Japanese oil refiners’ net income fell in the first half of the fiscal year, but they maintained profitability and outperformed South Korean rivals as high domestic margins shielded them from weak overseas market .
Japan’s three largest refiners – Eneos Holdings, Idemitsu Kosan and Cosmo Energy Holdings – reported a 40% to 60% drop in net profit for the six months ended September 30, compared to the same period a year earlier. primarily due to substantial valuation losses on oil stocks amid falling crude prices.
However, profits excluding inventory factors fell only by 22% to 35%, thanks to improved margins for petroleum products in the domestic market.
For Idemitsu and Cosmo, “the strength of core earnings growth relative to their guidance looks positive as underlying margins remain strong,” Thanh Ha Pham, equity analyst at Jefferies, said in a note.
Eneos’ domestic margins were better than expected and the upward revision came as a surprise as energy prices and exchange rates were unfavorable in the second quarter, Pham said.
“Real margins have been strong as supply and demand have relatively normalized,” Soichiro Tanaka, Eneos’ chief financial officer, told reporters on Wednesday.
“Exports slowed in the first half due to poor overseas market conditions, but we expect the market to come out of its torpor in the second half, leading to an increase in our export volume.
Elsewhere in Asia, refiners in South Korea, one of the region’s top fuel exporters, posted significant losses in the third quarter in oil refining.
Global refining margins have fallen in recent months due to slowing economic activity and the start-up of several new refineries in Asia and Africa, while oil prices fell 17% in the third quarter, which impacted the profits of major energy companies such as Shell and TotalEnergies.
Cosmo earnings documents showed that gasoline margins in Japan were recently about 20 yen ($0.13) per liter higher than margins overseas.
Over the past two decades, Japan has consolidated its refining sector by reducing capacity and merging companies, as oil demand declined due to an aging population and fuel efficiency of vehicles. This helped support refiners’ profits from domestic fuel sales.
“Despite falling oil prices and sluggish oil product markets in Asia, our fuels segment maintained healthy conditions, thanks to the optimization of the domestic supply system,” said Shunichi Kito, CEO of Idemitsu.
“In addition, our overseas trading business generated higher profits than expected,” he added.
However, Japanese refiners have faced unplanned plant closures in recent years due to aging facilities.
Nonetheless, Eneos reported an improvement in its unplanned capacity loss (UCL), bringing it down to 5% in the first half from 8% the previous year, thanks to improved construction quality during the maintenance and smoother operations during restart periods.
“Earnings for the next fiscal year are expected to improve as unplanned capacity loss continues to decline, with additional benefit from our power business through the launch of a new LNG-fired power plant,” the CEO said. Eneos, Tomohide Miyata.
For the full year ending next March, Eneos revised its net profit forecast upwards by 5%, also supported by rising copper prices in its metals segment.
($1 = 155.8600 yen)
