Wednesday, March 24, 2010

Fitch: 2010 Outlook for North American Refiners Remains Murky [ GREAT REPORT]

Fitch: 2010 Outlook for North American Refiners Remains Murky 
23 Mar 2010 2:40 PM (EDT)
Fitch Ratings-Chicago-23 March 2010: Despite glimmers of improvement, the outlook for North American refiners remains murky in 2010, according to Fitch Ratings' outlook report released today. Refiners continue to struggle with poor fundamentals in the form of still-falling end-user demand in the U.S., global overcapacity, low industry utilization rates, and a high U.S. unemployment rate, all of which are expected to keep key credit metrics weak for a prolonged period. While sector free cash flows (FCFs) should improve from 2009 levels, Fitch anticipates independents in the space will for the most part continue to be FCF negative in 2010.

'There are a couple of bright spots for refiners this year despite the gloomy outlook,' said Mark Sadeghian, Senior Director at Fitch. 'Reasonable year-to-date benchmark crack spreads, and a notable widening in key oil differentials, including the light-heavy oil differential, which has improved coking economics for higher complexity refiners.'

Refiners as a group have responded vigorously and early to the downturn by paring back capital expenditures and operating costs, cutting shareholder distributions, and employing a range of liquidity-enhancing measures. However, at this point, Fitch believes there is relatively little left to cut in the event of further erosion in industry fundamentals, beyond the more drastic steps of shuttering additional capacity.

Fitch notes that event risk in the sector is also elevated given once-in-a-cycle lows in refinery valuations for buyers and increased regulatory pressures on refiners to transition to more emissions-friendly fuels, including pending greenhouse gas (GHG) regulation.

With early indications for a lackluster driving season in 2010, Fitch believes the most realistic catalyst for near-term improvements across the sector will most likely lie with further capacity rationalization. At the company level, the Rating Outlook for all domestic refiners is Negative.


2010 Outlook for Refiners

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