Moody's expects RIL's refinery margins to improve by $2 a barrel

New Delhi: Reliance Industries’ (RIL) refinery margins will continue to improve as it completes margin-enhancing projects, Moody’s Investors Service said. RIL reported a growth of 2 percent in its pre-tax profit during July-September compared to the preceding quarter. [caption id=“attachment_2475750” align=“alignleft” width=“300”]  Reuters[/caption] “Earnings improved despite a decline in the Singapore benchmark refining margin and decline in the petrochemical product spread,” Moody’s said in a note. It has reported highest ever quarterly net profit of Rs 6,720 crore for the July-September period. The company earned $10.6 on turning every barrel of crude oil into fuel during the second quarter of the current fiscal, the highest in the last seven years. “Although RIL’s refining margin only improved marginally compared to $10.4 per barrel during 1Q FY2016, it outperformed the Singapore refining benchmark that declined to $6.3 per barrel from $8.0 per barrel over the same period,” it said. RIL’s gross refining margins will continue to improve as it completes margin-enhancing projects the petcoke gasification project and refinery off gas cracker, which will enhance the recovery of petrochemicals from the refinery off gases that are currently being used as fuels. “We expect RIL’s margins will improve by at least $2 per barrel on completion of these projects,” Moody’s said. During the second quarter, fuel oil cracks declined significantly while gasoline cracks largely remained stable as compared to the first quarter, resulting in RIL’s gross refining margin (GRM) outperforming the benchmark refining margin by $4.3 per barrel - the highest in the last six years. “We expect the Singapore refining margin to average a healthy $8 per barrel in 2015 and $7-7.5 per barrel in 2016,” Moody’s said. Pre-tax profit for the petrochemical segment improved by 8 percent quarter-on-quarter despite softening product spreads as RIL’s production increased by 7 percent. “We expect petrochemical spreads to remain soft over the next 12 months in line with our expectation of a slowdown in growth in the global economy including India and China. “However, as RIL rolls out its petrochemical expansion projects over the next 12-18 months, its production mix will improve, increasing the proportion of high-value chemicals with little to no incremental input costs. This should result in higher contribution from the petrochemical segment over the next 12 months,” it said. Moody’s said earnings of the upstream oil and gas segment continued to deteriorate with a 70 per cent decline as production levels and oil prices remain weak. (Disclosure: Firstpost is part of Network18 Media & Investment Limited which is owned by Reliance Industries Limited.) PTI