One more thing...people need to take note loh...!!
Even if Nymex....has high future Gasoline & Diesel Price...it does not translate to high margin for hengyuan mah, bcos the govt do not use USA & Europe nymex future price for gasoline & diesel....in fixing the selling price of the refinery mah!
The Govt use Crude oil price, exchange rate and MOGAS 92 crack spread to fix the refinery fix selling price mah!
Thus what is the relevant of the nymex high future Gasoline & Diesel Price leh?
It is for those who theoritically want to make money from hedging by buying....crude oil nymex future & hedge the position by selling the future price of gasoline & diesel in nymex loh!
As i says....although on paper ....this look attractive....but it is not always....end up profitable loh!
The REASONS why ?
2.Virtual Refinery Business model thru pure hedging & derivative loh! Do u notice that Hengyuan lose alot of monies consistently most of the time despite, mathematical computation on paper the derivative & hedge is highly profitable as per feedback of SSLEE and Probability leh ?
This is bcos the paper computation derivative & hedge shows profit do not reflect the reality situation & business dynamics of the trade loh! Reasons are as follows loh:
The Virtual Refinery Purchase its future crude by purchasing from NYMEX & compute it sells on Nymex sell price of Petrol & Diesel which showed a good profit when doing its hedge but how come this trade fail & registered big losses at the end leh ?
1. The mkt is very dynamic loh! On paper u may see big virtual profit by hedging future crude purchase & future sell of petrol & diesel end products....but when time come for settlement in turnout to be a loss loh! Why leh the complete hedge trade of buying & selling here cannot convert to a easy profit, like paper indicated leh ? a. This is bcos the movement of future crude purchase price, do not completely correlate to the selling future price of petrol & diesel price due to huge mkt volatility mah! Just within a day the business dynamic may change loh! Like within 1 day the Crude Price go up 10% whereas the Petrol & Diesel selling future price did not move at all or vice versa loh! b. The trade initiated are pure paper swap with no delivery of physical goods, thats why it may not reflect the real dynamic of a real physical refinery mah! c. Even it involve actual delivery of the commodities, there are extra cost & logistic to bring this commodities for processing to convert it to a profit mah! d. Thus the virtual refinery of Hengyuan business model has shown consistent losses bcos of this challenges discussed above loh!
hedging done by HY is on the margin itself - ie they hedge to feed crude and refined products at the same time..thus securing the margin whichever direction the price of commodity goes in the future
The only reason I invested in Petronm is Petronm stand for Petron Malaysia Refining & Marketing Bhd. [(Refining + Marketing (petrol stations)] a smaller scale of (HRC + Petdag).
Remember even if there is any hedging gain due to the hedge will be use to covered more than Rm 1.3b hengyuan unrealized hedging losses mah!
Thus with current physical low crack spread MOGAS 92.....the low margin will unlikely to translate into any good operating profit for hengyuan in q3 loh!
The only reason I invested in Petronm is Petronm stand for Petron Malaysia Refining & Marketing Bhd. [(Refining + Marketing (petrol stations)] a smaller scale of (HRC + Petdag).
So how should you value Petronm?
Petronm is much more straight fwd lah..they shares their profit by giving good div consistently over the years
Less exposure to casino kind of hedging activities i guess
@sslee, with the current paranoia and phobia of market with refinery..i think petronm price will shoot up if they only list their retails section in Bursa! LOL...
Posted by Sslee > Sep 10, 2022 11:20 AM | Report Abuse
The only reason I invested in Petronm is Petronm stand for Petron Malaysia Refining & Marketing Bhd. [(Refining + Marketing (petrol stations)] a smaller scale of (HRC + Petdag).
Comimg back to Sifu SSLEE refinery business.........u can hedge by buying the cpo raw material from the future...but u cannot....sell palmoil olein....in the future mkt loh!
U can sell the future olein base on the fix price negotiated by individual buyers....usually secured using letter of credit mah!
Thus it is not so easy to forward sell too big bulk of olein palmoil at a future fixed price mah!
The above simple example for ORANGES can be viewed as CRUDE OIL for HY where the hedging is done with the intention of going LONG (the higher the future price, the higher the gain)
For refined products hedge, it is for going SHORT, the higher the future price, the greater the loss.
The net effect of the above two is what reported by HY under their OCI.
The Cash Flow Hedge (CFH) in OCI shows the hedging gain / loss for the hedged position which are closed, but the corresponding physical market transaction (change in ownership of the goods) is yet to take place to deliver the available market gross profit which is then offset by this hedging gain / loss on CFH to give the P&L exactly as it has been hedged initially.
The Cost of Hedging Reserve (COHR) on the other hand shows the hedging gain / loss for all the balance hedged position (yet to be closed) from the notional amount (refining margin swap contract RMSC), where the corresponding physical market transaction will take place within the maturity period (next 24 months) assuming the hedging positions are closed as per current spot rate.
As such, COHR is a highly hypothetical figure that changes significantly as per the market spot price of the commodity (mark-to-market) when the financial reporting period is closed.
............
Now that the refined oil products price (gasoline) had significantly retreated from the peak of 30th June, if it remains the same till end of Sept, Q3 will report huge gain on OCI
If prices of refined products relative to crude (the crack spread) are back to Q1 22, 30th Mar level, cost of hedging reserve shall be exactly back to the figure reported in Q1 22 results for Q3 22.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
CharlesT
14,953 posts
Posted by CharlesT > 2022-09-10 10:52 | Report Abuse
Despite Sifu Probability selflessly shares his Q profit projections here 24 hours a day 7 days a week for the past few months
All IBs are blind ah?