted refining margins to Brent to new highs as the 92 RON spot crack to Brent was marked $4.99/b higher at +$38.74/b and 95 RON a massive $8.32/b at +$47.04/b.

The move comes after an explosion at alkylation processing unit of the 580,000 bpd Onsan refinery left eight injured.

Owned by S-Oil, the refinery is the world's fifth-largest and any restriction of supply will put regional import pressure on an already-tight global market.

The jump was seen in the overnight market, with the east-west spread jumping by the European close on Thursday.

It comes against a backdrop of booming products demand, with tight supply as the global economy reopens from the Covid-19 pandemic having driven cracks to record highs even before Thursday’s accident.

the fact that some refineries had delayed maintenance has very high risk of causing major damage that will lead to way longer shutdown...

lead time for any electrical motor and electrical spares replacement is triple of what it used to be now days globally..in some cases 7 months

it will take months for any rectification work to be done and it will keep happening...

JP Morgan is totally right and insightful

ok cool guys...

now the refinery supply scenario in the world is like a large 18 wheeler transporting fuel that lost its spare tyres now....with high risk of any of its remaining wheels giving away one by one...

next 6 months of journey not only the demand goes up due to summer in 2 months ...there are Hurricane which may interrupt supply of crude to the refinery and production itself...

many factors that could lead to refinery shutdown that were not in production is now all trying best to maximize production and delaying scheduled maintenance like in India...

odds of another S-oil incident happening just way too high in the near future

basically there will be many many scenario which will cause spike on the crack...

enjoy the journey

i think its a wise decision, good luck

Posted by pjseow > May 21, 2022 9:33 PM | Report Abuse

Probability, glad to hear that your plantation does not face labour shortage problem.
I also bought some HY and Petronm . With the record cracked spread which is more than double the 2017 , i hope we can.make the same or more gain than 2017.

yup nothing goes up forever...only handful of stocks you can keep forever in bursa...current visibility is quite good till end of the year for refinery stocks..

positive prospect is coming from JP Morgan itself who had accurately predicted gloves stocks demise much in advance

Posted by klee > May 21, 2022 8:10 PM | Report Abuse

Refiners are the strongest sector amidst the dow plummet.Technically this is a great signal.Both TA n FA point to more upside.But we must also watchout the tops.As in gloves as in techs as in plantations,nothing goes up forever.

hello pjseow!

yes the plantation earnings is doing exceptional well (as a small land owner we dont face shortage of workers unlike big players at the moment)

only thing is the yield is quite low - as its in a pit soil and despite much fertilizer the yield is low...less than 0.6 ton per acre

wish you well

bet small small only in stocks - me still small potato...no where near sifu like u...he he

Posted by pjseow > May 21, 2022 8:11 PM | Report Abuse

probability, how is your oil.palm plantation ? With palm oil price went up more than 3x , you must be huat ah . Now you bet big on HY ?

yes klee, coz its convincingly cheap