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Japan capacity shutdowns buoy GRMs

Japan capacity shutdowns buoy GRMs
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First Published: Wed, Mar 16 2011. 12 08 AM IST
Updated: Wed, Mar 16 2011. 12 08 AM IST
Even as Japan deals with the fallout of the 11 March earthquake and tsunami, events there are likely to benefit India’s oil companies as a result of the shutdown of capacities in that country.
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Singapore gross refining margins (GRMs) shot up to $9.62 (Rs435) per barrel on Tuesday, as refineries shut following the disaster that struck the island nation. Refining margin is the difference between the total value of petroleum products produced by an oil refinery and the price of the input (crude oil).
“The unfortunate earthquake and tsunami in Japan has caused the closure of around 1.5 million barrels per day of Japanese refining capacity (5.8% of Asian and 1.7% of global capacity),” wrote Credit Suisse Group AG analysts in a note on Monday. Singapore GRMs have now improved from $7.52 per barrel since the beginning of this year.
In India, one of the major beneficiaries of this would be Reliance Industries Ltd (RIL). The stock has gone up 4.5% in the last two trading sessions to Rs1,036 apiece on Tuesday, while the Sensex marginally declined in the same period.
Apart from refining capacity, Japan also shut its ethylene capacities. Deutsche Bank AG analysts point out that almost 5.2 million tonnes per annum (mtpa), or two-thirds of ethylene cracker capacity in Japan could be adversely affected by the earthquake, including the 1.8 mtpa, or one-fourth of total capacity that has reportedly been shut down. According to these analysts, the ethylene capacity shutdown represents 23% of Japanese capacity and 4% of Asian capacity.
It may be difficult to say how long this effect will last, but most analysts believe it should be a couple of quarters. That will provide support for the stocks of refining companies in general and to the RIL stock in particular, already buoyed by the deal with BP Plc.
Graphic by Sandeep Bhatnagar/Mint
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First Published: Wed, Mar 16 2011. 12 08 AM IST