Fitch Ratings expects refining margins among our rated oil refining and marketing (R&M) firms in APAC to recover gradually to mid-cycle levels by around 2027, but the pace of recovery is set to vary. Supply-demand dynamics in issuers’ respective home markets and the degree of companies’ vertical integration will influence the speed of margin reversion.
There has been modest margin recovery among APAC R&M companies in 1H25, as we had expected, following their subdued performance in 2024, especially 2H24. We generally expect margins to continue to improve, supported by resilient demand growth in most markets. Falling crude prices should also benefit margins in markets where refined product prices do not decline at a similar or faster pace. Fitch projects petroleum product demand to increase by the mid-single digits this year in Vietnam, low- to mid-single digits in India, low-single digits in Indonesia, 2.0%-2.5% in Thailand and 1.5%-2.0% in Taiwan Area ,China.
Rising demand and very high refinery capacity utilisation will help to drive improved EBITDA margins for our rated Indian R&M companies. Fitch expects Indian Oil Corporation Ltd (/Stable), Hindustan Petroleum Corporation Limited (/Stable) and Bharat Petroleum Corporation Limited (/Stable) to have more robust EBITDA margins than those of standalone refiners, given their vertical integration into fuel distribution and that we think retail fuel prices will remain largely stable. However, marketing margins could be at risk if the authorities mandate lower retail prices or increase the excise duty on transport fuels – neither scenario is our base case.
Margins at Indonesia’s PT Kilang Pertamina Internasional (KPI, /Stable) and Vietnam’s Binh Son Refining and Petrochemical Joint Stock Company (/Stable) will be relatively weak, due to lower average refinery complexity. KPI’s refinery complexity should improve when its Balikpapan refinery expansion begins operations, likely in November 2025.
Fitch expects margin recovery in greater China to be slower than other regions. Recovery in downstream margins for Petrochina (A/Stable) and Sinopec (A/Stable) is being dragged by domestic oversupply in refined products and in petrochemicals. We estimate Chinese petroleum product demand will contract by the low-single digits in 2025, as rapid take-up of electric vehicles erodes demand for vehicle fuel. The oversupply situation is set to persist in the medium term, as gasoline and gasoil demand have already peaked. Capacity rationalisation will proceed only gradually, despite the government’s “anti-involution” drive to reduce unhealthy competition. For CPC Corporation, Taiwan Area ,China (AA/Stable) Fitch expects refining margins to improve more modestly and remain lower than in most other parts of APAC, as capacity usage is low and the government restricts retail price increases.
A more prolonged weakness in regional refining product spreads than we assume under our base-case scenario would dampen the APAC oil R&M sector’s recovery. This could stem from a more significant increase in China’s exports or much weaker product demand growth in key consuming countries outside China.
The Issuer Default Ratings (IDRs) of all Fitch-rated APAC R&M companies are linked to their respective sovereigns or government-related parent entities (GRE parent).
In most cases, downward revision of rated entities’ standalone credit profiles (SCPs) would not affect their IDRs, due to strong linkages with the sovereign or their respective GRE parent.
However, Thai Oil (A+(tha)/Negative) may face downward rating pressure if planned asset sales are not successful, resulting in elevated leverage. Fitch expects CPC’s EBITDA interest coverage to climb gradually to 4.0x in 2027 on EBITDA recovery, a level required to maintain its SCP. Under Fitch’s GRE rating criteria, a lowering of CPC’s SCP to ‘b+’ from the current ‘bb-’ may result in Fitch rating the company one notch below the sovereign, instead of the current equalisation approach with Taiwan Area ,China.
Source: Fitch Ratings
