Asian refiners to shut 4.4 pct of capacity in Q2

SINGAPORE, Feb 27 (Reuters) Asia-Pacific oil refiners will take 4.4 percent of capacity offline during the second quarter, down from 5.2 percent a year ago, weighing on profit margins and fuel prices, a Reuters survey showed on Tuesday.

An average of 1.076 million barrels per day (bpd) of crude distillation capacity will be shut for maintenance during the period, 5 percent or 59,000 bpd less than in 2006, based on a survey of company data and market sources.

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The scale of seasonal maintenance is lighter than the second quarter of 2006, when many plants were forced to close following a rush to meet demand in the last few months of 2005 after deadly hurricanes hit the U.S. Gulf Coast.

''We did not have the same production intensity in the third and fourth quarter last year so the (Q2) maintenance is not expected to be as intense as the second quarter last year,'' said Adrian Loh, an analyst from Merrill Lynch in Singapore.

The lighter turnaround schedule mirrors that in the United States, where many refineries retooled a year ago to meet new environmental regulations, although a peak in turnarounds at U.S. West Coast plants may tighten Pacific basin markets.

In Northwest Europe, more than 7 percent of refining capacity is being taken offline in March for routine work.

[ID:nSP93450] In Asia, closures will be heaviest in Japan, where 682,000 bpd or 14 percent of the country's total capacity will shut for mandatory work, up from 13 percent last year.

But this will be partly offset by lighter maintenance in South Korea, Asia's biggest swing exporter of distillates, where refiners will shut 151,000 bpd, versus last year's 165,000 bpd.

In China, closures will fall nearly two-thirds to 82,000 bpd, with state refiners more eager to keep plants in operation after easing global crude prices and Beijing's reluctance to quickly reduce state-set local fuel prices rescued their ailing margins.

''Chinese refiners are making much better margins than last year, when there was no financial incentive to get plants up and running,'' said CLSA analyst Gordon Kwan in Hong Kong.

The closures will peak in May, when Japan will see an average 1.02 million bpd or 21 percent of the country's total capacity taken offline.

MAY PEAK Oil refiners typically shut processing units in spring, lowering output during the weakest period of global demand, and this year's milder maintenance season may sustain already high global fuel stocks, weighing on prices.

It may also mean higher than usual seasonal demand for crude oil globally, a factor OPEC may need to consider as it debates second-quarter production policy on March 15.

Many OPEC members have said they are satisfied with market conditions and are unlikely to deepen or roll back the 1.7 million bpd of output cuts they've instituted, although that could change if the spring outlook begins to tighten.

Those pressures will compress refining margins, hitting profitability at big exporting plants like India's top private refiner Reliance Industries or South Korea's biggest, SK Corp. , as well as domestically-oriented refiners like Nippon Oil or Thai Oil .

Asian margins are already under pressure after a warm winter of weak Japanese and South Korean fuel demand, forcing refiners to empty distillate tanks quickly to make way for gasoline.

''The intensive maintenance in Q2 last year resulted in high refining margins, but this year we do not expect refining margins to be as positively as impacted as last year,'' said Loh.

Merrill last week cut its forecast for Asian margins by 10 percent due to the unusually mild winter. It now expects Singapore complex gross refining margins of .38 a barrel for 2007, still above its estimated long-term Singapore gross margin of .50.

REUTERS SRS KP1846