APAC Downstream Oil & Gas Corps in Gradual, Uncertain Recovery

Fitch Ratings-Mumbai/Hong Kong-21 October 2020: Better containment of COVID-19 will lead to a sharper demand recovery for China and Taiwan’s downstream oil and gas companies than that of Indian oil marketing companies (OMC) in 2H20, Fitch Ratings says in a new report. However, higher marketing margins will mitigate the impact of refining weakness on Indian OMCs’ overall profits.

Gross refining margins in 2Q20 were around breakeven levels on lower demand for the Indian OMCs, while demand and margins improved for Chinese companies, compared with 1Q20, as lockdown restrictions were eased. Sporadic recurring lockdowns could further affect mobility and economic activity, keeping fuel sales below pre-pandemic levels for longer than our base case.

We believe that the headroom for Indian OMCs’ Standalone Credit Profiles (SCPs) is limited as their credit metrics will breach levels where we would consider revising down their SCPs this year, before improving to adequate levels over the next two years. If the depth of the current downturn is sustained through 2021, it could pressure their SCPs.

We believe that China Petroleum & Chemical Corporation (Sinopec)’s (A+/ Stable) SCP of ‘a-‘ has ample headroom to absorb a further slide in margins and sales, should the demand-supply environment in China deteriorate further. CPC Corporation, Taiwan’s (AA-/Stable) SCP would also remain intact in the ‘bb’ category, supported by its stable natural gas business, offsetting refining weakness.

The credit implications are discussed further in the report, “Pandemic Progress Check: APAC Downstream Oil & Gas”, which can be accessed at www.fitchratings.com  or by clicking the link above.
Source: Fitch Ratings