* Many refiners to hold run rates at reduced levels in peak
* Refiners facing poor margins due to excess fuel supply
* China, India to keep runs at lower rates on maintenance,
By Meeyoung Cho and Florence Tan
SEOUL/SINGAPORE, July 1 Asian refiners are set
to miss out on a traditional summer sales boost, as weak demand
for oil products coupled with excess regional supply reduce
plant operating rates through the third quarter and into the end
of the year.
The lack of a rebound in the summer period, when more fuel
is usually needed to power air conditioners, signals more pain
for the region's refineries, which face competition from new
plants in China and India and a sharp rise in crude oil costs.
Refineries typically take down units in the second quarter
for maintenance after meeting winter demand for heating fuels
and before summer consumption peaks, leading to lower run rates
across the region and a drawdown in fuel inventories. They then
typically increase runs in the third and fourth quarters.
This year, however, reduced run rates may extend well into
the next six months, said refining sources and traders. Most
affected will be export-focused plants in South Korea, Singapore
and Taiwan, while plants in China and India may be somewhat
insulated as they feed their large local markets.
"Refining margins aren't in a good shape, and oil products
cracks are very bad due to oversupply," said a Seoul-based
refining source. "We aren't able to see when this will improve,
which makes the situation a lot worse."
Oil products cracks are the difference between the price of
crude oil and petroleum products extracted from it.
Asia has more than 30 million barrels per day of refining
capacity, but slowing economies and subsidy cuts are squeezing
consumption of diesel, which accounts for nearly 40 percent of
the average plant's output.
Complex refining margins in Singapore, the amount earned for
processing crude oil, have averaged $4.68 a barrel
in the past 15 days, the lowest since last November and well
below the high for the year of $6.51 touched in April.
In South Korea, one of the top regional refining hubs,
operating rates have fallen to a five-year low of 85 percent,
almost 10 percentage points below a year earlier, consultancy
JBC Energy's Richard Gorry said.
"Refiners may cut runs in July and August as well because
inventory is still high," said a source at a North Asian
refiner. "This year is one of the worst for margins."
RUN RATES FALL
Singapore's refinery run rates have fallen to about 80
percent, a trader said, from 85-90 percent a year earlier.
South Korea's largest refiner SK Energy Co Ltd has cut rates
to 82-83 percent at its Ulsan refining complex from 89-90
percent in the first quarter, said a spokeswoman at owner SK
Innovation Co. Ltd..
Thus was largely due to maintenance, but the company may
continue to operate the facility at the same level, she said.
Second-largest refiner GS Caltex is running its crude units
at 89-90 percent of capacity this month, a company source said.
"As of now, we will keep operating at this reduced rate
until August, but it can be reduced further," said the source
who was not authorised to speak to media. "We are studying the
Japanese refiners are also trimming throughput.
Oil facilities are expected to process 3 million bpd in
July, at 76 percent of capacity from 76.3 percent a year ago,
said Osamu Fujisawa, a Japan-based independent oil economist.
Rates would rise in August to 81 percent, or 3.2 million
bpd, but still down from 82.6 percent a year ago, he said.
"Run cuts have started and I think they will continue," said
a crude trader at a Japanese trading house. "What we will see is
refineries processing just enough to meet domestic market
Some Asian refiners are also stretching out maintenance and
skipping planned crude purchases to minimize losses, said a
second North Asian refiner.
Refiners in China and India, Asia's top two consumers, don't
typically tweak operating rates based on margins because they
feed a huge local market and retail prices are controlled.
However, runs will fall in India in the third and fourth
quarters due to maintenance, which may curb exports.
Weak demand and new capacity would keep China's capacity in
the third quarter at 80-85 percent, oil analysts said, below the
year's high around 87 percent.
(Reporting by Meeyoung Cho in SEOUL and Florence Tan in
SINGAPORE; Additional reporting by Jane Xie in SINGAPORE, Nidhi
Verma in MUMBAI, Judy Hua in BEIJING, James Topham and Osamu
Tsukimori in TOKYO; Editing by Manash Goswami and Richard