Taiwanese Ministry of Economic Affairs has ordered Formosa Petrochemical to shut down its 540kbd refinery in Mailioa for safety checks following the 7th fire in the past one year. The latest fire took place on 30 July at a propylene production unit. As a result, Formosa declared a force majeure on its oil product exports in August. Formosa also put on hold its August crude supply from Saudi Arabia and Kuwait. The shutdown is expected to take 2 weeks for the repairs to be carried out.
Comment:
This is positive for TOP as Formosa is a major exporter of diesel and gasoline (these 2 products account for 60% of TOP's refinery output). The shutdown would cut off the export portion from the refiner this month. However, the extra strength of diesel prices should be short-lived as supply shortfall by Formosa could be offset by higher exports from Japan and South Korea.
For aromatics (mainly Paraxylene (PX)), margins should be bullish for the short-term as one of the three aromatic units has already shut down since 18 May. Market is now taking a wait-and-see stand on how long the complex will be shut. In conclusion, we expect diesel, gasoline, and aromatic margins to rise in the short-term. TOP is our top pick for energy sector.
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