1. I think Petronm capacity not sufficient to support the volume they sell so they have to source some from 3rd parties, which will reduce their margin 2. there may be some transfer pricing between refinery and marketing. sometimes it's also quite hard to distinguish between these two when both are under the same roof 3. Hengyuan is sourcing crude oil from shell for 5 years and its products are also mainly sold to shell malaysia for 10 years. the management team is also mainly from the shell days. so I think you are right to point out hengyuan is different from typical red chip
both petronm and hengyuan are good companies to ride this refinery upcycle
Great effort, give a like. Of all positives, can pls comment a bit on hrc hedging and any possible accelerated impairment & major shutdown as the plant is at age tail end?
Fuel Oil crack spread was negative, and only recently from end of last year it went to break even level, the moment it reverts it will erode PetronM profits unlike HY which only produces less than 3% Fuel oil...
Simple Refiners produce more than 30% fuel oil.....just like leverage which acts as a double edged sword, the moment fuel crack spread becomes negative, its earnings will return to about its previous level..
View Bar chart on Page 6 of the pdf article above.
PetronM is a Hydroskimmer, whereas HY is more like the Deep conversion bar at the far right.
Basically there is almost nil 'Heavy products + Residue" from a Deep Conversion refinery...all of them are converted to lighter products such as Diesel and Petrol.
With crude’s bull market being underpinned by diesel consumption, Asian refiners could soon be scrambling to meet further appetite as a maritime rule in 2020 seeks to replace DIRTIER FUEL OIL that runs tankers.
While shippers could add technology that’ll clean up their traditional power source, it’ll mean investing millions of dollars in each vessel -- an expense they may not be prepared to bear. Their other option is to use DIESEL.
Profits in Asia from turning benchmark Dubai crude into diesel, known as the crack spread, more than doubled to $15.37 a barrel in September versus a record low in April 2016,
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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....
Alex Foo
12,594 posts
Posted by Alex Foo > 2017-10-24 10:04 | Report Abuse
thank you David for your hard work in analyzing hengyuan and your generosity to share with us.
Can I ask something?
The chart you attached for fuel oil (shows negative margin). Is it a bad thing? I saw that you also mentioned 2% profit margin for fuel oil.