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Key Points:
- Lytton Refiner Margin dropped to US$1.48 per barrel due to planned maintenance and weaker global margins.
- Ampol's Convenience Retail and international business segments remained steady, supporting overall performance.
- Ampol has committed to a $50 million cost reduction program for 2025 to improve efficiency and productivity.
Ampol Limited (ASX:ALD) has provided an update on its trading conditions for the third quarter of the 2024 financial year, highlighting a combination of operational and market challenges that impacted its refining margins. While these setbacks have placed pressure on Ampol’s overall earnings, its retail and international business segments have performed steadily, benefiting from favorable market dynamics.
Lytton Refinery Faces Operational Setbacks
One of the key factors impacting Ampol’s performance in Q3 2024 was the weaker-than-expected refining margins at its Lytton refinery, which saw its Lytton Refiner Margin (LRM) fall to US$1.48 per barrel. This represents a significant drop, driven by both planned and unplanned maintenance, as well as a weaker global refining market.
The Lytton refinery’s performance was notably affected by a planned Reformer Turnaround and Inspection (T&I) period, which coincided with substantial declines in margins for finished and intermediate products globally. The reformer unit faced performance issues after mechanical completion, requiring further repair work in September. This extended the ramp-up period, reducing refinery efficiency.
As a result, refinery production for the quarter stood at 916 million litres (ML), impacted by both the scheduled T&I work and a reduction in throughput designed to optimize production. The combination of these challenges, along with weaker refining margins, led to an estimated $100 million reduction in Group RCOP EBIT (replacement cost of sales operating profit).
Group Trading Performance Beyond Refining Challenges
While the refinery’s issues weighed heavily on Ampol’s overall performance, the company reported positive results across other segments. The Convenience Retail division continued to build on the strong momentum seen in the first half of the year. This segment benefited from improved fuel margins and sales volumes, particularly in base-grade fuels. Despite the challenges elsewhere, Ampol's shop performance remained resilient, in line with the first-half results.
In New Zealand, sales volumes were stable, maintaining levels similar to those seen in the first half of 2024. However, it is important to note that Q3 2023 included a one-off recovery from the New Zealand Government's temporary reduction in fuel excise duty in 2022, which made year-on-year comparisons slightly skewed.
The Fuels and Infrastructure (F&I) division, excluding Lytton, experienced a reduction in Australian wholesale volumes, mainly due to the refinery’s operational outage. This reduction led to increased domestic product purchases, limiting net sales to other industry participants. Despite these challenges, the F&I International division remained profitable for the quarter, though it was affected by market trends similar to those observed in the first half, with well-supplied markets limiting physical sales opportunities.
Current Operational Outlook and Refinery Maintenance Plans
Ampol’s operational challenges are set to continue into the fourth quarter, with new issues arising in the Fluidised Catalytic Cracking Unit (FCCU) at the Lytton refinery. To address these problems, Ampol plans to undertake repairs to the regenerator in November. During this time, the refinery will operate at a reduced rate, with production expected to be around 350 million litres of high-value product (HVP). Despite the reduced refinery output, Ampol has assured customers that no supply disruptions are expected.
On a broader market scale, several refiners, particularly in North Asia and Europe, have begun production run-cuts in response to weak refining margins. This has prompted a modest recovery in the Singapore Weighted Average Margins (WAM), which have risen to approximately US$10-11 per barrel since the start of October.
Cost Reduction Initiatives and Future Plans
In response to the challenges faced during the quarter, Ampol has announced a commitment to an initial $50 million (nominal) cost reduction for the Group, which is expected to be delivered in 2025. The company is actively exploring further opportunities to improve productivity and simplify its business. Details on these initiatives will be shared in Ampol’s full-year results in February 2025.
