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1、,Sector Focus,January 5,2013Janet Qingying KONGSFC CE Ref:ALVShuo ZHANGChaohui GUO,Energy,COMMODITIES RESEARCHGlobal Refining2013:Last Year of Prosperity,2013 might be the refining industrys last year of prosperityThe refining industrys general cycle usually lasts 45 years,and the global refining ma
2、rginhas risen for the three straight years since 2010.We believe 2013 might be the last year ofprosperity as,from 2014 onwards,massive new refining capacity will come online inemerging markets(mainly the Middle East and Asia),likely resulting in a decline in theglobal refining margin.Refining margin
3、 felt pressure from 4Q12;pressure to concentrate in1Q13 and,3)WTI-Brent spread is expected to narrow in 2H13.As such,investors should be aware ofthe risks on stocks related to Midwest(PADD2)refineries in the US,which have benefitedfrom the widening spread for two years.Light-heavy spread and sweet-s
4、our spread may narrow in 2013The supply of global light and sweet crude is expected to increase,while heavy and sourcrude is expected to decrease,due to rising US shale oil production and an expectedproduction cut from OPEC.In terms of demand,the demand for heavy and sour crude islikely to increase
5、as the incremental capacity of secondary processing units is larger thanthat of CDU.Therefore,we expect the light-heavy crude oil spread and sweet-sour crude oilspread(measured by Dubai-Brent)will likely narrow in 2013.Please read carefully the important disclosures at the end of this report,2002,20
6、03,2004,2005,2006,2007,2008,2009,2010,2011,2012,2013,2014,CICC Research:January 5,2013Global refining:2013 might be the last year of prosperityAfter three years of growth,2013 may be the last year of the bullish refining cycle,withthe refining margin turning to a downwards trend in 2014The refining
7、industrys general cycle usually lasts 45 years,and the global refining marginhas risen for the three straight years since 2010.We believe 2013 might be the last year ofprosperity as,from 2014 onwards,massive new refining capacity will come online inemerging markets(mainly the Middle East and Asia),l
8、ikely resulting in a decline in theglobal refining margin.Figure 1:Rise of refining markets in the past three years,kb/d3,5003,000,additional capacity,incremental demand,forecast,2,5002,0001,5001,000500-(500)(1,000)(1,500)Source:IEA,Reuters,CICC ResearchSince 2010,the global refining industrys bulli
9、sh cycle has been split into two stages:thefirst stage is dominated by demand,while the second is dominated by the shut-down ofrefining capacity.We are now in the second stage.20102011 was the first stage,where the key driving force of refining margin was thenotable recovery of global oil demand aft
10、er 2008/2009,which digested the excess capacityleft by 2008s economic crisis and pushed up the average capacity utilization ratio ofrefineries.2012 marked the start of the second stage,where global demand growth slowed and theshut-down of old capacity in developed countries became the key driving fo
11、rce for refiningmargin.Due to the low domestic demand in developed countries and rising new refiningcapacity in emerging markets(mainly Asia),many old refineries in Europe and eastern USwent bankrupt or were closed.Although some of these refineries managed to maintainoperations such as Petropluss th
12、ree refineries in Germany,Norway and Belgium whichmaintained operations after being sold to trading companies we believe 1.8mn bbl/day ofrefining capacity was still closed in 2012,leading to limited net growth of global refiningcapacity(Figure 2).Please read carefully the important disclosures at th
13、e end of this report2,CICC Research:January 5,2013Figure 2:Extensive shut-down of refineries in Europe and US supported refining margins in 2012,RefinerySunoco Marcus HookHess Hovensa St.CroixLyondellBasel Berre LEtang refineryGelaPetropuls CorytonParamo As-PardubiceRaffineria di RomaExxonMobil Refi
14、ning&Supply Co.FawleyShell Clyde refineryValeros ArubaTotal,RegionUSUSNeverlandItalyUKCzech RepublicItalyUKAustraliaUS/Aruba,Start1Q20121Q20121Q20122Q20121Q20122Q20123Q20123Q20123Q20124Q2012,capacity(kb/d)3353501051051752089330792351823,afftected(kb/d)18535010510590208980792351338,Source:IEA,Reuters
15、,CICC Research2013 might be the last year of the bullish refining cycle,and the increase of refiningmargin will still depend on the shut-down of refining capacity.We expect the shut-downof capacity will reach 600,000700,000bbl/day in 2013,including 200,000300,000bbl/dayof shut-down in Japan and Aust
16、ralia and 400,000bbl/day of shut-down in Europe.This willpartially offset the capacity increase in emerging Asian markets such as China,leading to800,000bbl/day of YoY growth of global refining capacity in 2013.As global oil demand islikely to increase by 1mn bbl/day YoY in 2013,the demand growth wi
17、ll be higher thancapacity growth,leading to a further decline of excess capacity and a mild increase ofrefining margin.In 2014,global refining margins will likely turn to a downtrend trend.Thanks to massivecapacity coming online in emerging markets,the huge increase of global refining capacitywill e
18、xceed the growth of global oil demand.As a result,excess capacity will increase,leading to the decline of the refining margin and the utilization rate.Driven by the increase ofoil consumption and higher refining margin,countries in the Middle East and Asia have madeextensive refinery investment plan
19、s over the past few years.In 2H13,the Middle East will seethe completion of the first of its super major refining projects(i.e.Jubail refinery of SATORP,a company co-established by Saudi Aramco and Total),which is expected to operate at fullload from 2014 with a capacity of 400,000bbl/day.After Juba
20、il,another super large project UAEs National Oil Co.Ruwais Phase 2 expansion project will also be put into productionin 2014,which,together with Jubail,will bring 800,000bbl/day of incremental capacity.This,coupled with Asias capacity growth,will significantly increase the global refiningcapacity.Pl
21、ease read carefully the important disclosures at the end of this report3,2Q2011,4Q2011,2Q2012,4Q2012,2000,2002,2004,2006,2008,2010,CICC Research:January 5,2013Refining margin felt pressure from 4Q12;pressure to concentrate in 1Q13 in November,the YoYgrowth reached 9%,a historic high.Meanwhile,refine
22、ries in Europe and the US ramped backsignificantly after the seasonal maintenance period(Figure 4).,Figure 3:Refining margin fell notably from 4Q,Figure 4:Capacity utilization ratio in Europe and USrecovered significantly,$/bbl30.0,Europe,Asia,US(WTI),%94,US utilization rate(LHS)Europe utilization r
23、ate(RHS),%84,25.020.015.010.05.00.0,92908886848280,838281807978777675,Aug-11,Dec-11,Apr-12,Aug-12,Dec-12,Source:IEA,CICC Research,Source:IEA,Reuters,CICC ResearchAccording to the operation schedule of new refining projects,we believe the pressure will beconcentrated in 1Q13 and 4Q13.In 1Q,the refini
24、ng margin is likely to remain low or declinefurther due to the capacity release of some large projects completed in Asia inNovemberDecember 2012.Meanwhile,as most of 2013s new capacity construction will becompleted in 2H13 and come online in 4Q13,the refining margin will feel pressure in 4Q.Inpartic
25、ular,due to the slow construction of related facilities,the operation time of someChinese refineries has been postponed to end-2013 e.g.PetroChinas 100,000bbl/daycapacity refinery in North China and SinoChems 240,000bbl/day capacity refinery inQuanzhou which will further depressed the refining margi
26、n in 4Q.As such,the refiningmargin should be low in 1Q13 and 4Q13,and relatively high in 2Q13 and 3Q13(Figure 5).In 2014,the global refining industry will face severe challenges,with declining refiningmargin,as huge emerging markets refining projects come online.In particular,as a largeportion of th
27、e super large refining projects in the Middle East will go into operation in 1H,thepressure on refining margin should be the largest in 1H.In 2H,we expect some refineries willsuspend production or reduce their capacity utilization ratios due to the low refining margin,and meanwhile,the refining capa
28、city may be consolidated further,hence driving up therefining margin mildly in 2H.Please read carefully the important disclosures at the end of this report4,2002,2003,2004,2005,2006,2007,2008,2009,2010,1Q2011,2Q2011,3Q2011,4Q2011,1Q2012,2Q2012,3Q2012,4Q2012,1Q2013,2Q2013,3Q2013,4Q2013,1Q2014,2Q2014,
29、3Q2014,4Q2014,kb/d,CICC Research:January 5,2013Figure 5:Seasonal movement forecast of the global refining industry,mb/d100,effective spare capacity(LHS)capacity in operation(LHS),$/bbl16,959085,Refining margin(RHS),14121086,8075,forecast,420,Source:Reuters,CICC ResearchAsia to feel pressure in 2013;
30、Europe to feel pressure in 2014;regional differences tonarrow in the USIn 2013,Asias refining margin will face severe challenges as China is likely to see a wave ofnew refining capacity come online,while Europe will continue with merge and acquisition,and declining refining capacity will continue to
31、 make the refining margin stable.In 2014,thelaunch of massive refining projects in the Middle East will likely see Europes refiningmargin may suffer,and European refining industrys consolidation may accelerate further.Meanwhile,as Japan and Australia are expected to eliminate 400,000bbl/d of refinin
32、gcapacity in 2014,Asias refining margin is likely to recover.In the US,the regional difference in refining margin between East Coast(PADD1)andMidwest(PADD2)is likely to narrow,as:1)the refining capacity in PADD1 fell notably,implying much less excess capacity;2)incremental rail capacity to ship Bakk
33、ens crude toPADD1 in 2013;and,3)WTI-Brent spread is expected to narrow in 2H13.Figure 6:Refining capacity vs.demand,additional capacity,incremental demand,2,0001,5001,000500-(500),2013,2014,Global,US,EU,Asia,Global,US,EU,Asia,Source:Reuters,CICC ResearchIn Asia,the extensive new capacity coming onli
34、ne in China in 2013 is expected to depress theregional refining margin(please refer to our report Asia Refining Sector Waiting for ChinaStorm,published on October 12,2012).In 2014,Asias refining margin is expected to recover,as Japan and Australia will eliminate nearly 400kb/d of capacity and the ca
35、pacity expansionin India and Thailand will be cooled down.As such,despite the capacity expansion in China,Asias overall capacity growth will not exceed demand growth,and spare capacity will shrink,hence pushing up the refining margin(Figure 7).Please read carefully the important disclosures at the e
36、nd of this report5,2002,2003,2004,2005,2006,2007,2008,2009,2010,1Q2011,2Q2011,3Q2011,4Q2011,1Q2012,2Q2012,3Q2012,4Q2012,1Q2013,2Q2013,3Q2013,4Q2013,1Q2014,2Q2014,3Q2014,4Q2014,2002,2003,2004,2005,2006,2007,2008,2009,2010,1Q2011,2Q2011,3Q2011,4Q2011,1Q2012,2Q2012,3Q2012,4Q2012,1Q2013,2Q2013,3Q2013,4Q
37、2013,1Q2014,2Q2014,3Q2014,4Q2014,4,Saudi gasoline import in,5,4,3,来 others,CICC Research:January 5,2013Figure 7:Refining margin in AsiaGap(capacity-demand)(LHS),kb/d1,000500-500-1,000-1,500-2,000-2,500,Refining margin(RHS),forecast,$/bbl10987653,Source:Reuters,CICC ResearchIn Europe,shrinking capaci
38、ty from 2013 will likely maintain the refining margin against thelow demand(Figure 8).In terms of specific projects,Petroplus Petit Couronne(France),ShellHarburg refinery(Germany)and Eni Porto Marghera(Italy)may all suspend production in2013.In 2014,the new refining capacity coming online in the Mid
39、dle East includingSatorps Jubail refinery(online in 2H13)and National Oil Co Ruwais Phase 2 expansionproject(online in early 2014),which will together bring 800,000bbl/d of new crudeprocessing capacity will reduce the Middle Easts product oil imports,most of which isfrom Europe(Europe accounted for
40、50.5%of Saudi Arabias gasoline imports in 2012)(Figure 9).Meanwhile,Jubail refinery is expected to export diesel to Europe.As such,ascapacity expands outside Europe,European refineries overseas markets will be furthereroded,and its refining industry may see a further wave of consolidation.,Figure 8:
41、Refining margin in EuropeGap(capacity-demand)(LHS),Figure 9:Middle Easts gasoline import structure2011年沙特 汽油进口结 构 2011,kb/d4,500,Refining margin(RHS),forecast,$/bbl10,9,4,0003,500,876,3,0002,5002,000Source:BP,Reuters,CICC Research,210,from自其他地区49.5%Source:JODI,CICC Research,from EU来 自欧洲50.5%,In the
42、US,the key trend for refining margin over the next two years will be the narrowing ofregional differences.We expect to see a narrower gap between the refining margins of theEast Coast(PADD1)and the Midwest(PADD2),although PADD2s refining margin will stillbe higher than other regions(Figure 10).Over
43、the past two years,refineries in the Midwest(PADD2)have benefited from the costadvantages of WTI crude and seen much higher refining margin than the industrial average,and such excess profits have also been reflected in the higher capacity utilization rate andgood performance of stock prices of PADD
44、2 refineries(Figure 11).However,as WTI-Brentspread is expected to narrow in 2H13,these excess profits may decline to some extent.Please read carefully the important disclosures at the end of this report6,1Q2011,2Q2011,3Q2011,4Q2011,1Q2012,2Q2012,3Q2012,4Q2012,1Q2013,2Q2013,3Q2013,4Q2013,1Q2014,2Q201
45、4,3Q2014,4Q2014,2009,2010,CICC Research:January 5,2013For refineries in the East,the refining capacity has fell notably since 2012,and therefore theexcess capacity has declined effectively.Meanwhile,Enbridge will launch trains to the eastcoast in 3Q13,transporting 80,000bbl/d of Bakken crude to refi
46、neries around Philadelphia,and in future the capacity may expand to 160,000bbl/d.As such,the refineries in the East areexpected to get access to WTI and enjoy its cost advantages(Figure 12).Figure 10:Refining margin of the US,$/bbl30.0025.00,Brent-WTI Spread,WTI Marginforecast,Brent Margin,20.0015.0
47、010.005.000.00-5.00Source:Reuters,CICC Research,Figure 11:Comparison of capacity utilization ratio byregion,Figure 12:Refining capacity in the East(PADD1)hasdeclined notably,%,PADD 1,PADD 2,PADD 3,kb/d,PADD 1,1001,700,90,1,6001,500,807060,1,4001,3001,2001,1001,000,430kb/d,5040Aug-10 Dec-10 Apr-11 Au
48、g-11 Dec-11 Apr-12 Aug-12 Dec-12Source:DOE,CICC Research,900800Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12Source:DOE,CICC Research,Meanwhile,according to our view on the narrowing spread of Brent-WTI in 2013,therefining cost advantages of PADD2 refineries will weaken,bringing pressure to
49、 relevantstocks.Taking the Hollyfrontier Refinery in Oklahoma and the Husky Refinery in Ohio asexamples:the companies stock prices have been closely correlated with the Brent-WTIspread over the past three years,suggesting crude cost advantages have a profound influenceon their stock price performanc
50、e(Figures 13&14).Therefore,as the cost advantages weakenin the future,the growth potential of the stocks will be affected,and investors should beaware of the risks on relevant stocks.Please read carefully the important disclosures at the end of this report7,-,CICC Research:January 5,2013,Figure 13:O
