Kiatnakin Phatra Securities (KKPS) stated that China’s refined oil exports continued to increase by 25% MoM in December following a jump by 40% MoM in November. Still, the firm noted that an increase in the first batch of 2023 oil production export quote, refined oil product exports from China in 1Q23 are expected to fall further in February from a recovering domestic demand.
KKPS pointed out that domestic oil demand in China seems to have rebounded, spurred by the Chinese New Year travel demand boost, while also cited BofA’s China oil analyst in a meeting with JLC that believed China has less motivation to increase refined oil product exports due to domestic consumption recovery amid low inventory levels. JLC estimated that China will export around 9 million tons of refined oil products in 1Q23 (+46% YoY but lower QoQ).
KKPS reiterated its bullish stance on the Thai refining sector which should see Singapore gross refining margin (GRM) to stay higher in 2023 than its previous mid-cycle level of US$6/bbl on account of a confluence of healthy global oil demand (1.55 million bbl/d) and retained oil product supply disruption as the EU’s embargo on refined oil products from Russia should take effect from 5 February onward. Moreover, GRM is expected to get a boost from modest new refining capacity additions (particularly in the first three quarters of 2023) which should bring about a drought of new supply additions.
KKPS expected China’s intention to limit its oil product exports should alleviate its concerns on a potential increase in China’s refined product exports as the firm eyed Singapore GRM at US$8.5/bbl for 2023.
Among Thai refiners, KKPS preferred refining exposure within the Thai refinery sector remains Star Petroleum Refining Pcl (SET: SPRC) with a target price at THB14.60 per share and Thai Oil Pcl (SET: TOP) with a target price at THB74.40 per share.