Posted by CharlesT > 2022-09-10 12:04 | Report Abuse

Just click n send yr profit projections on Q2 n Q3 to them........can be done in few seconds

Good horse must also find good owners....as per Chinese Proverbs

Posted by CharlesT > 2022-09-10 12:05 | Report Abuse

If u did the same thing 1000 times here and yet U still cant see the results will u try for another 1000 times again here?

Posted by CharlesT > 2022-09-10 12:06 | Report Abuse

What for to waste yr time here to entertain n to explain to those who dont believe in u?

Posted by CharlesT > 2022-09-10 12:07 | Report Abuse

Email address : HRCPD-Corporate-Affairs@hrc.com.my

U know the right thing to do.........

Posted by CharlesT > 2022-09-10 12:08 | Report Abuse

Dont be shy....hiong hiong press the buttons....if nothing happens nothing to lose also

Posted by CharlesT > 2022-09-10 12:09 | Report Abuse

If something happens then u will change yr fate n also HY's fate

Who says Hedging profit is not sustainable in commodity biz?

Posted by Sslee > 2022-09-10 12:12 | Report Abuse

CharelesT,
If probability Q3 and Q4 projection comethru, the cash flow should able to clear the borrowing of RM 1.5 billion.

The dririvaties liabilities will become negligible. Then HRC price will fly.

Posted by CharlesT > 2022-09-10 12:13 | Report Abuse

The very first question here is....

Why do u waste yr time n energy to post yr Q profit projections 24 hours a day 7 days a week, for the past 3 months?

Posted by CharlesT > 2022-09-10 12:15 | Report Abuse

Posted by Sslee > 1 minute ago | Report Abuse

CharelesT,
If probability Q3 and Q4 projection comethru, the cash flow should able to clear the borrowing of RM 1.5 billion.

The dririvaties liabilities will become negligible. Then HRC price will fly.


If I kena supreme toto 6/58 lottery tonight I will never ever come to I3 such a toxic place

Posted by probability > 2022-09-10 12:16 | Report Abuse

someone wasting time for futile effort so that price will go up for him to gain vs someone spending time discouraging refuting another's opinion that it will go up...

i wonder who is really wasting time..

really wonder leh..charlest entertainment is not really about making money but commenting on i3 i think...LOL

Posted by CharlesT > 2022-09-10 12:19 | Report Abuse

Dont be shy....

If u really too shy to do so I will help u to send to them

Shall I create a gmail ac under Robert Prop?

Posted by CharlesT > 2022-09-10 12:20 | Report Abuse

Then wait patiently for the miracle to happen

Posted by probability > 2022-09-10 12:21 | Report Abuse

Why Gasoline margin came down but its not so easy for Diesel?
............................................................

EU refinery are 90% simple type, asians like HY are mainly complex type

for simplicity they product yields are as per below:

keyword note - this output ratio cannot be altered

Simple refinery:
...............

40% Gasoline (crack spread : 7 USD/brl)
20% Diesel (crack spread: 50 USD/brl
10% Jet Fuel and other (crack spread at: 20 USD/brl)
30% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 7.3 USD/brl

Complex refinery:
.................

30% Gasoline (crack spread : 7 USD/brl)
50% Diesel (crack spread: 50 USD/brl
18% Jet Fuel and other (crack spread at: 20 USD/brl)
2% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 30 USD/brl

Due to good margin in refining in Q2 for all refined products including gasoline, everywhere refinery had increased their output by maximizing utilization rate at 99%..

by July gasoline supply had risen more than demand (user of gasoline have the choice to limit their consumption by say working from home)

but despite refineries squeezing all they can on output, the diesel supply still cannot meet demand (diesel mainly used for transportation and manufacturing industry)

Now at this limit of refining output (intentionally delaying maintenance), the diesel is still short...

results is lower crack spread for gasoline and still high crack spread for diesel...


keypoint:
.........

now, at the above low avg refining margin due to fuel oil, its likely that EU refinery will reduce output if gasoline crack is too low, further reducing diesel availablity

Its like natural mechanism in place to sustain Diesel & Jet fuel margin

unless logistics industry, airlines and manufacturing itself slows down due to high price..its unlikely diesel & Jet fuel crack to come down

thats why its actually good for oil price to come down to sustain business and thus demand for benefit of refineries

Posted by probability > 2022-09-10 12:22 | Report Abuse

Sustainability?
...............

what a state of chronic paranoia due to past volatility on earnings of refinery

one shall talk about sustainability of earnings when stocks are trading above PE 20 may be..or the least PE 10

panicking now for a stock that barely moved up from its historic avg low?

refinery stock like HY only needs 13 USD/brl avg refining margin to deliver EPS above RM 1 consistently

now its averaging above 26 USD/brl

and we dont need RM 1 EPS per qtr to justify current price, even 40 cents consistently would do...

there are too many structural changes GLOBALLY that indicates constraints will remain due to shortage in global refining capacity and takes years (more than 5 years to build a refinery and investors are not keen despite high margin currently) unlike gloves for supply to catch up with demand...

its earnings can certainly be volatile, but the mean avg of the crack is expected to be significantly higher than previous years as intermittent shortage due to refinery maintenance, break down etc is high....

as such the odds of margin spiking intermittently is just too high going forward

this especially so considering russian sanction (which is the core of the structural changes that we are basing here)

keyword: sanctions are expected to last years
............................................

there are no such thing as a business being inherently sustainable without such structural factors...any business including tech stocks can have its margin eroded significantly within a short a time

Posted by CharlesT > 2022-09-10 12:23 | Report Abuse

Posted by probability > 37 minutes ago | Report Abuse

you take out dividend, this stock is trading at 4.50 now

It has delivered EPS even better than what was estimated and yet, purely because of wrong perception on the meaning of the two clauses below, market is thinking it will revert back to its earlier earnings.

Cash flow hedge & Cost of hedging reserve

From what i have extracted and studied, these are nothing but the effects of the Refining margin swap contract.

Cash flow hedge (CFH) are basically hedge portions of the RMSC which has been liquidated as of 30th June and awaiting respective physical market transaction to take place to offset these hedging losses.

Whereas, Cost of hedging reserve (COHR) is simply the following:

Forward looking Mark-to-market estimate of the difference between the fixed price and the future spot price multiplied by the notional quantity and discounted back to a present value based on a reasonable discount rate determined by the producer.

Even if we assume the RMSC covers complete Gasoline production capacity of 35% yield x 10.6 million, 3.7 million barrels, you are securing the below gross profit after hedging losses or gain.

= 3.7 million x 12.7 USD/brl x 4.45 ex
= 209 million MYR.....(1)

No matter what the figures are reported on CFH & COHR, they are purely trying to show the ineffectiveness / effectiveness of the hedging but the profit contribution remains the same. (SERIOUSLY, THINK ABOUT THIS)

The CFH shows how much 'opportunity for greater profit than 209 million / per qtr' is confirmed loss while COHR shows potential loss if the scenario prolongs indefinitely for the balance notional value.

For every negative value on CFH & COHR that will take place, there will be equally higher gross profit in future physical market transaction where after deducting the hedging loss anticipated, you will report the same 209 million for gasoline per qtr.


For the balance refined products diesel, jet fuel and others (10.7 - 3.7 = 7 million barrels per qtr) , you have the following:

1. Diesel at 46% yield, cracks USD 50.36/bbl
2. Jet fuel at 7% yield, cracks USD 38.40/bb
3. Rest of product yield at 12%, using Mogas 95 cracks USD 7.77/bbl

Gross refining margin/brl:

= (0.46 x 50.4 ) + (0.07 x 38.40) + (0.12 x 7.77)
= (23.18 + 2.70 + 0.93)/ (0.65)
= US $ 41.2 / brl

Gross Profit :

= (7 million barrel sales per qtr) x ( US $41.2/brl) x (MYR 4.45/USD)
= 1.283 Billion MYR........(2)


Total gross profit after hedging gain / loss: (1) + (2)
= 1.483 Billion MYR

EPS will be exceeding RM 3 per QTR

The above is what we will obtain going forward if the Diesel & Jet Fuel margins are stable around there. The hedging losses reported on page 8 (438 million) are the effects of monthly hedging of Diesel & Jet fuel as all refinery does and this expected to become zero as crack spread stabilizes from month to month.

Can i send the above masterpiece of yr Q3 profit projection to HY ?

If u r ok I will send......Under Robert Prop ok ah?

Posted by CharlesT > 2022-09-10 12:26 | Report Abuse

This may scare their shit out......Why this Robert Prop is so so smart, able to predict their Q3 profit chun chun? Hv to get him as our Senior Trading Director yesterday or ASAP

Posted by CharlesT > 2022-09-10 12:27 | Report Abuse

Dont forget to thank me later ah Robert

Posted by CharlesT > 2022-09-10 12:29 | Report Abuse

Maybe miracle happens leh....I3 then is no longer a toxic place....

It's a place to make dreams happens

Posted by probability > 2022-09-10 12:32 | Report Abuse

Why Gasoline margin came down but its not so easy for Diesel?
............................................................

EU refinery are 90% simple type, asians like HY are mainly complex type

for simplicity they product yields are as per below:

keyword note - this output ratio cannot be altered

Simple refinery:
...............

40% Gasoline (crack spread : 7 USD/brl)
20% Diesel (crack spread: 50 USD/brl
10% Jet Fuel and other (crack spread at: 20 USD/brl)
30% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 7.3 USD/brl

Complex refinery:
.................

30% Gasoline (crack spread : 7 USD/brl)
50% Diesel (crack spread: 50 USD/brl
18% Jet Fuel and other (crack spread at: 20 USD/brl)
2% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 30 USD/brl

Due to good margin in refining in Q2 for all refined products including gasoline, everywhere refinery had increased their output by maximizing utilization rate at 99%..

by July gasoline supply had risen more than demand (user of gasoline have the choice to limit their consumption by say working from home)

but despite refineries squeezing all they can on output, the diesel supply still cannot meet demand (diesel mainly used for transportation and manufacturing industry)

Now at this limit of refining output (intentionally delaying maintenance), the diesel is still short...

results is lower crack spread for gasoline and still high crack spread for diesel...


keypoint:
.........

now, at the above low avg refining margin due to fuel oil, its likely that EU refinery will reduce output if gasoline crack is too low, further reducing diesel availablity

Its like natural mechanism in place to sustain Diesel & Jet fuel margin

unless logistics industry, airlines and manufacturing itself slows down due to high price..its unlikely diesel & Jet fuel crack to come down

thats why its actually good for oil price to come down to sustain business and thus demand for benefit of refineries

Posted by probability > 2022-09-10 12:32 | Report Abuse

Sustainability?
...............

what a state of chronic paranoia due to past volatility on earnings of refinery

one shall talk about sustainability of earnings when stocks are trading above PE 20 may be..or the least PE 10

panicking now for a stock that barely moved up from its historic avg low?

refinery stock like HY only needs 13 USD/brl avg refining margin to deliver EPS above RM 1 consistently

now its averaging above 26 USD/brl

and we dont need RM 1 EPS per qtr to justify current price, even 40 cents consistently would do...

there are too many structural changes GLOBALLY that indicates constraints will remain due to shortage in global refining capacity and takes years (more than 5 years to build a refinery and investors are not keen despite high margin currently) unlike gloves for supply to catch up with demand...

its earnings can certainly be volatile, but the mean avg of the crack is expected to be significantly higher than previous years as intermittent shortage due to refinery maintenance, break down etc is high....

as such the odds of margin spiking intermittently is just too high going forward

this especially so considering russian sanction (which is the core of the structural changes that we are basing here)

keyword: sanctions are expected to last years
............................................

there are no such thing as a business being inherently sustainable without such structural factors...any business including tech stocks can have its margin eroded significantly within a short a time

Posted by CharlesT > 2022-09-10 12:36 | Report Abuse

Hmmm.....i pressume silence means consent fm Robert Prop....

So i will forward his Q3 profit projection to HY for their comment.

Posted by probability > 2022-09-10 12:37 | Report Abuse

@stockwin, in my opinion the likely strongest factor are the below two:

1) Majority - the greater market do not understand Cash Flow Hedge and Cost of hedging reserve as reported for a refinery who does refining margin swap contract under IFRS 9. These are forecasted derivative loss against mark-to-market margin in future as of 30th June.

Of course the market margin (in futures) as of end June 22 is extraordinarily high and thus you expect high hedging losses for gasoline going forward. But this over-turns completely when gasoline margin dives by end of July...


2) Market has a wrong perception on refining margin by linking the recent dive in Gasoline crack spread (before Q2 results) with HY complex refinery margin thats largely contributed by Diesel & Jet fuel


Posted by stockwin > Sep 10, 2022 12:18 PM | Report Abuse

Why is Hengyuan head south despite an explosive set of Q2 2022 result?
Imagine an EPS of RM222.49 per quarter and yet the share price tank instead of going limit up! I believe the reasons for the dismal share performance are :
1. The investing public are not convinced of the sustainability of its profit.
2. The monster RM1 Billion "other comprehensive Income /expense " item in the P&L which very few understand and very difficult to be convinced.
3. The worry in the investors mind is that the Q3 2022 PAT could be RM3, but the monster in 2 above could swell to RM2 billion? At end of the day the high EPS might not be enough to cover the monster item in 2 above.
4. No IB wants to touch the stock. Not even one is covering the stock now !
5. I am told we have sifu here who is a remisier is unable to convinced his own broking house to cover the stock. How is he going to convinced others to buy this Gem ??
6. The promoters are arguing with a wall of non believers who have differing views and seems to have different agenda.
7. The company is not interested to engage the shareholders and the investor relationship department is non existence.
8. To be fair , the overall market is shitty, and any good stock also face some kind of selling pressure.
Perhaps it is a blessing in disguise for the believers and knowledgeable to collect at cheaper prices and wait for another explosive set of result? Hopefully Q3 2022 PAT will silent all critics ? Meanwhile , hang on to the stock until end of November for a happy 2023.

Posted by probability > 2022-09-10 12:38 | Report Abuse

sorry charlest, bz with my promotion activity..will get to you if you have intellectual queries like you had asked earlier - why gasoline margin can drop but not diesel? he he

Posted by Sslee > 2022-09-10 12:53 | Report Abuse

My manufacturing plant in Medan used a lot of piped in natural gas on and off when maintenance work on NG supply pipeline or compressors then I need to switch to Diesel to run my Thermal oil heaters and diesel gensets instead of Gas turbines

Posted by i3lurker > 2022-09-10 13:28 | Report Abuse

look
those graduates like me had "actually" done crude oil fractionation in University of Malaya labs before

also crude oil fractionation is a topic covered in theory as well

so one glance at those fraudulent outputs really rub eye
cantonese say "not smooth eye"

nobody say anything does not mean figures are correct as => Nobody wants to talk to Fools, correct?
you see a naked dirty crazy man walking down the street mumbling to himself earth is square, you dun talk to him, correct?

:)

Posted by stockraider > 2022-09-10 14:39 | Report Abuse

Sslee,

Why u so unpanlai one leh ??

Analogy in your layman term....if u bought into 3 million of insas at rm 1.00 as u think it is worth rm 3.00...and u plan to hold it for 2 yrs...but u have unrealized losses of rm 600k bcos current insas mkt price is only rm 0.80...it is not a concern todate, when u have mark to mkt losses of rm 600k leh ?
U may think u holding & did not sell insas thus no losses...but u still your overall wealth drop by rm 600k but if u use margin...they maybe a margin call on u loh , the same applies to hengyuan why its overall nta drop....bcos of its unrealized losses of rm 1.3b despite hengyuan reporting a strong eps of rm 2.20 per share in q2 loh ?

Your question 2 is a mystery to me....how can u claim your refining margin is usd 25 to 30, when your current crack spread is only from usd 2 to 5 leh ? How did u derive this high margin USD 25 margin....is it a guesstimate or from management disclosure leh ?

To add another dimension Q3, hengyuan will have operations inventory losses of roughly USD 10 per barrel, as its inventory crude prices has fallen from USD 105 in June to about USD 85 in SEPT mah!

Posted by Sslee > 1 hour ago | Report Abuse

Stockraider,
Can you slow down, keep your mouth shut and put on your thinking cap for a while to answer my 2 layman questions below:

If you hedge the refining margin at USD 12 - 20 per barrel from month july onward till maybe beyond 2022 up to 2023

So when Q2 end 30/06/2022 the spot month and future month refining margin is now at USD 30 - 25 per barrel.

How you going to capture this unrealised loss in your Q2 account?

Is this unrealised loss a great concerned?

Posted by i3lurker > 2022-09-10 15:01 |

Post removed.Why?

Posted by probability > 2022-09-10 16:19 | Report Abuse

@Aseng,

the below is simplified description for your current reading, i will try to put in even more simpler wordings and post later.

These losses you are seeing in simple terms are just like fair value gain or losses of an asset but it purely shows the change in its value without considering the value of the asset.

These asset HY deals with is not like ordinary property but, hedged margin in futures (with distributed maturity) which is utilized along with physical market sales & purchase transaction in parallel.

Hengyuan had hedged 18 million barrels at avg 12.7 USD/brl refining margin to be effected as it matures at the rate of 0.8 million barrels per month. This is mainly for gasoline.

This is indicated by the Refining margin Swap contract (RMSC) of USS 226 million as can be seen on their financial report.

USD 226 million = USD 18 million x USD 12.7/brl

The fair value changes with respect to the hedged value are reflected under Other Comprehensive Income (OCI) using Cash flow Hedge and Cost of hedging reserve as per IFRS 9:

These are basically forecasted derivative loss against mark-to-market margin in future as of 30th June.
....................

Since the market margin (in futures) as of 30 June 22 was extraordinarily high at $ 32/brl. The expected hedging losses for gasoline going forward was high and reported accordingly.

Hedging loss:

(hedged margin - spot margin) x hedged barrels

= (12.7 USD/brl - avg 32 USD/brl) x 18 million barrels
= - USD 347 million
= - 1.5 Billion MYR

This is not a real loss, but expected 'ópportunity loss' due to hedging and thats why it is not reported in P&L.

The above forecasted losses when occurs in future, it is accompanied by greater gross margin where after offsetting these losses, it will deliver the profit margin in P&L as per the original hedge value of 12.7 USD/brl

As such, these forecasted loss done at end of each financial report would over-turn completely when gasoline margin dives down..

Refer below link which is presently showing $ 5.2/brl in Sep 2022 to $ 4.3 /brl in Dec 2023.

At end of June it was showing avg $ 32/brl

link:
.....

www.cmegroup.com/markets/energy/refined-products/singapore-mogas-92-unleaded-platts-brent-crack-spread-swap-futures.html



At end of Sept 22' (for Q3), if the spot margin value above maintains, you have

Hedging gain:

= (12.7 USD/brl - avg 4.5 USD/brl) x 18 million barrels
= USD 147 million
= 650 million MYR


Posted by Aseng > Sep 10, 2022 3:14 PM | Report Abuse

Probability, I do not what is going on here . I was attracted by the calculated earning 222 per share, but I am perlexed by the unrealized hedging loss of 360 sen per share. can you kindly clarify in a layman language how is the hedging gain/loss can be ignored totally to evaluate the earning potential of hengyuan. it is unfair for the readers to be mislead or misinformed by a good earning with a big paper loss . thank you

Posted by Sslee > 2022-09-10 17:02 | Report Abuse

Your question 2 is a mystery to me....how can u claim your refining margin is usd 25 to 30, when your current crack spread is only from usd 2 to 5 leh⁷ ? How did u derive this high margin USD 25 margin....is it a guesstimate or from management disclosure leh ?

Stockraider,
Q2 result is for financial end 30/06/2022.
So go and check on 30/06/2022 what is the refining margin spot month and future month.

So my layman question.
If you hedge the refining margin at USD 12 - 20 per barrel from month july onward till maybe beyond 2022 up to 2023.

And current crack spread is only from usd 2 to 5 leh then how much money your refining magin swap contracts maturity on Sept will earned?

Posted by Sslee > 2022-09-10 17:24 | Report Abuse

All vegetable oil and animal fat are trigyceride make out of three molecule of fatty acid and one molecule of glycerol. They only different in the fatty acid molecular carbon chain legth and hence different physical properties. If you want C12 fatty acid then only PKO and CNO have about 50% C12 fatty acid.

Similarly different crude oil will have different Diesel, gasoline, jetfuel and etc yield.

https://www.eia.gov/energyexplained/oil-and-petroleum-products/refining-crude-oil-inputs-and-outputs.php

Not all crude oil is the same
The physical characteristics of crude oil determine how refineries process it. In simple terms, crude oils are classified by density (API gravity) and sulfur content. Less dense (lighter) crude oils (with higher API gravity) generally have a larger share of light hydrocarbons. Refineries can produce high-value products such as gasoline, diesel fuel, and jet fuel from light crude oil with simple distillation. When refineries use simple distillation on denser (heavier) crude oils (with lower API gravity), they produce low-value products. Heavy crude oils require additional, more expensive processing to produce high-value products. Some crude oils also have a high sulfur content, which is an undesirable characteristic in both processing and product quality

total = 6.81 billion barrels
U.S. refiner and blender net production ofpetroleum products, 2021

finished motor gasoline: 51%
distillate fuel oil/diesel: 25%
kerosene-type jet fuel: 7%
petroleum coke: 4%
still gas: 3%
hydrocarbon gas liquids: 3%
asphalt and road oil: 2%
residual fuel oil: 1%
petrochemicalfeedstocks: 1%
lubricants:1%
other products: 1%
Data source: U.S. Energy Information Administr

Posted by Sslee > 2022-09-10 17:33 | Report Abuse

HRC 2021 annual report Page22 :

CRUDE PROCESSING FY2021

Finished Products

Liquified Petroleum Gas 7.8%

Propylene 3.8%

Light Naphtha 0.1%

Petrol 24.5%

Jet Fuel 7.1%

Diesel 35.1%

Fuel Oil Component 2.7%

Additional

Catalytic Cracked Gasoline (CCG) 16.3%

Combined Cycle Oil (CCO) 2.6%



SOURCES OF CRUDE

Malaysian: 52%

Far East: 7.2%

Russian :14.7%

Middle East: 9.6%

Others 16.5%

Posted by Sslee > 2022-09-10 17:43 | Report Abuse

2018 annial report

1.5% - Fuel Oil
46.8% - Diesel
8.1% - Jet Fuel
33.1% - Gasoline
2.7% - Light Naphtha
2.9% - Propylene
4.3% - LPG

SOURCES OF CRUDE
35% Malaysia
13% Russia
52% Far East /
Middle East /
Africa / USA

Posted by Sslee > 2022-09-10 17:55 | Report Abuse

HRC CRUDE PROCESSING FY2020

Finished Products

Liquified Petroleum Gas 7.0%

Propylene 3.0%

Light Naphtha 0.5%

Petrol 22.0%

Jet Fuel 4.0%

Diesel 46.0%

Fuel Oil Component 1.5%

Additional

Catalytic Cracked Gasoline (CCG) 11.0%

Combined Cycle Oil (CCO) 5.0%

SOURCES OF CRUDE
54.8% Malaysian
14.9%Far East (Non Malaysian)
10.9% Russian
14.4% Middle East
5.0%Others

Posted by i3lurker > 2022-09-10 19:54 | Report Abuse

without cracking, just simple fractionation alone, majority output are long chains and aromatics like diesel.

to get high gasoline and other short chains, the cracker unit must be utilised in complex refineries.

US EIA statistics shows that all US refineries there are complex feedbacks with cracker units.
Complex refineries produce a lower percentage of diesel as output with a volume expansion of 6.2%

Posted by Sslee > 2022-09-10 21:11 | Report Abuse

WTI is light crude.

So i3lurker are you saying HRC using cheaper heavy crude with cracker can actually crack the heavy end into Cracked Gasoil instead of Cracked Gasoline?

Posted by PSAi3alert > 2022-09-10 22:23 | Report Abuse

SSLee,

The derivative appears to be a combination of writing a refined oil call option and buying a crude oil call option. It is unclear if the sold refined call option has the same expiration date as the bought crude oil call option because there is a 1 month time difference during the physical production process.

In 2020, the Singapore Mogas 92 Unleaded Brent crack spread was generally low and was negative for the months of March, April, May and July.

In 20201, the same Mogas 92 crack spread was higher and was positive throughout the year and spiked to a year high in October.

However, by looking at HRC's financial results for 2021 and 2020, the comprehensive income was a loss of RM104.4M in 2021 compared to a gain of RM157.04M in 2020.

That's a bit counter-intuitive. Hedging was supposed to smooth out the financials during periods of negative spread and not result in losses during rising crack margins.

Is hedging the crack spread no longer all it's cracked up to be?

If the objective is to participate in a favorable price move, wouldn't hedges with buying put options be better?

By purchasing a crack spread put option, the two independent risks are hedge with one trade. More importantly, the expense is just the premium paid and simplifies the financial reporting.



HRC

RM Millions
_______________________________ 31.12.2021 ________ 31.12.2020
Revenue ______________________ 12,006 ____________ 7,176
Gross Profit _____________________ 1,044 _____________ 379
PBT _____________________________ 127.7 _____________ 255.7
PAT _____________________________ 82.67 _____________ 250.98
Cash flow hedge _______________ (126.62) __________ (125.79)
Cost of hedging reserve ________ (60.47) ___________ 31.85
Total comprehensive income ___ (104.4) ___________ 157.04

https://disclosure.bursamalaysia.com/FileAccess/apbursaweb/download?id=218092&name=EA_FR_ATTACHMENTS

https://www.tradingview.com/symbols/NYMEX-D1N1%21/

---

Posted by Sslee > 1 hour ago | Report Abuse

If you hedge the refining margin at USD 12 - 20 per barrel from month july onward till maybe beyond 2022 up to 2023

So when Q2 end 30/06/2022 the spot month and future month refining margin is now at USD 30 - 25 per barrel.

How you going to capture this unrealised loss in your Q2 account?

Is this unrealised loss a great concerned?

Posted by i3lurker > 2022-09-10 22:41 |

Post removed.Why?

Posted by i3lurker > 2022-09-10 22:43 |

Post removed.Why?

Posted by PSAi3alert > 2022-09-10 23:01 | Report Abuse

i3lurker,

Hin Leong, Noble Group and Petro-Diamond Singapore also have swashbucklers who clicked wrongly.

Baring's error account was £827M in January 1995, up from £208M in Dec 1994. Nick Leeson's short straddle (sell call and sell put with same expiration) on the Japanese market went into a tailspin during the Kobe Earthquake.

Posted by probability > 2022-09-10 23:04 | Report Abuse

Why Gasoline margin came down but its not so easy for Diesel?
............................................................

EU refinery are 90% simple type, asians like HY are mainly complex type

for simplicity they product yields are as per below:

keyword note - this output ratio cannot be altered

Simple refinery:
...............

40% Gasoline (crack spread : 7 USD/brl)
20% Diesel (crack spread: 50 USD/brl
10% Jet Fuel and other (crack spread at: 20 USD/brl)
30% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 7.3 USD/brl

Complex refinery:
.................

30% Gasoline (crack spread : 7 USD/brl)
50% Diesel (crack spread: 50 USD/brl
18% Jet Fuel and other (crack spread at: 20 USD/brl)
2% Fuel Oil ( crack spread : - 25 USD.brl)

avg margin: 30 USD/brl

Due to good margin in refining in Q2 for all refined products including gasoline, everywhere refinery had increased their output by maximizing utilization rate at 99%..

by July gasoline supply had risen more than demand (user of gasoline have the choice to limit their consumption by say working from home)

but despite refineries squeezing all they can on output, the diesel supply still cannot meet demand (diesel mainly used for transportation and manufacturing industry)

Now at this limit of refining output (intentionally delaying maintenance), the diesel is still short...

results is lower crack spread for gasoline and still high crack spread for diesel...


keypoint:
.........

now, at the above low avg refining margin due to fuel oil, its likely that EU refinery will reduce output if gasoline crack is too low, further reducing diesel availablity

Its like natural mechanism in place to sustain Diesel & Jet fuel margin

unless logistics industry, airlines and manufacturing itself slows down due to high price..its unlikely diesel & Jet fuel crack to come down

thats why its actually good for oil price to come down to sustain business and thus demand for benefit of refineries

Posted by probability > 2022-09-10 23:05 | Report Abuse

Sustainability?
...............

what a state of chronic paranoia due to past volatility on earnings of refinery

one shall talk about sustainability of earnings when stocks are trading above PE 20 may be..or the least PE 10

panicking now for a stock that barely moved up from its historic avg low?

refinery stock like HY only needs 13 USD/brl avg refining margin to deliver EPS above RM 1 consistently

now its averaging above 26 USD/brl

and we dont need RM 1 EPS per qtr to justify current price, even 40 cents consistently would do...

there are too many structural changes GLOBALLY that indicates constraints will remain due to shortage in global refining capacity and takes years (more than 5 years to build a refinery and investors are not keen despite high margin currently) unlike gloves for supply to catch up with demand...

its earnings can certainly be volatile, but the mean avg of the crack is expected to be significantly higher than previous years as intermittent shortage due to refinery maintenance, break down etc is high....

as such the odds of margin spiking intermittently is just too high going forward

this especially so considering russian sanction (which is the core of the structural changes that we are basing here)

keyword: sanctions are expected to last years
............................................

there are no such thing as a business being inherently sustainable without such structural factors...any business including tech stocks can have its margin eroded significantly within a short a time

Posted by Sslee > 2022-09-11 07:55 | Report Abuse

Psai3alert:
2021:2020
Net fair value losses/(gains) on derivative financial instruments:
- included in purchases (Note 23) 45,445: (823,935)
- included in other operating losses/(gains) 490,546: (300,381)

Posted by Sslee > 2022-09-11 08:02 | Report Abuse

PSAi3alert
Do not understand where you get the below:

However, by looking at HRC's financial results for 2021 and 2020, the comprehensive income was a loss of RM104.4M in 2021 compared to a gain of RM157.04M in 2020

Posted by Sslee > 2022-09-11 08:12 | Report Abuse

Ok now I got it. The below refer to marked to market unrealised gain/ loss as on 31/12/21 and 31/12/20

However, by looking at HRC's financial results for 2021 and 2020, the comprehensive income was a loss of RM104.4M in 2021 compared to a gain of RM157.04M in 2020

Posted by Sslee > 2022-09-11 08:25 | Report Abuse

Hedging mean on refining margin uptrend your hedging will make a loss but your physical buying of crude and selling refined products making windfall profit due to better refining margin.

On refining margin downtrend your hedging will make a gain but your physical buying of crude and selling refined products making less profit or losses due to poorer refining margin.

In other word if you managed to hedge refining margin at USD 12 per barrel for month Sept then you are ensure when month Sept closed your earning will be USD 12 per barrel for each barrel of volume you already hedged.

Posted by CharlesT > 2022-09-11 08:52 | Report Abuse

Posted by Sslee > 20 minutes ago | Report Abuse

Hedging mean on refining margin uptrend your hedging will make a loss but your physical buying of crude and selling refined products making windfall profit due to better refining margin.

On refining margin downtrend your hedging will make a gain but your physical buying of crude and selling refined products making less profit or losses due to poorer refining margin

Theoretically will be plus 1 minus 1....

Posted by CharlesT > 2022-09-11 08:53 | Report Abuse

But actual scenario may depends on the Co's policy (and their risk appetite/ prediction etc) as well

Posted by i3lurker > 2022-09-11 09:00 | Report Abuse

Theory of Hedging

Expectations
you booked a room and a prostitute for 2D1N thats tourism speak for 2 Days 1 Night

Reality and Physical
its all over in less than 5 seconds

Hedge Gap
The Hedge Gap is the losses you sustained between
actual 5 seconds
and the
hedged 172,800 seconds
=>172,795 seconds

Conclusion => would have been better had not hedged and booked sslee's closet space for free => just 5 seconds

Posted by CharlesT > 2022-09-11 09:09 | Report Abuse

Wah....a very practical n simply way to explain on hedging.....much more interesting than Probability's 24 hours a day 7 days a week one

Posted by CharlesT > 2022-09-11 09:10 | Report Abuse

I believe I3lurker suffers huge hedging losses over the years......lol