Asian refineries' run rates to rise on firmer margins

Northeast Asian and Indian refineries are expected to increase runs in the fourth quarter given stronger refinery margins and rising regional demand.

South Korean refinery runs have been inching up, with refinery run rates at an average of 75.15pc in the third quarter compared to 73.09pc and 72.27pc in the second and first quarters, respectively, according to state-controlled oil company KNOC. State-controlled refiner GS Caltex led the growth, increasing runs from 86.67pc in the second quarter to 89.57pc in the third quarter.

But run rates are expected to grow even further in the fourth quarter, according to an Argus survey of South Korean refineries. South Korean refiners are expected to run at an average of 87.75pc in the fourth quarter with domestic demand rising against tax cuts and firm regional demand. Fellow South Korean refiner SK Energy has been operating at low rates in the first three quarters at around 57-59pc and is expected to ramp up as well, said traders.

Chinese run rates are also expected to increase as China's refinery crude unit throughputs are on course to rise by 400,000 b/d in October compared with September, Argus surveys indicate, reversing three consecutive months of declines. Taiwan's private-sector refiner Formosa Petrochemical will increase its crude distillation unit (CDU) throughput after its residual desulphurisation unit returns from turnaround in the middle of November. Its run rates were estimated at 66.66pc in October and the first half of November but will rise to around 83.33pc in the second half of November, according to an Argus survey.

Most Indian state-controlled refineries are operating at maximum capacity or higher, as transport fuel demand continues to increase with further gains expected in the coming months. MRPL is operating its 300,000 b/d refinery in Mangalore at above 100pc and will continue at these levels this month. Bharat Petroleum is running its 310,000 b/d plant in Kochi and 240,000 b/d refinery in Mumbai at around 110pc, market participants told Argus. Hindustan Petroleum's 166,000 b/d Visakhapatnam (Vizag) refinery is operating above its maximum capacity, while its Mumbai refinery is operating at around 80pc of its enhanced capacity of 190,000 b/d. The Mumbai refinery will operate at maximum capacity in a few weeks, a market participant said.

It is typically a chicken or egg issue when it comes to strong transportation fuel prices. Strong transportation fuel prices would push up refinery margins and prompt refiners to raise runs but that will increase supply and normalise markets soon after. This is reflected in current margins for transportation fuels. Gasoline margins, or the Argus 92R Singapore price against Ice Brent, rose to a six-year high of $17.50/bl but was assessed lower at $11.04/bl yesterday. The Argus 10ppm gasoil price against Dubai swaps has also shown similar movements with margins hitting a peak of $14.91/bl on 9 November before moving lower to $12.17/bl yesterday as supply began to enter the market.

By Aldric Chew, Sarah Giam, Cara Wong and Sathya Narayanan