Core business facing headwinds
We expect subdued refining margins over the next 12-18 months given our cautious outlook on the refining cycle due to (i) large net additions to global refining capacity and (ii) weak oil demand resulting from a global slowdown. Singapore complex margins have declined to break-even levels currently from $3.8/bbl in mid-October led by a sharp contraction of spreads for petrol, diesel and ATF. We highlight that these products contribute 65-70% of product slate for RILís refineries. There has been a $4/bbl dip in refining margins since mid-October; this is partly mitigated by a $1/bbl increase in the light-heavy differential.
The margins for key polymers remained weak in recent quarters, closer to their lowest levels in a decade. Though we have assumed lower petrochemical margins for RIL in FY2013-14, we do not rule out downside risks to our assumptions given continued weakness in global downstream demand.
We see downside risks to the management guidance on FY2013-15 production from KG D-6 block noting the recent sharp decline in (i) gas production to 24 mcm/d currently from
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