Mol Says Operating Environment Is Improving Further (Update1)

May 20, 2010, 4:07 AM EDT

http://www.businessweek.com/news/2010-05-20/mol-says-operating-environment-is-improving-further-update1-.html

By Edith Balazs

May 20 (Bloomberg) -- Mol Nyrt., Hungary’s largest refiner, is operating in an improving environment with oil prices “relatively high,” profitability from turning crude into diesel rising, and a slowing decline in demand.

Mol’s outlook improved further from the first quarter as diesel crack spreads increased since February and the 6 percent decline in regional demand for crude products seen in the first three months of the year slowed, Chief Financial Officer Jozsef Molnar said in a phone interview today.

Diesel makes up over 40 percent of Mol’s output. Mol expects a small erosion in gasoline spreads in 2010 and sees petrochemical margins increasing in the second half of the year, Molnar said.

Mol’s financial loss declined to 23.5 billion forint in the period from 147.1 billion forint a year earlier, the company said late yesterday.

Exploration, Production

Mol, which operates refineries in Hungary, Italy, Croatia and Slovakia, has focused on expanding exploration and production since 2005. Earnings suffered last year as the global economic slowdown eroded demand for oil and fuels, dragging down prices and curbing revenue for producers.

“Mol’s first-quarter performance is relatively weak, however, considering the industrial environment it is not a major surprise at all,” Akos Herczenik, an analyst at Raiffeisen International Bank Holding AG’s local unit said in a note today. Herczenik reiterated his “hold” recommendation for the stock.

Mol shares gained 180 forint, or 1 percent, to 18,780 forint by 9:05 a.m. in Budapest. The stock has advanced 10.3 percent this year, compared with a 7.1 percent rise in the benchmark BUX index.

Mol’s refining unit will “definitely” turn profitable this year, Molnar said. The company reported an operating loss of 2.8 billion forint at the refining and marketing segment, dragged down by an operating loss of 11.9 billion at the Croatian subsidiary Ina Industrija Nafte d.d.

The European debt crisis engulfing the continent has a limited impact on Mol’s operations as the company has a “stable” liquidity position and doesn’t need new financing, Molnar said.

--Editors: James Kraus, James Cone

To contact the reporter on this story: Edith Balazs in Budapest at Ebalazs1@bloomberg.net.

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net