>Singapore gross refining margin (GRM) down to US$5.2/bbl last week; RIL GRM US$4.2-5.8

■ Sing GRM last week lowest in over 1 year; down 31% in Nov

Reuters’ Singapore refining margin (GRM) for the week ended November 25 has slumped to US$5.2/bbl, which is the lowest level since early November 2010. Singapore GRM is down 31% month-on-month (MoM) at US$7.0/bbl in November 2011. Theoretical GRM of Reliance Industries (RIL) works out to just US$4.2- 5.8/bbl for the week ended Nov 25 and at US$5.1-6.2/bbl in November 2011.

■ Petrol, fuel oil & diesel cracks fall driver of recent GRM fall

Reuters’ Singapore GRM has declined from US$8.2/bbl in the week ending Nov 11 to US$5.2/bbl in the week ended Nov 25. Almost all product cracks have declined in the last two weeks but GRM have been most hit by US$4.6-5.6/bbl decline in fuel oil and petrol cracks. Petrol cracks (US$18.7/bbl in Oct’11 and US$16.5/bbl in Apr-Oct 2011) are down to US$1.3/bbl last week. Diesel cracks have declined the most (US$2.6/bbl) last week but remain high at US$18/bbl.

■ RIL 3Q GRM (US$6.8-7.6/bbl) below Sing GRM (US$8.7/bbl)

RIL's 3Q TD FY12 theoretical GRM at US$6.8-7.6/bbl is below Reuters’ Sing GRM of 8.7/bbl. RIL has been hit mainly by steep declines in naphtha and LPG cracks and light-heavy crude spread. Arab heavy-Dubai spread at US$0.7/bbl in 3Q is at the lowest level in 9 quarters. RIL’s GRM is also QoQ lower than its 2Q FY12 GRM of US$10.1/bbl and YoY lower than its 3Q FY11 GRM of US$9/bbl.

■ RIL and Sing GRM lower by end-3Q given falling trend

Reuters’ Singapore GRM, which is US$8.7/bbl to date in 3Q, may average just US$7.4/bbl if the rest of 3Q is at the same level as last week. Average 3Q RIL GRM may be just US$5.8-6.9/bbl if its GRM in the rest of 3Q is same as it was last week. Some bounce back in RIL and Singapore GRM from last week’s level is possible but still 3Q GRM being lower than it has to date appears likely.

■ RIL’s FY12-13 earnings to be hit if GRM weakness continues

RIL’s 3Q FY12 net profit works out to Rs51.0-55.3bn at our 3Q TD theoretical GRM of US$6.8-7.6/bbl despite assuming a weaker rupee of Rs50.8. If 3Q profit is as we expect, it would be 3-11% QoQ lower than its profit of Rs57bn in 2Q FY12. It would be down 1% to 8% YoY higher than its 3Q FY11 profit of Rs51.4bn. If 4Q profit is the same as 3Q, FY12 EPS would be Rs65.9-68.5 (up 7-

11% YoY). RIL’s FY13 EPS would be Rs62.3-67.6 if it is annualized at the 3Q FY12 level.

■ R&M companies GRM up QoQ; at US$2.4-2.5/bbl last week

BPCL and HPCL theoretical 3Q FY12 GRM at US$2.5-2.9/bbl is up US$0.9- 1.0/bbl QoQ. However, their theoretical GRM has weakened to 2.4-2.5/bbl for the w eek ending November 25.

To read full report: OIL REFINING & MARKETING

RISH TRADER