MOSL: Morning India (10/April/20): 1. Oil & Gas (A double whammy for refining, petrochemicals a mixed bag); 2. EcoScope; 3. Cipla; 4. Expert Speak (Real Estate)
Morning India (10/April/20):
Today’s top research idea
Oil & Gas: A double whammy for refining, petrochemicals a mixed bag
** Utilization of global refining capacity stood at ~82% in 2019, lower than 83.5% in 2018, which was the highest in the preceding decade. Lower utilization also reflected the rescheduling of several projects earlier to meet the increased diesel demand owing to IMO 2020.
** Also, recent reports are suggesting that global oil demand could contract by 4.5mnbopd in 2020 due to the lockdowns world-wide. A glance at BP's Statistical Review indicates this to be the largest percentage decline witnessed since 1965 (from when the time series started).
** While the world is yet to come to terms with COVID-19, China has displayed immense control with its industries already ramping up. China, a net exporter of refined products, is likely to keep refining margins under pressure with ramp-up of its refineries. On the other hand, with its large contribution to global petrochemical consumption, the rise in China's industrial activity could boost petrochemical margins, barring the huge expansions planned in China in 2020.
** With petrochemical margins being a mixed bag and the continued stress in refining, we reiterate our preference for RIL and the OMCs (Oil Marketing Companies). We prefer RIL due to its capability for better feedstock and product optimization and the OMCs for using marketing margins as a tool to weather poor profitability in refining.
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