Saras swings back to profit

City A.M. Reporter
Italy’s third-biggest oil refiner Saras, squeezed by weak refining margins, yesterday said it was cutting production by more than 10 per cent to shore up profit.

Saras is also more than halving capital spending this year to help keep debt under control, said chief financial officer Corrado Costanzo.

The oil price rally to $80 (£50.8) a barrel is pinching margins for refiners in Europe, where fuel demand remains lacklustre. Many oil firms have been looking to sell European refineries since last year.

“The refining division remains in difficulty even if there are encouraging signs of improvement,” Saras chairman GianMarco Moratti said.

Saras is cutting third-quarter output to between 3.3m tonnes and 3.5m tonnes after a “very weak” start to refining margins in the period, it said. Run guidance for the third quarter had been 3.8-3.9m tonnes.

A Milan-based analyst said the results were in line with his predictions but Saras’s margin forecast of an EMC benchmark price of $1 to $1.50 a barrel for the rest of the year was weaker than expected.

“The output cut is weighing on the price and the margin is a bit lower than the market estimate,” he said.

Italy’s second largest refiner, ERG, forecast improvement last Friday in its refining and marketing business in the second half of the year, but said the outlook was still challenging.

Saras will invest less than €150m (£125m) this year, down from €317m spent in 2009, said Costanzo. “Our investments in 2011 will not be above what we did in 2010 and will probably be below,” he said.“We’re focused on keeping our gearing under control and we have the luxury of being able to postpone a series of investments,” he added.