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Fitch: CN's Refining Oil Margins Expected to Ride on Policies Aimed at Curbing Cutthroat Competition
Recommend 7 Positive 9 Negative 1 |
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Fitch Ratings expected China's “anti-involution” policies aimed at curbing cutthroat competition to provide moderate support for the refining industry's financial performance, with margins estimated to stabilize as restrictions on new capacity tighten and some capacity was phased out. However, Fitch believed that overcapacity among downstream petrochemical producers will persist, thus keeping margins under pressure. The government's newly released “Work Plan for Stabilizing Growth in the Petrochemical Industry (2025-2026)” set stricter capacity regulations for the refining industry, continuing the previous target of eliminating atmospheric and vacuum distillation units of 2 million tons/year and below. According to the latest plan, future new capacity can only be lower than the eliminated capacity, indicating that national refining capacity will tend to plateau or even slide in the coming years. Fitch forecast the action plan's control over new capacity will help elevate market concentration and eliminate outdated capacity, leading to a mild recovery in refining margins. However, if the government's capacity control is less effective than Fitch expects, increased output may hamper margin recovery. Among Fitch-rated issuers, integrated national oil companies such as PETROCHINA (00857.HK) (A/Stable), and SINOPEC CORP (00386.HK) (A/Stable), were expected to ride on increased industry concentration in the refining sector. Their vertically integrated business structure gives them a high degree of self-sufficiency and low raw material costs, which can alleviate margin pressures during periods of downturn in the petrochemical industry. AAStocks Financial News |
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